US Fed's cautious approach acts in favour of the Indian Rupee: Angel Commodities Broking

Views by Mr. Prathamesh Mallya (Chief Analyst- Non-Agri Commodities & Currencies, Angel Commodities Broking):

"From unwinding its bond portfolio to adopting more cautious approach in rate hike decision, the US Federal Reserve has once again kept the markets guessing with its next action. The meeting minutes showed that the policymakers had voted to keep rates steady in its May'17 policy meeting after increasing it by 25 basis points. Furthermore, the three important factors that the US Feds gauge i.e. labour market, inflation rate and growth rate had shown a mixed picture which prompted the committee to maintain status quo stance on rates. Labour market continues to improve with modest growth in household spending.

Inflation rate is lingering closer to Fed's 2 percent inflation target whereas the GDP growth rate is still growing below the 1 percent mark. Of the three variables, inflation and labour conditions are conducive for a rate hike. However, the Fed may be a little concerned by the tepid performance of the US economy in the first quarter and may want to watch the second quarter performance too. That may leave the Fed to decide whether to hike the rates in its June meet or wait for the second quarter consumption data and then take a decision on rate hikes in late July.

Markets believe that the minutes had a dovish touch which worked in favour of the Asian market equities including India. A high rate in the west will prompt the investors to invest in dollar denominated assets which would have been a negative factor for emerging market economies like India. Since the release of the FOMC meeting minutes, the US Dollar Index has been trading low which in turn has benefitted the Indian Rupee which has appreciated since its opening today."

Source : Equity Bulls

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