What India’s Rupee Drop Says About Currencies

The Rupee’s drop may be a sign of things to come -- for a host of reasons.

Justin Carrigan

20 Mar 2019, 11:26 AM IST

What India’s Rupee Drop Says About Currencies

An Indian 2 rupee coin is arranged for a photograph in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)

(Bloomberg) -- The Indian rupee’s eye-watering rally had to come to an end sooner or later, but today’s 0.4 percent drop was a somewhat anomalous event in emerging markets, as most of its peers continued to benefit from the dollar’s pre-Fed weakness.

However, it may be a sign of things to come -- for a host of reasons.

First, the central bank has been signaling lately it’s not entirely happy with the rupee’s strength. Second, oil is headed back up toward $70 a barrel. Third, it’s unlikely the recent surge of flows into Indian bonds can be sustained given the country’s limits on foreign holdings. And, if you like technical indicators, the rupee’s 30-day relative strength index has been signaling a pullback for the past five days.

Sensex’s Goldman Lift

Indian stock markets didn’t get the memo though. The Sensex, the world’s biggest gainer in dollar terms this month, rose as much as 0.4 percent, no doubt boosted by a bullish call from Goldman Sachs. And this on a day when the MSCI emerging markets stock index barely budged. Recent flows into the country’s stocks have been buoyant too, and don’t forget that unlike bonds, there are no limits on foreign holdings of Indian equities.

Elections and Volatility

As implied volatility in emerging-market currencies wallows at its lowest level in a year, Thailand’s vote this weekend might be about to offer some excitement. The baht, little changed today ahead of tomorrow’s rate decision, has weakened in the second quarter in seven of the last 10 years, as Bloomberg’s Bangkok-based emerging market reporter Yumi Teso points out.

Emerging-market watchers can look forward to some intriguing election stories in the months ahead, from India to Indonesia to Turkey and South Africa.

East Europe Stirrings

Finally, there are a few currency pairs in emerging markets quite as calm as the zloty-forint, with 30-day price swings at their lowest in a quarter century. But, as Bloomberg’s emerging markets editor Alex Nicholson shows, those waters may be about to get stirred as a pre-election spending spree in Poland and a potentially historic rate decision in Hungary loom.