USD/INR likely to trade sideways within 64.50-66.00 range over the near-term, says Commerzbank

The USD/INR currency pair is expected to trade sideways over the near term within the 64.50-66.00 range, according to the latest research report from Commerzbank. The latest semi-annual US Treasury currency report added India as the 6th country on its “Monitory List”. The other five countries were China, Japan, South Korea, Germany, and Switzerland. Being on the list implies these currencies are under greater scrutiny but as in previous years, the Treasury did not label anyone as a currency manipulator.

For the case of India, it came as a bit of a surprise given India runs a current account deficit (CAD). There are three criteria used by the Treasury to determine whether a country is manipulating its currency unfairly, these include 1) a significant bilateral trade surplus with the US, seen as at least USD20bn. For India, it ran a trade surplus of USD23 billion in 2017, just over the threshold; 2) persistent, one-sided intervention. This is when net purchases of foreign currency are conducted repeatedly and total at least 2 percent of GDP over a 12-month period.

For India, net FX purchases reached USD56 billion or 2.2 percent of GDP in 2017; and 3) a material current account surplus, seen as one that is at least 3 percent of GDP. For India, it ran a CAD of 1.5 percent of GDP in 2017 and is expected to be slightly lower this year.

The International Monetary Fund (IMF) in fact does not consider INR to be undervalued at current levels. If we look at another metric, the Bank of International Settlements (BIS) measure of the real effective exchange rate is around 4 percent above the long-term 10-year average. This also suggests it is not undervalued. INR took the Treasury’s report in its stride yesterday, it weakened slightly with USD/INR rising 0.4 percent to 65.50, the report added.

Lastly, FxWirePro has launched Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest