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Dollar shortage creates market turbulence in India

Dollar shortage creates market turbulence in India

What’s new?

Foreign investors have pulled $28 billion from the Indian stock market this year according to Bloomberg, on top of that higher oil price means that everyone from companies to investors seeks to buy dollars versus their rupees at the same time. As consequence, the rupee reached a record low of 78.98 versus USD and is down 5.8% this year.

The RBI (Reserve bank of India) regularly intervenes to support the rupee. It operates in the FX forward market rather than the spot market in order to maintain its dollar reserve and to avoid any drop in rupee liquidity. The problem is when it rolls the spot trade to forward value, it has an impact on the dollar-rupee premium as it narrows recently below 3%, the lowest in more than a decade. The lowering dollar-rupee premium also spurs importers to buy dollars at forwarding value, contributing to the dollar shortage.

Credit Suisse to stop charging customers for CHF balances

Credit Suisse will stop charging customers for cash balances in Swiss francs, a further sign that the era of negative interest rates is coming to an end. The bank said Wednesday that it will no longer levy account-balance fees as of July 1, which had been charged according to individual thresholds. The lender earlier had a 2 million franc ($2.1 million) threshold for applying negative interest rates.
Switzerland’s central bank earlier this month unexpectedly increased its benchmark interest rate by 50 bps, joining global peers who are acting to tackle surging inflation. The Swiss National Bank had operated a minus 0.75% policy rate since 2015, in an effort to stem the appreciation of the domestic currency.

What’s in the pipe?

  • US personal income, PCE deflator, initial jobless claims, Thursday
  • Eurozone CPI, Friday
  • US construction spending, ISM Manufacturing, Friday

FX rates

USD/JPY @ 136.62 - Bullish trend

EUR/USD @ 1.0452 - Bearish trend

GBP/USD @ 1.2134 - Bearish trend

AUD/USD @ 0.6894 - Bearish trend

USD/CNH @ 6.6969 - Bullish trend

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