USD/INR likely to head for 65.00 mark amid intensifying risk aversion arising from India’s widening trade deficit, says Scotiabank

The USD/INR currency pair is expected to head for the 65.00 mark amid intensifying risk aversion arising from India’s widening trade deficit, the PNB fraud, and rising 10-year U.S. Treasury yield, after rallying through the 64.6 resistance that is a 50 percent retracement between the September high and the January low, Scotiabank reported.

India trade deficit shot up to a 56-month high of USD 16.3 billion in January as imports of gold and crude oil surged during the month while growth in exports slowed down. It is expected to worsen India’s current account deficit for FY2017-18.

Further, India’s share prices have dropped in the past sessions as worries intensified about the fallout from the INR114 billion (USD1.8 billion) fraud at Punjab National Bank (PNB). India’s Finance Minister Arun Jaitley broke his silence on Tuesday evening, delivering a stinging rebuke to the auditors and the management of the PNB for their failure to detect the fraud.

Also, the 10-year UST yield is now slightly short of 2.90 percent, while the VIX index remains relatively elevated despite a pullback. The US stocks fell on Tuesday to snap a six-session winning streak, which will dent Asian market sentiment on Wednesday.

Meanwhile, Bloomberg reported Tuesday that India’s central bank is reviewing its process for allowing companies to raise money overseas due to concern that any increase in the INR volatility may hurt borrowers’ ability to repay debt, citing a person familiar with the matter.

"It could spark market bidding interest in USD/INR in our view," the report added.

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