- OPEC+ is meeting tomorrow to reaffirm members’ willingness to rollout further oil production cuts because of the current demand disruptions. The market is already responding, with WTI futures gaining 0.56% to $60.89 on Wednesday.
- Economic recovery expectations shield the INR from a strengthening US dollar, but rising covid cases could spoil the party.
- Wipeout of tourism is hurting tourism-dependent economies like Thailand, and their currencies are taking a massive flogging.
The Indian rupee (INR) is an unlikely victor in March after gaining against all regional rivals. However, spiraling coronavirus cases undermined the rupee’s strength and sent it tumbling starting early last week. In Tuesday intraday trading alone, the INR fell 1.45%, paring much of the month’s gains. However, the currency has put up strong defenses on Wednesday. The rupee was up 0.09% at the time of writing.
The March performance had injected some hope in the market that Asia’s worst-performing currency in 2020 would recover substantial ground against the dollar. However, reports indicate that the 2.3% loss registered in 2020 was primarily because of a massive reserve accumulation campaign by the Reserve Bank of India.
Oil Rebound Could Hurt the INR Even More
WTI crude futures were up 0.56% to $60.89 as of Wednesday 03:43 AM EDT on the back of expectations for a positive outcome in Thursday’s OPEC+ summit. The recovery looks shaky because the WTI declined 1.6% the previous day, a fact that inspires little confidence in the gains made today.
Nonetheless, higher oil prices will apply more pressure on the INR going ahead. Low prices had enabled the RBI to expect a current account surplus that would last into Q2 2021. If crude becomes any more expensive, the surplus might turn to a deficit as early this April.
The INR’s weakness is not all there is to the oil story. Over the past week, the oil market has endured a rough patch because of the Suez Canal blockage that has since been resolved. This disturbance played a huge role in strengthening the US dollar against currencies such as the INR. It appears tomorrow’s OPEC+ meeting is going to decide a lot of things in global markets.
China Registers Highest PMI So Far This Year
The USD/CNY was down 0.27% to 6.5542 as of Wednesday 04:29 AM EDT after a National Bureau of Statistics (NBS) report showing PMI for March as 51.9%. January PMI came in at 51.3% but dropped to 50.6% in February. The 1.3% gain for March affirms China’s expansionary trajectory that faltered by the least amount compared to all major economies in the past year.
However, today’s gains seem like a short respite for a pair headed for the uptrend. Since May 2020, the CNY has applied immense pressure on the dollar, especially with the Chinese economy doing well during a pandemic. But it seems the Biden government’s steps to return growth in the US economy are working to gain the greenback an upper hand.
In the figure above, the yuan appears to have started performing on the lows through February 2021. A recovering US economy and recovering Treasury yields are buoying the dollar, and if the current pace holds, the CNY might up for the worst performance month-on-month since August 2019. Although the RSI indicates a subsiding buying pressure, the pair extending gains through this week is possible.