Major Forex News
Indian Rupee Drops to Record as Fed Minutes Signal Stimulus Taper
India’s rupee slumped to an all-time low after Federal Reserve minutes showed the U.S. is getting closer to reducing stimulus that has fueled demand for emerging-market assets.
Fed policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the world’s largest economy improves, with a few saying tapering might be needed soon, according to the minutes of their July meeting released yesterday. Global funds have cut holdings of Indian debt by $10.1 billion since Bernanke first flagged the paring on May 22, leaving the rupee vulnerable to the nation’s current-account deficit.
The rupee weakened 1.9 percent to 65.2700 per dollar as of 11:13 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It touched a record low of 65.275 earlier. The central bank probably sold dollars, according to two traders with knowledge of the matter, who asked not to be named as the information isn’t public. The rupee could drop further to 68 or even 70 by next week, Westpac predicts.
One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, rose 82 basis points, or 0.82 percentage point, to 16.40 percent.
The Reserve Bank of India said Aug. 20 it will start buying government debt to pump funds into markets and consider reducing weekly sales of cash-management bills to rein in a surge in bond yields that threatened the economy. The central bank engineered a cash crunch in Asia’s third-largest economy last month to shore up the rupee. The RBI will buy 80 billion rupees ($1.2 billion) of bonds through open-market operations tomorrow and “thereafter calibrate them both in terms of quantum and frequency” based on market conditions, it said in the Aug. 20 statement. Sales of cash-management bills will be adjusted going forward, “including scaling it down as may be necessary,” the monetary authority said.
Three-month onshore rupee forwards fell 1.2 percent to 66.67 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts dropped 1.5 percent to 67.24. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars
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Market News
Crude Rises From Two-Week Low as Jobless Claims Fall
West Texas Intermediate crude rose from a two-week low as the fewest U.S. workers in more than five years applied for unemployment benefits over the past month, bolstering optimism that fuel demand will accelerate.
Prices gained as claims in the month ended Aug. 17 declined to 330,500 a week on average, the least since November 2007, the Labor Department reported. Manufacturing resumed expansion and output at European factories improved. WTI dropped earlier as the Federal signaled a likely reduction in economic stimulus this year, boosting the dollar.
The market should drift higher. The only restraining element would be the prospect of Fed tapering and a stronger dollar. WTI for October delivery rose 76 cents, or 0.7 percent, to $104.61 a barrel at 11:51 a.m. on the New. The volume of all futures traded was 21 percent below the 100-day average. The contract fell to $103.85 yesterday, the lowest close since Aug. 8.
Gold Rout Seen Bottoming by Analysts as China Buys
The rout in gold that wiped out $56 billion of value this year is spurring consumer demand in China and India, the biggest buyers, and leading JPMorgan Chase & Co. and Bank of America Corp. to say prices are bottoming.
Sales of jewelry, coins and bars will reach as much as 1,000 metric tons in India and China in 2013, valued at a combined $87.6 billion, the World Gold Council estimates. Prices will average $1,300 an ounce in the fourth quarter, or 5.2 percent less than now, the median of 17 analyst estimates compiled. Bank of America is the most bullish, predicting a fourth-quarter average of $1,495, and JPMorgan anticipates rising averages in every quarter through the end of next year.AG and UBS AG opened vaults in the region this year and U.K. bullion exports raised eightfold, a sign to Macquarie Group Ltd. of the flow of metal from west to east. Asian buyers are being attracted by prices that are now 28 percent below the record $1,921.15 reached in September 2011.
Copper Advances as Manufacturing Unexpectedly Expands in China
Copper futures rose in New York, heading for the biggest gain in two weeks, after manufacturing unexpectedly expanded in China, the world’s largest consumer of the metal.
A factory index released today by HSBC Holdings Plc and Markit Economics showed a preliminary reading of 50.1 for August, compared with a median estimate of 48.2. Levels above 50 signal growth. Exports from China rebounded in July, and service industries and factory output expanded at a faster rate, reports showed this month.
Support for copper is coming from the Chinese manufacturing report. The market can’t ignore the data from China that we’ve seen lately, and prices are picking up on the back of that.
