By Jigar Trivedi
Comex gold has advanced by 3% whereas MCX gold December future has appreciated by 3.5% in the week gone by amid pull back in the dollar index and festive time buying in India. Off late, the US dollar has appreciated amid expectations that the US Federal Reserve will press ahead with its aggressive tightening plans that markets fear could tip the global economy into recession. The yuan also retraced about half the gains made in recent sessions when Beijing ramped up indirect intervention efforts to stem the currency’s slide. Last week, the PBoC asked state-owned banks to prepare to support the yuan in offshore markets.
Meanwhile, downside risks to the yuan persist as China’s monetary policy diverges with the US and as a gloomy domestic economic outlook dampened interest for Chinese assets.
Dollar advances on Friday after Fed reiterated an aggressive stance
The dollar index held its recent advance to above 112, underpinned by a drumbeat of hawkish remarks from Federal Reserve officials, while investors look ahead to the pivotal monthly jobs report that could guide the central bank’s monetary decision in November.
Cleveland Fed Bank President Loretta Mester said the Fed has to be “singularly focused on inflation,” echoing remarks from other central bank officials who sounded unequivocally committed to bringing down inflation with more rate hikes, even at the cost of higher unemployment and weaker growth. The dollar held its gains against the euro, the sterling, the yen and antipodean currencies, while rebounding sharply against Asian currencies.
INR continues to hit fresh lows
USDINR weakened to another record low near 82.5, pressured by more expensive oil after OPEC+ announced it would cut output, forcing Indian buyers to buy even more dollars to settle oil imports. Lower demand expectations for the rupee also contributed to JPMorgan announcing that Indian local currency bonds will not be included in the bank’s influential EM bond index, erasing hopes that inclusion in the could bring up to $30 billion in foreign capital to rupee-denominated bonds.
Efforts from the RBI to prop up the currency failed to contain the rupee’s extensive depreciation, with data pointing to over $100 billion being drawn from foreign currency reserves this year.
In its last meeting, the central bank raised its main repo rate by 50bps to 5.9% in its last meeting, adding to the 190bps in rate hikes so far this year to support the weakening rupee and curb inflation that stubbornly remains above the central bank’s upper target of 6%.
Next week no major data is going to be released. We may see increased footfall in the retail markets in India ahead of Deepawali. Another trigger to go long on gold would be a weak rupee. We expect December Gold to touch Rs 53,000 per 10 gram hence the outlook is bullish.
(Jigar Trivedi, Senior Analyst – Currency & Commodity, Reliance Securities. Views expressed are the author’s own.)