It’s a difficult one to call, and after the Reserve Bank of New Zealand’s hawkish surprise on Wednesday, investors would do well to be humble in their predictions.
On the one hand, inflation in Asia’s third-largest economy is running at 6.44%, above the central bank’s upper tolerance limit of 6.00%, and the rupee is within touching distance of last October’s record low of 83.26 per dollar.
The rupee is expected to weaken further in the coming months too.
But wholesale price inflation is declining rapidly, and there are powerful global winds shifting in the opposite direction – U.S. Treasury yields are the lowest since September, pushed down by an expanding batch of weak economic indicators, the latest being ADP private sector jobs data on Wednesday.
Wall Street is finally buckling, rates markets are now gunning for almost 100 basis points of Fed rate cuts this year and the dollar is sagging. Maybe the rupee won’t depreciate that much after all.
If Friday’s U.S. payrolls report shows signs that the labor market is softening, the doves may soon be out-muscling the hawks – in Washington and beyond.
