The Indian Rupee (INR) gained a reprieve in October based on Central bank and fiscal interventions, but this trend hit a roadblock at the end of the month when the Federal Reserve raised the topic it’s been talking about since the beginning of the year – an interest rate hike in the US by the end of 2015. The INR turned around and started the steep climb towards 66.0, passing the 65.5 mark by the first week of November.

Market participants’ attention has now turned to new data coming out of the US, such as Non-Farm Payrolls and third-quarter GDP for further clues about the Fed’s intentions. The INR’s fall could be measured by these results. If higher-than-expected, the currency would almost certainly take a further hit versus the USD. It is the repeated intentions from the Federal Reserve to begin raising interest rates as early as this year that has led to another reversal in the INR after it was beginning to appear that the currency would recover further losses.

Internally, the INR faces some mixed results in growth rates in the eight core sectors of the economy; Coal, Crude Oil, Natural Gas, Petroleum Refinery, Fertilisers, Steel, Cement, and Electricity. These grew by 2.3 per cent from April to September 2015; a weaker rate compared to the 5.1 per cent for the same period in 2014, but reflecting a four-month high for the current year. Economic momentum in India is slowing down, which provides validity behind why the RBI cut interest rates on multiple occasions throughout the year with this being with the intention to reinvigorate domestic growth.

China’s slowdown also continues to be a concern after third-quarter GDP came in at just under the target of seven percent. In addition, the uptick in the price of Gold during October faded out by November on increased bullishness towards the USD. Overall, the sentiment towards the emerging markets is still low and the INR is falling victim to this. As the Central bank and government have shown responsiveness towards the threat of a slowdown, there could be more interventions in the near term to balance out the fall in the INR versus the USD.

-Jameel Ahmad,

Chief Market Analyst, 

ForexTime.com