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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
INR
USD/INR spot is tracking above 77.60 in early trade, the only currency within the region to falter against the USD today.
- Higher energy prices are likely presenting a headwind. The Bloomberg spot commodity energy index is now at fresh highs, see the first chart below. This has coincided with Brent crude pushing back above $117/bbl.
- Whilst India is importing large volumes of oil from Russia, which won't be inline with benchmark spot oil prices, we have seen the correlation between USD/INR and energy prices rising this year.
Fig 1: Global Energy Prices & USD/INR
Source: MNI - Market News/Bloomberg
- This is illustrated more clearly with the second chart, where the rolling 3 month and 6 month correlations between energy prices and USD/INR is plotted.
- The general trajectory for the correlations has been higher. As energy markets have become more supply driven, arguably this has become more of a headwind for INR. In 2020 and 2021 rising commodity prices tended to also reflect improving global demand conditions, which could have boosted Indian exports and cushioned the INR to a degree.
- Renewed strength in energy prices comes as USD/INR threatens to break higher. Spot has traded a tight range for the past few weeks, with likely RBI intervention capping moves into the 77.70-80 are.
- Earlier, RBI Governor Das stated that the central bank doesn't like run away depreciation pressures for the currency. Hence the RBI is unlikely to be targeting a specific level in USD/INR but rather the rate of change.
- In the current context though, the RBI may wish to avoid fresh USD/INR highs at a time when the broader USD has weakened.
- INR is likely to remain a laggard though compared to the rest of the EM Asia FX bloc.
Fig 2: Correlations Between USD/INR & Energy Prices
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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