The US Dollar has seen major weakness on Tuesday against major currencies. US-China and US-Mexico trade war is having negative effect on growth of US Economy. Trade disputes are reducing energy demand in general and expectation of crude oversupply after rise in American crude output are further weakening the greenback. USD/INR, rupee strengthening second day straight climbing 0.48 paise settling at 69.19 after closing previous week at 69.58.
US Federal Reserve Rate Cut
Jerome Powell, Chair of the US Federal Reserve, said that, “we are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act appropriate to sustain the expansion, with a strong labour market and inflation near our symmetric 2 per cent objective.” The current trade war situation has opened doors to expectation of rate cuts this year.
RBI Rate Cut
Rate cut expectation in India by the Reserve Bank of India (RBI) is further strengthening the Rupee. The RBI’s Monetary Policy Committee (MPC) is expected to announce its bi-monthly policy on 06th of June 2019 and rate cuts are expected to be part of the policy.
Crude Oil Prices
Crude fell more than 1 per cent on Monday further extending its 3 per cent losses from previous week. Falling demand amid trade war fears and rise in crude inventories in US are sliding crude oil prices further. However, the Brent crude futures, global oil benchmark, rose by 1.02 per cent to trade at USD 62.62 per barrel.
Sensex and Nifty hit record high in first session today but closed at 40083.54 and 12021.70 respectively at the end of the day. Since, majority Government in the centre the market has been performing well and expectation of rate cut by the RBI is supporting the rally in domestic equity market.
Foreign Fund Inflows
Significant buying in domestic Indian equities and increased selling of USD by exporters in India are strengthening the Indian Rupee. Moreover, foreign fund inflows of INR 3068.88 crore in capital markets as per provisional data further supported the Rupee.
Gold rose by 0.31 percent on USD weakness as trade war keeps the US Economy on toes. Investors are using gold as security to reduce exposure to USD. Given the trade war conditions only escalating in future we can expect gold to rise further.