Strong trade data brings back Rupee to early 60s

A number of positive developments lead by positive trade data for August has enabled the stock market and the Rupee to make strong gains on Tuesday. The Rupee registered gains of 140 paise, while the stock market made biggest single day gain since in the last four years.  Foreign investors pumped nearly 2000 crores rupees on equity and debt markets.

The news of shrinking trade deficit came as good news for the second month in succession.

Others, especially international developments also added to the positive momentum in the economy. The US job data has shown that unemployment is reluctant to come down there. The implication is that the Fed may slow down tapering programme. So, foreign investment towards the emerging markets is not going to disappear soon.

Similarly, on the political front, the delaying US action on Syria also belayed any economic shocks for the emerging markets. All across the world, the EME’s financial markets have registered strong rally on the day.

For India, the positive trade data is remarkable as it reassured the trade gains of adepreciating rupee. Depreciation enhances exports and reduces imports and thus produces positive trade balance. This theoretical prediction is working in favour of the country now. The present trade trend may be strengthened in the coming months as the extent of depreciation was much higher in September.

In the same manner, a weakening job data scenario is also helpful for rupee as it delays the withdrawal of the monetary stimulus by the Fed.