USD/INR: Rupee Falls for Second Straight Day, Fed’s Powell Testimony Eyed

The Indian rupee slipped against the U.S. dollar for the second straight day on Tuesday as the domestic unit weighed down by greenback strength and high oil prices.

The USD/INR rose to an intraday high of 74.408 against the U.S. currency – the highest since April 28 – up from Monday’s close of 74.13. The rupee has lost over 184 paise so far this month and weakened about 26 paise in the last two trading sessions.

Indian Rupee may (trade) lower against the dollar as the greenback hovers around multi-month highs against other major currencies as Fed official Bullard added to expectations that US interest rates could rise sooner rather than later; although any sharp appreciation in the Rupee may be limited by persistent RBI intervention,” noted analyst at ICICI Bank.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.06% to 91.958. The dollar is expected to rise further over the coming year, largely driven by the Fed’s dot plot released last week, which suggested an expectation of two rate hikes in 2023.

US dollar remains firm amid rate hike concerns as the market was still pricing in the hawkish surprise from the US Federal Reserve. Investor focus will turn to Powell’s testimony for fresh guidance on the road ahead as far as US monetary policy is concerned,” ICICI Bank’s analyst added.

The Fed will remain in focus today as Federal Reserve Chairman Jerome Powell will testify on lessons learned from the central bank’s response to the COVID-19 pandemic. Investors will wait and watch if he confirms the hawkish guidance or takes a U-turn on faster tightening.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark equity indices ended 14.25 points or 0.03% higher at 52,588.71, while the broader NSE Nifty advanced 26.25 points or 0.17% to 15,772.75.

However, foreign institutional investors were net sellers in the capital market on Monday as they sold shares worth Rs 1,244.71 crore, as per provisional data. Global oil benchmark Brent futures fell 0.24% to $74.72 per barrel.

USD/INR: Rupee Extends Losses, Slips 24 Paise

The Indian rupee depreciated by nearly 24 paise against the U.S. dollar on Monday as the strong greenback and high oil prices continued to put pressure on the battered Asian currency.

The USD/INR rose to an intraday high of 74.326 against the U.S. currency – the highest since April 28 – up from Friday’s close of 74.1. The rupee has lost over 180 paise so far this month and weakened more than 100 paise in the last six trading sessions.

“…We believe the depreciation may continue in the short term and the US$INR pair should move higher towards 74.50 level,” noted research analyst at ICICI Direct.

“The US dollar/rupee pair formed a strong bull candle after holding its key support of 72 over two weeks, suggesting extended weakness for Rupee towards 75 levels. We expect the rupee to broadly consolidate in a range of 72-75 in the coming weeks. Only a decisive move below 72 would indicate extended gains for Rupee.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.35% to 91.905. The dollar is expected to rise further over the coming year, largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023.

USD remains better bid post-Fed’s hawkish tilt and on Bullard’s hawkish comments that he sees a case for rates to rise next year. Though USD strength was broad based, its magnitude was not even, with G7s more hit than AXJs,” noted an analyst at Maybank.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark equity indices ended 230.01 points or 0.44% higher at 52,574.46, while the broader NSE Nifty advanced 63.15 points or 0.4% to 15,746.50.

Foreign institutional investors were net buyers in the capital market on Friday as they purchased shares worth Rs 2,680.57 crore, as per provisional data.

On the other hand, global oil benchmark Brent futures rose 1.52% to $74.66 per barrel.

USD/INR: Rupee Snaps Eight-Day Losing Run

The Indian rupee snapped its eight-day losing streak on Friday, appreciating about 36 paise against the U.S. dollar, largely driven by stronger Asian currencies and lower oil prices.

The USD/INR fell to an intraday low of 73.798 against the U.S. currency from Thursday’s close of 74.162. The rupee has lost nearly 129 paise so far this month and weakened about 79 paise on a weekly basis.

“The Rupee had opened weak and weakened further through the session. Stops got triggered above 73.85, resulting in a brisk move to 74.10. Even post OTC close, USD/INR got bid up as offshore positioned for further Dollar strength,” noted analysts at IFA Global.

“Considering that recent such moves have been short-lived, we expect volatility dampening to happen quickly. We, therefore, do not see a trending move higher in USD/INR at this point. The USDINR pair is expected to trade with a neutral to bullish bias for the day.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.42% to 92.27. That was largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023.

DXY has seen a classic short squeeze – the trigger being that 7 of 18 FOMC members felt that a first-rate hike could come in 2022. Interestingly, the response has been felt harder in FX than US Treasury markets, where the search for carry still sees strong demand at the long end of the curve. You would say that the chances of a bond tantrum are less, but that movements at the shorter end of the US yield curve are a dollar positive – especially against the low yielders,” noted analysts at ING.

“The US data calendar is light in the week ahead, but there are several Federal Reserve speakers every day. The highlight may be Fed Chair Powell’s testimony to Congress on Tuesday. Let’s see whether the Fed is prepared to adopt any new language on tapering. Were views to coalesce around tapering actually starting in September – not December – the dollar could rally further.”

The benchmark equity indices also snapped a two-day losing session, closing 21.12 points or 0.04 percent higher at 52,344.45, while the broader NSE Nifty fell 8.05 points or 0.05 percent to 15,683.35.

On the other hand, global oil benchmark Brent futures fell 0.6% to $72.61 per barrel. However, foreign institutional investors were net sellers in the capital market on Thursday as they offloaded shares worth Rs 879.73 crore, as per provisional data.

USD/INR: Rupee Drops Most in Over Six Weeks, Breaches 74-Mark

The Indian rupee declined to its lowest in over six weeks on Thursday, depreciating by 97 paise against the U.S. dollar for the eighth straight day as the strong greenback and high oil prices put pressure on the battered Asian currency.

The USD/INR rose to an intraday high of 74.239 – hit its weakest since May 3 – against the U.S. currency from Wednesday’s close of 73.27. The rupee has lost nearly 178 paise so far this month and weakened 100 paise in the four trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.62% to 91.696. That was largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023. The U.S. benchmark 10-year Treasury yield jumped 7.5 basis points.

Other than the FOMC monetary policy statement, retail sales and industrial production data would be critical for investors and a better-than-expected release could support the mighty greenback.

The benchmark equity indices also ended lower for the second consecutive day, closing down 178.65 points or 0.34% lower at 52,323.33, while the broader NSE Nifty fell 76.15 points or 0.48% to 15,691.40.

On the other hand, global oil benchmark Brent futures fell 0.78% to $73.83 per barrel. Foreign institutional investors were net sellers in the capital market on Wednesday as they offloaded shares worth Rs 870.29 crore, as per provisional data.

“Sentiments remained frail as the recent recovery in the U.S., the world’s largest economy, and upbeat inflation data raised hopes over a slightly hawkish approach and potential interest rate hike,” noted Manish Pargi, currency analyst at Angel Broking.

“Bets on the shift in the monetary stance by the U.S. Central Bank gave strengthen to the U.S. currency. Strong demand for the dollar by importers and banks amid soaring crude oil prices undermined the domestic currency.”

Investors Trim Long Positions on Asian Currencies, Yuan Bets Halved

The 13 responses came in before the Federal Reserve’s policy meeting late on Wednesday where it stunned by signalling it might raise interest rates as early as 2023, a faster pace than initially assumed.

Emerging markets in the past have not fared well with the prospect of U.S. interest rate hikes, and with the Fed opening the door to an accelerated timetable to wean off pandemic-driven monetary stimulus, it could suck funds out of riskier assets and force Asia’s central banks to tighten quicker.

For now, investors remain largely bullish on emerging currencies in Asia, with long bets on the Taiwan dollar and Indonesian rupiah slightly raised from two weeks ago.

The central banks of both countries meet later on Thursday and are expected to leave policy rates unchanged at record lows, but may offer more commentary on their own timetable and economic outlook in light of the Fed’s hawkish shift.

Taiwan’s dollar has appreciated sharply since late March as the economy booms on the work-from-home trend fuelling global demand for tech.

Bank Indonesia’s governor has promised to keep rates low and liquidity in abundance until there is inflationary pressure, but also warned that local bond markets – susceptible to foreign flows – may be impacted by U.S. policy shifts.

Long bets on the rupiah were at their highest since February.

The Fed’s hawkish messaging sent the U.S. dollar to its highest level in around two months and resulted in declines across Asia’s currency space on Thursday, including a more than 0.5% drop by the rupiah.

Emerging markets “will face material headwinds over the next several months” and “will likely sell off in absolute terms and will underperform their DM (developed market) peers,” said Arthur Budaghyan, chief emerging markets strategist at BCA Research.

Broadly, long bets on China’s yuan were lowered after they hit a six-month high in the last poll. It follows the central bank stepping in to warn against speculative bets on the currency after its recent rally.

ING, in a note, said the yuan’s rise will slow from now on.

Bullish bets on the Singapore dollar, South Korean won and Philippine peso were all trimmed.

For the Indian rupee, a strong performer in May, long bets were also lowered.

The “significant hit to economic confidence in the second wave suggests the recovery is going to be delayed,” analysts at ING said, adding that it will cap any significant upside in the rupee.

The Asian currency positioning poll is focused on what market participants believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Shailesh Kuber)

 

USD/INR: Rupee Falls for Seventh Straight Session Ahead of Fed Decision

The Indian rupee dipped against the U.S. dollar for the seventh straight day on Wednesday ahead of the conclusion to the Federal Reserve’s monetary policy decision.

The USD/INR rose to an intraday high of 73.3890 – hit its weakest since May 14 – against the U.S. currency from Tuesday’s close of 73.35. The rupee has lost 88 paise so far this month and weakened 60 paise in the seven trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.02% to 90.515. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year in May– the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

“Sentiments remained frail as the recent recovery in the US, the world’s largest economy, and upbeat inflation data raised hopes over a slightly hawkish approach and potential interest rate hike. Bets on shift in the monetary stance by the US Central Bank gave strengthen to the US currency. Strong demand for the dollar by importers and banks amid soaring Crude Oil prices undermined the domestic currency,” noted Manish Pargi, currency analyst at Angel Broking.

The benchmark BSE Sensex index ended down 271.07 points or 0.51% lower at 52,501.98, while the broader NSE Nifty fell 101.70 points or 0.64% to 15,767.55.

On the other hand, global oil benchmark Brent futures rose 0.27% to $74.19 per barrel. However, foreign institutional investors were net buyers in the capital market on Tuesday as they offloaded shares worth Rs 633.69 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two weeks. The USD/INR is expected to rise about 1% to INR 74.00 against the U.S. dollar rate over the coming year.

USD/INR: Rupee Extends Losses for Sixth Straight Session, Hits One-Month Low

The Indian rupee fell to a one-month low against the U.S. dollar on Tuesday, depreciating for the sixth straight day as rising oil prices weighed on the currency despite strength in domestic equity markets.

The USD/INR to an intraday high of 73.3730 – hit its weakest since May 14 – against the U.S. currency from the Monday’s close of 73.18. The rupee has lost 86 paise so far this month and weakened 51 paise in the six trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.07% to 90.587. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index ended up 221.52 points, or 0.42% higher at 52,773.05, while the broader NSE Nifty advanced 57.40 points or 0.36% to close at 15,869.25.

On the other hand, global oil benchmark Brent futures rose 0.43% to $73.17 per barrel. However, foreign institutional investors were net sellers in the capital market on Monday as they offloaded shares worth Rs 503.51 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two week. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

Indian Rupee is expected to trade with negative bias amid strong dollar, surge in crude oil prices and disappointing macroeconomic data. India CPI data showed inflation accelerated by 6.3% in May 2021 compared to 4.23% in April 2021. Inflation breached the Reserve Bank of India’s target range of 2-6% for first time in 5 months. Further, market participants fear that the second wave of covid-19 infection in India has dampened the expectation of quick economic recovery,” noted analysts at Sharekhan BNP Paribas.

“Furthermore, traders will remain cautious ahead of US FOMC meeting outcome and economic projections. However, sharp fall may be prevented as number of COVID-19 cases in India continued to decline. India reported daily new covid-19 cases below 1 lakh for 7th consecutive day. USDINR spot expected to trade in a range between 72.90 on lower side to 73.40 on higher side with an upward trend.”

USD/INR Posts Longest Daily Losing Streak in Over Two Months

The Indian rupee depreciated against the U.S. dollar for the fifth straight day on Monday as rising oil prices weighed on the currency despite strength in domestic equity markets.

The USD/INR rose to an intraday high of 73.2910 against the U.S. currency from Friday’s close of 73.24. The rupee has lost 49 paise in the last five trading sessions – its longest losing streak in more than two months.

“The Indian Rupee declined further amid dollar demand. USD/INR pair settled 0.55% higher at 73.24.  The US dollar/rupee pair formed an inside bar indicating breather for rupee near strong hurdle placed at 72 levels over past six months,” Dharmesh Shah, Head – Technical, ICICI direct

“We expect the rupee to take a breather around 72-mark and consolidate in 72- 74 band. Only a decisive move below 72 would indicate extended gains for the rupee.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.12% to 90.45. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index up 76.77 points, or 0.15% higher at 52,551.53, while the broader NSE Nifty gained 12.50 points or 0.08% to close at 15,811.85.

On the other hand, global oil benchmark Brent futures rose 0.94% to $73.36 per barrel. Foreign institutional investors were net buyers in the capital market on Friday as they purchased shares worth Rs 18.64 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two weeks. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

The domestic currency remained under pressure as the RBI slashed India’s growth projections down to 9.5 percent from the earlier evaluation of 10.5 due to the ongoing pandemic. Sentiments were further hampered after the World Bank axed India’s GDP projections to 8.3 percent for FY22, down from the earlier forecast of 10 percent,” noted currency analyst at Angel Broking.

“Steady increase in Oil prices, widening trade deficit and imports triggered inflation in India also added to the downside. However, bets on paced recovery in global economies and an accommodative stance by the US Federal Reserve limited the gains for the US Dollar. The Indian Rupee also found some support after the exports in the first week on June’21 stood at $7.71 billion, higher by 52.4 percent. The Indian Rupee might remain under pressure in the days ahead following the increase in demand for the Dollar in the global markets.”

USD/INR: Rupee Extends Losses for Fourth Straight Session

The Indian rupee depreciated against the U.S. dollar for the fourth straight day on Friday as a stronger greenback weighed on the currency despite strength in domestic equity markets.

The USD/INR rose to an intraday high of 73.1650 against the U.S. currency from Thursday’s close of 73.07. The domestic currency has lost 27 paise in the last four sessions.

The rupee June futures has support at 72.70 and breaking of the same will open for 72.40 while on higher side 73.30 remains the resistance.

“As reflected in May trade data, INR seems to be supported by the collapse in domestic demand, which improves the current account, as we saw last year. The equity outflows are ongoing but the size is relatively small. We believe that INR is likely to underperform given the RBI’s dovishness and its preference for a weaker currency,” noted FX analysts at Morgan Stanley.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.33% to 90.37. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index up 174.29 points or 0.33% at 52,474.76, while the broader NSE Nifty rose 61.60 points or 0.39% to 15,799.35.

On the other hand, global oil benchmark Brent futures rose 0.35% to $72.61 per barrel. Foreign institutional investors were net buyers in the capital market on Thursday as they purchased shares worth Rs 1,329.7 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last week, its biggest decline in six weeks. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

USD/INR: Rupee Skids for Third Straight Day, Nearing a Key Resistance Level 73.30

The Indian rupee depreciated by nearly 15 paise against the U.S. dollar for the third straight day on Thursday despite strength in domestic equity markets, but a rise in U.S. inflation would put further pressure on the battered Asian currency.

The USD/INR breached the 73-mark, rinsing to an intraday high of 73.124 against the U.S. currency from Wednesday’s close of 72.98. The domestic currency has lost 26 paise in the last three trading sessions.

The rupee June futures has support at 72.70 and breaking of the same will open for 72.40 while on the higher side 73.30 remains the resistance.

USD/INR will likely stay in a descending triangle in the weeks ahead, considering uncertainties surrounding the Fed’s future monetary policy path. Meanwhile, we are keeping a close eye on market conditions, and will sell USD/INR spot with a target of 70.5 and a stop of 73.2 if the pair firmly falls below the 72.3 horizontal trend line of the triangle,” noted Qi Gao, Asia FX strategist at Scotiabank.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose to a high of 90.282. The index will rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index up 358.83 points or 0.69% higher at 52,300.47, while the broader NSE Nifty rose 102.40 points or 0.65% to 15,737.75.

On the other hand, global oil benchmark Brent futures rose 0.8% to $72.79 per barrel. Foreign institutional investors were net buyers in the capital market on Thursday as they purchased shares worth Rs 1,329.7 crore, as per exchange data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last week, its biggest decline in six weeks. The USD/INR is expected to rise about 2% to INR 74.00 against the U.S. dollar rate over the coming year.

USD/INR: Rupee Falls for Second Straight Day

The Indian rupee slipped against the U.S. dollar for the second straight day on Wednesday amid weakness in domestic equity markets, which fell from record highs due to losses in energy and financial stocks.

The USD/INR rose to an intraday high of 73.0150 against the U.S. currency from Tuesday’s close of 72.95. The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.09% to 89.99.

The Indian equity markets erased their early morning gains and settled lower on Wednesday, largely due to losses in Financial and Auto sector stocks. The benchmark BSE Sensex index fell 333.93 points or 0.64% to 51,941.64, while the Nifty-50 dipped 104.70 points 0.67% to 15,635.40.

On the other hand, the global oil benchmark Brent futures rose 0.51% to $72.59 per barrel. Foreign institutional investors were net buyers in the capital market on Tuesday as they purchased shares worth Rs 1,422.71 crore, as per exchange data.

Indian Rupee is expected to trade with negative bias on risk aversion in the domestic markets, strong dollar and surge in crude oil prices. Additionally, Reserve Bank of India kept its interest rates unchanged for the sixth consecutive monetary policies meet and downgraded its outlook on economy. Further, traders will remain cautious ahead of macroeconomic data, inflation data from US and outcome of Major Central Banks monetary policies around the globe,” noted analysts at Sharekhan.

“However, sharp downside in Rupee may be prevented as number of COVID-19 cases in India continued to decline. India reported daily new COVID-19 cases below 1 lakh. In India number of COVID-19 cases exceeded 2.9Cr and deaths more than 3.51L. USDINR spot expected to trade in a range between 72.75 on lower side to 73.25 on higher side with upward trend.”

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last week, its biggest decline in six weeks. The USD/INR is expected to rise about 2% to INR 74.00 against the U.S. dollar rate over the coming year, up from INR 72.00 seen on Monday.

USD/INR Outlook: No Relief for Battered Rupee, Likely to Weaken Against Dollar

There will be no respite for the battered Indian rupee over the coming year as surging COVID-19 cases amid timid economic recovery and deteriorating external position will pose downside risks.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last week, its biggest decline in six weeks. The USD/INR is expected to rise about 2% to INR 74.00 against the U.S. dollar rate over the coming year, up from INR 72.00 seen on Monday.

“Various factors have aligned against the rupee. Not only a steep rise in COVID-19 case numbers, but seasonal weakness and a worsening external position have also come to the fore. Downside risks have risen to our conservative GDP growth forecast of 10% in FY22 (ending March 2022),” noted Daniel Been, head of FX and G3 research at ANZ.

“While a national lockdown has been averted so far, various local lockdowns are in place in many states till early May, with a high possibility of extensions. In addition, the solid set of external data is behind us. The trade deficit has materially risen in the past two to three months on higher oil and gold imports, and the current account registered a small deficit in the December quarter.”

With the resurgence of COVID-19 cases posing the biggest risk to the nascent economic recovery, several economists have downgraded their outlook for Asia’s third largest’s GDP growth for the ongoing fiscal year.

But the recent rise in the country’s imports and a jump in dollar interest rates could hurt the rupee. Additionally, sluggish economic recovery and surge in dollar demand due to a rise in inflation expectations and bond yields could also push the rupee lower.

“Looking forward, we believe the currency outlook is poised to remain
stable with a slight appreciation bias against the US dollar, but risks to this
view remain strongly tilted to the downside,” noted Olivia Alvarez Mendez, FX Market Analyst at Monex Europe.

Last week, the Reserve Bank of India maintained a dovish stance, and governor Shaktikanta Das said that the central bank would keep the view unchanged to revive growth.

That would keep the Indian rupee weighed down against the mighty dollar at least throughout this year.

Revival of Private Demand Key for Indian Economic Recovery, Says Rbi

By Swati Bhat

In its annual report, the central bank said the country’s growth prospects now essentially depend on how fast India can arrest its second wave of COVID-19 infections.

“For a self-sustaining GDP growth trajectory post-COVID-19, a durable revival in private consumption and investment demand together would be critical as they account for around 85 per cent of GDP,” RBI said.

“Typically, post-crisis recoveries have been led more by consumption than investment; however, investment-led recoveries can be more sustainable and can also lift consumption in parts by better job creation,” it added.

India on Thursday posted 211,298 new coronavirus cases over the past 24 hours, while deaths from COVID-19 rose by 3,847.

RBI said central and state government deficits could rise when revised estimates are released and high levels of deficit and debt could pose challenges in financing once private investment picks up.

RBI said its balance sheet increased by 6.99% in FY21 to 57.08 trillion rupees ($785.7 billion), mainly reflecting its liquidity and foreign exchange operations. The bank’s income decreased by 10.96% but its expenditure also fell by 63.10%, it said.

The central bank reported net gains of 506.29 billion rupees from its foreign exchange transactions in FY21 as against 29.993 billion rupees in FY20, a key contributor to the 73.5% higher surplus transfer to the government last week apart from its higher interest income.

RBI’s board approved a significantly higher than expected surplus transfer of 991.22 billion rupees to the government last Friday, but it may not be enough to cushion the damage from a crippling second wave of the novel coronavirus.

RBI added that reform measures in various areas were likely to improve India’s growth potential on a sustainable basis.

($1 = 72.6450 Indian rupees)

(Reporting by Swati Bhat, Nupur Anand and Manoj Kumar; Editing by Jacqueline Wong)

India Denies Asking State Banks to Withdraw Cash Held Abroad over Cairn Dispute

London-listed Cairn is involved in a long-drawn out tussle with the Indian government over tax claims and was awarded damages of more than $1.2 billion by an international tribunal late last year.

New Delhi has filed an appeal against the decision it calls “highly flawed”.

Citing government officials and a banker, Reuters and other media reported on May 6 that the finance ministry had asked state-run banks to withdraw the foreign funds on concern that courts abroad could order that assets in their jurisdiction – including bank accounts – be remitted to Cairn.

The ministry, which gave no comment at the time, called the reports “false” in a statement on Sunday, saying no such instructions had been issued.

“Government of India is vigorously defending its case in this legal dispute … Constructive discussions have been held and the Government remains open for an amicable solution to the dispute,” the statement said.

Separately this month, Cairn also sued India’s flagship carrier Air India to enforce the arbitration award, according to a U.S. District Court filing reviewed by Reuters.

The international tribunal had ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and awarded Cairn damages of $1.2 billion-plus interest and costs.

Indian authorities in 2014 had demanded 102 billion rupees ($1.4 billion) from Cairn for taxes it said were owed on capital gains related to the 2007 listing of the company’s local unit.

“The Government has raised several arguments that warrant setting aside of the award,” the finance ministry’s statement on Sunday said.

(Reporting by Devjyot Ghoshal; editing by Emelia Sithole-Matarise)

India Central Bank Gives Small Borrowers Debt Relief as COVID-19 Cases Spike

By Swati Bhat and Nupur Anand

The moratorium will be available to individuals and small and medium enterprises that did not restructure their loans in 2020 and were classified as standard accounts till March 2021, Reserve Bank of India Governor Shaktikanta Das said in a virtual address.

“Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections,” Das said, as he announced several measures to enhance liquidity and boost lending to various needy sectors.

The fresh round of moratoriums will be applicable for borrowers with a maximum total exposure of 250 million rupees ($3.39 million), Das said.

During the last financial year, the RBI had introduced a one-time restructuring plan for small borrowers and corporates allowing banks to extend the repayment period for up to two years.

Businesses in India have been hit hard by the new round of lockdowns over the past month to curb the spread of the virus just as many were inching back to normalcy from the nationwide lockdown last year.

The RBI also announced a special on-tap liquidity window of up to 500 billion rupees for banks to lend to the health care sector with tenors up to three years at the repo rate and will be available until March 31, 2022.

The central bank said banks will need to maintain a COVID loan book under the scheme and will also get a 40 basis point higher return over the reverse repo rate on surplus funds parked with the central bank, to the extent of disbursed loans.

In order to incentivise banks, RBI has allowed lenders to classify these as priority sector loans (PSL) which provide additional benefits.

India recorded 382,315 new infections over the last 24 hours to reach a total of 20.67 million, while deaths rose by a record 3,780 to 226,188, health ministry data showed. Experts say actual numbers could be five to 10 times higher.

Among other measures, the RBI announced a special 3-year long-term repo operation of 100 billion rupees for small finance banks (SFB), saying lending by SFBs to microfinance institutions can be classified as priority sector and also allowed banks to maintain lower reserves for advances made to small borrowers.

“The smaller entities like micro finance institutions also benefit from the current package, which will bring some relief to them too which is one of the worst affected sectors as of now,” said Joseph Thomas, head of research at Emkay Wealth Management.

The RBI also relaxed overdraft guidelines for state governments and said banks can utilise their countercyclical provisioning buffers held by them as of Dec. 31, 2020 to make provisions for non-performing assets with prior board approval.

Last year, the central bank declared a moratorium for a total of six months for all borrowers.

($1 = 73.8 Indian rupees)

(Additional reporting by Abhirup Roy; Editing by Jacqueline Wong)

India April Trade Deficit at $15.24 Billion

Merchandise exports rose to $30.21 billion for the month from $10.17 billion a year earlier, while imports rose to $45.45 billion from $17.09 billion, the data showed.

Last year India was under a strict national lockdown to curb the spread of the coronavirus, leading to a significant reduction in international trade volumes.

(Reporting by Aftab Ahmed; Editing by Tom Hogue)

India to Set Up Development Finance Body for Infrastructure

In her budget for the financial year 2021/22, Finance Minister Nirmala Sitharaman designated 200 billion rupees ($2.8 billion) for such a body, aiming to help fund a proposed $1.5 trillion in infrastructure projects.

“I expect the institution to raise up to 3 trillion rupees in the next few years,” Sitharaman told reporters after a cabinet meeting, referring to a figure equivalent to $41.4 billion.

She said initially the new institution would be government-owned, with its stake being cut gradually to 26%.

The DFI would seek to raise funds from global pension and insurance sectors for investment in new projects, carrying certain tax benefits, she added.

In the last five years, India has added more than 45,000 km (28,000 miles) of national highways to link major industrial hubs, while doubling capacity at ports and adding nearly 100 GW of power generation capacity for a total of 374 GW.

It aims to cut logistics costs to about 8% of GDP from roughly 14% now, in an effort to help hundreds of companies save on transport costs and boost sales once demand picks up.

(Reporting by Aftab Ahmed and Manoj Kumar and Louise Heavens; Editing by Clarence Fernandez)

Asia Market: The Future Looks Bright, but the Moment is Hell

MARKET HIGHLIGHTS:

  • Despite the S&P’s biggest down day since October, the future looks bright
  • Risk-off panic becomes increasingly self-fulfilling
  • Fed meets market’s expectations i.e. no taper
  • In the face of risk-off Armageddon, oil prices remain well supported
  • Gold is down and remains stuck in a tight range

MARKETS

The S&P was down 2½% heading into the close – the biggest down day since October. Nerves about vaccine rollouts weighed on sentiment and significant volatility among some stocks targeted by retail investors.

Yes, the future looks bright, but the moment is hell.

It’s been a gruelling 24 hours as turmoil reigned over equity markets with reopening narratives getting pushed back well into Q2 due to messed up vaccination and rollout strategies. And, adding to investor pain, there are worries around a subtle hawkish shift in policy from the PBoC. And to rub even more salt in the wounds, macro markets went into complete flux mode on reports that ECB officials believe markets are underestimating the chances of a rate cut spurring desynchronized global growth fears.

Investors had been optimistically shooting for a Spring Break reopening, hoping Governments would start lifting restrictions on economic life once the most vulnerable 20-25% of the population are vaccinated. For now, at this stage of the rollout game that’s little more than a pipe dream. Delays in the rollout of Covid-19 vaccines, coupled with lingering lockdown measures, marked a malocchio of the market’s worst held fears.

Vaccine distribution is the most crucial deliverable to get out of this mess.

And while the US stimulus debate is taking the second chair to the vaccine rollouts, a break in the bi-partisan impasse, or even by the reconciliation process could come at a most welcome time.

VAR meltdowns are the worst of all panic events

In a most unvirtuous circle, the risk-off panic became increasingly self-fulfilling as risk control mechanisms kicked in when early covering in consensus shorts, at massive losses mind you, then gave way to selling high flying technology longs from the Hedge Fund community, in the main to cover margin calls triggering a cascading house of pain effect across broader markets.

We remain in a market dominated by risk-on risk-off proclivities, and even more so as we reach peak vaccine impulse melding with incredibly uncertain economic outlook – not to mention being near the end of the fiscal runway. Still, we’re 100 % landlocked in a liquidity-driven environment where all boats rise with YTD performance of US equities and US dollar lower, all suggesting significant co-movement between risk-on asset classes.

It would be easy to codify the rise in risky asset classes since the post-election risk premiums evaporated simply as risk-on. But, of course, the more significant characteristic has been the rotation within asset classes towards the YTD laggards and ‘reopening’ sectors across the board.

So, a negative view on any one of these risk-on asset classes will almost inevitably also lead to negative opinions across the entire risk-on spectrum, including cyclical commodity prices like oil. Any further headline disappointment, be it vaccine rollout or even US stimulus, could prompt further de-risking over the coming days, despite the still-intact longer-term bull narrative.

I’ve been cautious on markets over the last week and remain so. It always feels horrible to be part of a broader camp looking for a more significant selloff, and it seems with everyone looking for an equity market pullback, their wishes did come true. But it won’t be easy to get back in the saddle with any conviction until the vaccine distribution mess gets sorted as it delays everyone’s plans for a brighter day.

While recent Covid-19 news and snail-paced vaccine rollouts have been horrifyingly discouraging, the big picture does not change in terms of markets outlook. Namely, an unprecedented amount of monetary and fiscal stimulus, a structural shift towards much more spending, a potentially unmatched economic rebound – whether starting in Q2 or Q3 – and a reasonable chance of inflation for the first time in several decades. Once the systematic correction gives way, things could brighten up again.

As we move back into the “look through” trade environment, supported by monetary and fiscal puts, investors are quickly rediscovering that not all growth assets are created equal in a Covid downtrodden economic climate, and the forever fickle FX market is testament to the thesis that nothing goes up in a straight line.

FOMC

As the markets had widely expected, the Fed made very few changes to the statement. But for investors’ concerns, relevant messaging can be summed up as a single-issue event: no taper. Fed Chair Powell looks to have come with the express intention of conveying just that one message.

However, on the drop of time around coronavirus risk in the Fed statement (they dropped “medium-term”), Powell said they did that because in their view there are vaccinations now. So if there’s one hawkish feature to this press conference, this is it.

The sole reason for the massive balance sheet expansion – Covid-19– will be mostly gone in 6-9 months. And since monetary policy works with long and varying lags, it is, or rather will soon be, time for central bankers to consider policy normalization.

OIL MARKETS

In the face of risk-off Armageddon, oil prices – thankfully for broader markets – remain well supported due to OPEC’s dogged determination to stay in damage control mode, adjusting supply constraints to alleviate the projected oil demand level attrition in Q1.

And mercifully for risk markets, not just oil bulls, crude stocks were down 9.9Mb, bullish vs consensus for a +0.4Mb build in crude, the five-year average of +4.5Mb and more significant than the -5.3Mb draw reported by the API yesterday.

Because stocks are in the midst of a VAR type meltdown, oil prices aren’t necessarily as exposed to the market’s risk-on risk-off proclivity around Game Stop and High Tech de-grossing. But oil prices do remain precariously perched and extremely sensitive to any news about snail-paced vaccine rollout.

Perhaps one factor that has been slightly unnoticed is the substantial rise in energy prices and cyclical commodity prices triggered by expectations of a hyper reflationary environment over the next twelve months and has resulted in a significant increase in market-based inflation expectations, where this unmistakable reflationary exuberance was getting expressed in FX.

The broad recovery in risk assets via oil prices since November has not only affected market-based inflation expectations but boosted every asset class on the street.

I think “risk markets” can thank their lucky stars that Saudi Arabia’s crystal ball outlook was clear as a whistle, and their proactive production cut measure buttressed investors from a more significant meltdown.

FOREX MARKETS

The global FX market went into a defensive posture, expressing and hedging the risk-off views through high beta to risk currencies. Given the Canadian dollar’s tight correlation to the S&P 500, the Lonnie quickly became a favoured short form both hedgers and speculators.

The stars aligned for EURO bears as the single currency was simultaneous getting hit with the risk-off ugly stick, overtly dovish ECB member chatter and extended EU lockdowns. But this all-over-the-place communication from the European Central Bank suggests some manoeuvring is going on behind the scenes and doesn’t put ECB President Christine Lagarde in a favourable light.

EURUSD is bounced off 1.2050 support for now as the shift to negative rates remains unlikely given what would happen to the banking system. That being said, the ECB’s verbal currency threats haven’t explicitly included their method for pushing back before, so the odds of a rate cut have gone up ever so slightly.

EM stocks and currencies struggle under the weight of snail-paced vaccination rollouts, both domestically and in the developed market, driving US dollar safe-haven demand.

In USDAsia, some USD buying has gone through the market since New York opened after a relatively quiet, tight-ranged session in Asia. Flow-wise, there has been some buying of USDIDR, USDPHP, USDKRW and USDCNH in social size and small two-way interest in USDINR.

The ringgit and the rest of Asia FX remain ensnared in relatively tight ranges as the big picture does not change its outlook. Namely, an unprecedented amount of monetary and fiscal stimulus. A structural shift towards much more spending, a potentially unmatched economic rebound – whether starting in Q2 or Q3 – and a reasonable chance of inflation for the first time in several decades

GOLD MARKETS

With the FOMC only holding the interest course, it wasn’t enough to boost gold, especially in the face of a more robust “safe-haven demand” for the US dollar. Compounding matters, gold is getting sold again, albeit lightly to cover margin calls weighing on sentiment.

Although gold is down, we remain stuck in a tight range. Still, the trend is looking less and less constructive, as the yellow metal struggles to recover from the selloff that took place at the start of the year, and with the historically bullish January seasonality soon to be taken out of the equation.

For a look at all of today’s economic events, check out our economic calendar.

Week Ahead – Market Recovery Under Threat?

The New Normal

This could be a sign of the fragility that remains in the markets but then, the NASDAQ hit new record highs in each of the prior four days and breached 10,000 for the first time ever. This comes before the end of what could be the worst quarter in a century for the economy. Incredible.

Speculation around new waves of coronavirus cases is going nowhere any time soon, as countries look to reopen their economies and save businesses and jobs. But next week also brings a plethora of interest rate decisions as well which means more rate cuts and more asset purchases. In other words, more fuel for the fire. The disconnect between the markets and the global economy isn’t going to improve any time soon.

Key Economic Releases and Events

Monday 15th June

Time (UK) Country Indicator Name Period
00:01 United Kingdom House Price Rightmove MM May
03:00 China (Mainland) Urban Investment (YTD)YY May
03:00 China (Mainland) Industrial Output YY May
03:00 China (Mainland) Retail Sales YY May
03:30 Singapore Unemployment Rate Final SA Q1
Indonesia Trade Balance (Bln of $) May

Tuesday 16th June

07:00 United Kingdom Claimant Count Unem Chng May
07:00 United Kingdom ILO Unemployment Rate Apr
07:00 United Kingdom Employment Change Apr
07:00 United Kingdom Avg Wk Earnings 3M YY Apr
07:00 United Kingdom Avg Earnings (Ex-Bonus) Apr
09:30 Hong Kong Unemployment Rate May
10:00 Germany ZEW Economic Sentiment Jun
13:30 United States Retail Sales Ex-Autos MM May
13:30 United States Retail Sales MM May
13:30 United States Retail Ex Gas/Autos May
14:00 Russia Industrial Output May
14:15 United States Industrial Production MM May
14:15 United States Capacity Utilization SA May
14:15 United States Industrial Production YoY May
15:00 United States Business Inventories MM Apr
21:30 United States API weekly crude stocks 8 Jun, w/e
Japan JP BOJ Rate Decision 16 Jun

Wednesday 17th June

00:50 Japan Trade Balance Total Yen May
01:30 Singapore Non-Oil Exports MM May
01:30 Singapore Non-Oil Exports YY May
07:00 United Kingdom Core CPI YY May
07:00 United Kingdom CPI YY May
08:30 Sweden Unemployment Rate May
08:30 Sweden Total Employment May
10:00 Euro Zone Construction Output MM Apr
10:00 Euro Zone HICP Final MM May
10:00 Euro Zone HICP Final YY May
12:00 South Africa Retail Sales YY Mar
13:30 United States Building Permits: Number May
13:30 United States Housing Starts Number May
13:30 Canada CPI Inflation MM May
13:30 Canada CPI Inflation YY May
14:00 Russia GDP YY Quarterly Revised Q4
15:30 United States EIA Weekly Crude Stocks 12 Jun, w/e
23:45 New Zealand GDP Prod Based QQ, SA Q1
23:45 New Zealand GDP Prod Based YY, SA Q1
23:45 New Zealand GDP Prod Based, Ann Avg Q1
23:45 New Zealand GDP Exp Based QQ, SA Q1

Thursday 18th June

02:30 Australia Employment May
02:30 Australia Full Time Employment May
02:30 Australia Participation Rate May
02:30 Australia Unemployment Rate May
08:30 Switzerland SNB Policy Rate Q2
09:00 Norway Key Policy Rate 18 Jun
12:00 United Kingdom BOE Bank Rate Jun
12:00 United Kingdom Asset Purchase Prog Jun
12:00 United Kingdom GB BOE QE Gilts Jun
12:00 United Kingdom GB BOE QE Corp Jun
12:00 United Kingdom BOE MPC Vote Hike Jun
12:00 United Kingdom BOE MPC Vote Unchanged Jun
12:00 United Kingdom BOE MPC Vote Cut Jun
13:30 United States Initial Jobless Claims 8 Jun, w/e
13:30 United States Jobless Claims 4-Wk Avg 8 Jun, w/e
13:30 United States Continued Jobless Claims 1 Jun, w/e
13:30 United States Philly Fed Business Indx Jun
14:00 Russia Cbank Wkly Reserves 8 Jun, w/e
15:00 United States Leading Index Chg MM May
Indonesia 7-Day Reverse Repo Jun
Indonesia Deposit Facility Rate Jun
Indonesia Lending Facility Rate Jun

Friday 19th June

00:30 Japan CPI, Core Nationwide YY May
00:30 Japan CPI, Overall Nationwide May
07:00 United Kingdom Retail Sales MM May
07:00 United Kingdom Retail Sales Ex-Fuel MM May
07:00 United Kingdom Retail Sales YY May
07:00 United Kingdom Retail Sales Ex-Fuel YY May
11:30 Russia Central bank key rate Jun
13:30 Canada Retail Sales MM Apr
13:30 Canada Retail Sales Ex-Autos MM Apr
Russia GDP YY Monthly May
Russia Retail Sales YY May
Russia Unemployment Rate May
Russia Real Wages YY Apr

Country

US

It seems a second wave of the coronavirus is hitting the US and could very well derail a lot of the reopening momentum that was taking place.  As states reopen and Americans return to pre-pandemic behavior, it is expected that a rise in new coronavirus cases would occur.

The White House is convinced they have yet to see any relationship between reopening and increased cases.  If hospitalizations continue to increase, you could see many individuals decide to remain a part of the stay-at-home economy.  If the virus spread intensifies, restrictions will be tightened and that will put a damper on the economic recovery prospects.

On Tuesday, Fed Chair Powell will follow his downbeat FOMC presser with his semi-annual monetary policy report to the Senate Banking Committee.  With little time between events, it is unlikely for Powell to deviate from Wednesday’s rate decision.  Traders will also pay close attention to the release of US retail sales, which is expected to show a rebound from the record low seen in April.

US Politics

Economic jitters and virus concerns will likely push the Trump administration into supporting a second round of stimulus payments for Americans.  Coronavirus relief talks were not supposed to happen until late July, but that should change given the recent jump in cases throughout the country.

On Friday, President Trump returns to the campaign trail in Oklahoma, his first live rally since March.

Democrats are eagerly awaiting former-VP Biden’s decision on his running mate.  Prior to COVID-19, the Democratic National Convention was originally scheduled in July, meaning we should have found out his decision by June.  Since the convention was delayed till August 17th, he will have more time to evaluate his candidates.  Biden will turn 78 a few weeks after the election, so his VP selection will be critical for many voters.

UK

The UK experienced its sharpest contraction on record in April, the first full month of the lockdown. The economy contracted by 20.4% at the start of the second quarter which is expected to be the worst month of the three.

Next week the Bank of England is expected to increase its bond buying in response to the pandemic, with £100-200 billion added to its quantitative easing program. This comes as government borrowing spikes to fund the crisis which would have otherwise risked pushing up borrowing costs.

Brexit

High level talks between Boris Johnson and Ursula Von Der Leyen are expected to take place next week, possibly as early as Monday, as the two sides look to reconcile the significant differences ahead of the 31 December transition expiry. As it stands, no deal is the default and the UK is expected to formally rule out an extension once again. We’ve seen this all before though and compromise tends to come late in the day. Still, business could very much do without this in a pandemic year.

Russia

The Central Bank of Russia is expected to cut interest rates by 50-100 basis points when it meets next week, from 5.5% where it currently stands. Like many others, the economy has been ravaged by the coronavirus crisis and contracted 12% in April, and May is not expected to be any better.

Switzerland

The SNB is not expected to cut interest rates next week, with the main policy rate remaining at -0.75%. The central bank is active in FX markets, with its holdings of foreign currencies recently rising above 800 billion Swiss francs – greater than the output of its economy – as it seeks to stop the currency rising too far as a result of safe haven flows. The central bank hasn’t set an official floor for the EURCHF pair – hopefully learning lessons of the past – but 1.05 is believed to represent the informal level.

Norway

The Norges Bank is not expected to cut interest rates next week, with the main policy rate currently sitting at 0%.

China

China Industrial Production (4.5%E) and Retail Sales (-2.0%E) on Monday. Poor number could see Asian markets weaken depending on Wall Street’s friday performance. Ongoing tensions with the US over HK, trade and Covid-19.

No other significant data this week.

Hong Kong

Protests have died down for now over the securities law. Possible resurgence this weekend. HSBC and Stan Chart under fire for backing China’s HK security law. No significant data this week.

India

Economy continues reopening but Covid-19 cases are spiking, markets negative. Standoff with China continues in the Himalayas but negotiations continue.

Australia

Australian stocks and Australian Dollar sold heavily on equity correction into the week’s end. Negative results on Friday for Wall Street should see that trend continue into the first part of the week. Australian markets are among most vulnerable to deep bull market correction. RBA minutes Tuesday. Will look for talk about negative interest rates.Potentially bullish for stocks. Unemployment Thursday (6.9% E) will drive intraday volatility. Otherwise what happens in the US will drive sentiment.

Japan

BOJ policy meeting Tuesday. Unchanged at -0.10% but looking out for more stimulus measures. Stocks positive. Tankan and Trade Balance Wednesday. Unlikely to impact markets. Markets will be led by Wall Street after sell-offs this week.

Market

Oil

Oil didn’t escape yesterday’s backlash, with crude falling more than 5% on apparent fears around rising case numbers. Again, we have to take this in the context of an asset class that has done rather well over the last couple of months. It’s been some rebound and I think some serious profit taking may have kicked in. It’s creeping higher again today but $40 may remain an upside barrier for WTI.

Gold

Gold has been range-bound for the last couple of months since it first tried to break $1,750 only to quickly run out of steam. It’s tried again a few times since, each as unsuccessful as the last, and it looks to be suffering the same fate again this time. It’s pushing a little higher again as it looks to capitalize on dollar weakness but we could see it run into difficulties once again, unless the greenback continues its journey south.

For a look at all of today’s economic events, check out our Economic Calendar.

Craig Erlam, Senior Currency Analyst at OANDA


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

India and U.S. to Sign Trade Deal – is a Free-Trade Agreement Next?

U.S. President Donald Trump has been busy on the international trade front in the New Year. Earlier this month, Trump signed the “Phase One” trade deal with China, a limited agreement that marks a significant breakthrough in the U.S.-China trade war. This achievement was quickly followed by the U.S. Senate ratifying the U.S-Canada-Mexico (USMCA) trade accord, which replaces the NAFTA agreement and covers the largest free-trade bloc in the world. Trump has plans for free trade deals with the UK and the EU, and India could be in line as well. Trump will visit India next month and will sign a trade deal worth more than $10 billion. These figures pale in comparison with the deals reached with China and the United States’ North American neighbors, but India is the second-largest emerging economy in the world (after China) and is the fifth-largest economy in the world. With a population of 1.3 billion, the potential market for U.S. exports is huge. This trade deal is expected to lead to a free trade agreement between the U.S. and India.

Similar to the situation with China, the U.S. and India have been in a trade spat since 2018. At that time, the Trump administration imposed stiff tariffs on Indian steel (25%) and aluminum (10%). India countered with its tariffs on a wide range of U.S. products. The U.S. took the dispute to the World Trade Organization, which ruled in October that India had breached global trade rules.

The U.S. and India have now decided to move in a positive direction, and the trade deal is a significant step forward in forging a new trade relationship. The prize for both sides, of course, would be a full-fledged free-trade agreement. For India, it would be of a source of economic growth and pride. For the U.S., it would mark the removal of barriers to a rapidly growing economy with over one billion potential customers, which represents an enticing market for American exporters.