Goldman: Underperformance, As Expected

Goldman Sachs note that “after outperforming the NJA FX selloff versus the USD for much of this year, in part on the back of aggressive intervention by the RBI, the INR has underperformed in recent weeks.”

• “To a large extent, this reflects a reversal of bearish sentiment on North Asia, particularly, the earlier than expected China reopening, with Indian stocks underperforming China equities even more sharply than the currency.”
• “We have argued that in bouts of USD weakness, the Rupee may underperform as the policy authorities attempt to rebuild reserves.”
• “In terms of domestic FX fundamentals, on the external balances front, India's merchandise trade deficit has increased in recent months driven mainly by an increase in oil imports and non-oil non-gold imports. Strong services export growth which has held up well despite weak demand in western economies has been an important offset to this.”
• In lieu of lower oil prices and a “hawkish” RBI, they suggest that “while some degree of underperformance may persist as the rotation towards North Asia extends, the speed of the move versus the USD is likely to slow, and we remain comfortable with our 3-month forecast of INR84 for USD/INR.”