After a weeklong slumber, US dollar seems to have finally awoken. A surge in the US 10-year bond yields to 3.03% and the follow-up weakening in the Asian and emerging market currencies has in turn become a drag on the Indian rupee.
Most of the Asian and EM currencies have weakened between 1-1.5% and even the majors have weakened against the US dollar. Over the past month, we have repeatedly warned our clients, that financial liquidity being provided by central banks and government remains the major plank that supports the lofty levels of risk assets around the world, namely, credit and BSE Sensex.
In such a case, flow of liquidity matters more than stock of liquidity and hence any threat to its tapering or removal can have adverse reaction in financial markets. Therefore, financial markets will keep shuttling between fear of liquidity and complacency of liquidity over the course of this year.
OUTLOOK: Over the near-term, US jobs data for the month of December, due on 10th of this month, will be key, as a strong jobs data can send the US dollar higher against Indian rupee. Therefore, till then we can expect a range of 61.50/70 and 62.50/70 on spot.
Anindya Banerjee, Senior Manager, Broking-Currency Derivatives, Kotak Securities
NOTE: The views expressed are those of the author