According to Kishore Narne, director, head of commodity and currency of Motilal Oswal Financial Services, indian rupee has severely declined against by dollar in 2022. And pressure is anticipated to continue as global central bank policies could bring volatility.
According to an interview with Narne, “by the end of Next month, we expect the USD/INR pair to trade with a bullish bias and might touch new highs of 84.50 levels. While downsides could be limit to levels of 81.20.“
With recession fears growing in the United States and Europe, two key energy consumers.
What is your outlook for global crude oil prices in the short term?
Europe’s concerns about the recession are exacerbat. And the continent is also struggling with its own extremely high inflation and a developing energy crisis as a result of its dependency on Russian natural gas.
In the US, the economy has experienced two consecutive quarters of negative growth. And the Federal Reserve is committe to raise interest rates as long as necessary to reduce inflation. Which will ultimately lead to the economy’s to deteriorate even more.
The decision by OPEC+ to reduce production by 2 Million barrels per day. However, comes as the world economy deals with the long-lasting negative effects of Putin’s invasion of Ukraine & Western sanctions.
This shows that the syndicate is tenaciously siding with Russia and also that OPEC+ would do whatever it takes to defend prices at lower levels.
The US may need to purchase oil at a higher cost than it has been paying in order to replenish the reserve since it needs to retain some oil on hand in case of a national emergency. All of this would push the price of crude oil in the upcoming months to roughly $90 per barrel.
Where do you see the price of crude oil at the end of 2022 as well as the beginning of 2023?
Brent prices are forecast to achieve the fourth quarter of 2022 close to $95 per barrel levels and to remain there in 2023.
The primary bullish indicators are anticipated OPEC supply reductions, sanctions against Russia that will support oil prices. And slower-than-expected growth in crude oil production. Which might raise oil prices.
However, the Zero-COVID policy lockdown in China continues to put pressure on prices. And investors are keenly watching for any prospect of a recovery there since it is the country with the highest oil demand.
India has reason to be concerned about the rupee’s decline against the dollar. Where do you anticipate the rupee to be by the end of December.
when can the currency market be expect to remain stable?
The Federal Reserve’s hawkish outlook has put significant downward pressure on the rupee this year, contributing to a YTD decline of more than 10%. This has strengthened the dollar relative to other major currencies.
In the near future, central bank actions will keep overall currency volatility high.
The Fed as well as the BoE have recently suggested a slower rate hike schedule, although this will still rely on facts.
If there is ever more geopolitical unpredictability, safe haven dollar buying will likely occur. Which could keep other major currencies, particularly the rupee, under pressure.
The RBI has constantly intervened to reduce rupee volatility, but external factors still put pressure on the currency.
By the end of Dec, we anticipate that the USD/INR pair will move favourably and maybe reach new highs of 84.50 levels, with potential downside limited to levels of 81.20.
Do you anticipate a significant drop in demand for base metals in the scenario of a recession inside the two largest economies in the world?
What are your predictions for the pricing of copper and aluminium?
If there is a recession. It will likely only last a short while and will have some effect on countries like the US and the EU.
Although many metal prices have recently corrected by more than 40% from their top in 2022. We think that the ripple effect of same would keep metal prices in check.
The US and LME’s response to Russian-made metal will have a significant impact on the price of aluminium. In the short term, prices will benefit greatly if the LME is completely forbidden from accepting Russian material. However, some tariff changes will merely cause a reflexive response.
US action will just serve as a further catalyst for some favourable price action. Which is already supported by stable energy prices, increased demand from China, decreased output, and tightened inventory.
After the Fed’s interest rate decision is made, we anticipate strong price changes in aluminium. Which could push prices up toward $2,600 – $2,750 over the following 12 months.
Being a metal associated with economic activity, copper has been choppy over the past two quarters due to recessionary fears and currency volatility. Over the past five months.
It has mostly traded in a band between $7000 and $8000, and we anticipate this pattern to persist for the foreseeable future before the metals market begins to trend positively once more. Overall macros are probably going to improve, which will benefit copper, zinc, & aluminium over the long run.
In the current unstable globalized economy, it is impossible to avoid discussing the safe asset gold. The WGC reports that the demand for gold increased by double digits between July – September.
How do you envision it developing over the coming year?
Gold, a safe-haven asset, performs best in harsh times and suffers in an environment of rising interest rates; at the moment, we are witnessing the best of both worlds in action.
On a YTD basis, the COMEX has seen a -8% return from the yellow metal. While the domestic market has had a 6% return.
Metal prices are being impacted by the sudden increase in The US bond yields and thus the dollar index.
Looking at ETF flow, investors aren’t displaying a lot of confidence, while central banks are consistently purchasing.
While central banks are purchasing gold at the quickest rate in 55 years, SPDR Gold holdings were down by almost 7% year to date. The WGC reports that in Q3’22, central banks purchased a record 399 metric tons (Jul-Sep).
The attraction of gold as a safe haven may continue to be hampered by rising expectations for future rate hikes.
Inflation and other crucial economic data points will be closely watched by market investors. Since these will play a crucial role in shaping the Fed’s future monetary policy stance.