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Below the Perspective on Mid-Week Update - Commodities and Currency by Ms. Riya Singh - Research Analyst, Emkay Global Financial Services

Commodity -

Commodities have faced significant turbulence amid a deepening global market meltdown. Copper, crude oil, and gold tumbled on Monday, as there was a rush to liquidate profitable positions due to economic worries. Copper prices, which have already fallen from their May peak, hit a four-month low. Concerns about industrial demand and a potential recession have pressured commodities tied to economic cycles as major economies post worrisome data on manufacturing activity. Crude oil also experienced sharp losses, reflecting broader concerns about global growth. Some pullback has happened but remains dicy whether it would be sustainable. Gold which fell more than 2% on Monday was the biggest drop in the past two months. Despite this, gold remains up by more than 15% for the year. The Fed's potential monetary easing and rising geopolitical tensions, particularly in the Middle East, should continue to support gold prices. Looking forward, gold is expected to attract new buyers amid continued equity market volatility. With potential prices reaching $2,600 an ounce by 2025, gold remains a valuable hedge against geopolitical shocks and economic instability. On international prices, 2385- 2350 remain strong support and on the MCX front 68500- 67800 act as a support. Copper and crude oil on the other hand may face continued pressure if demand and economic recovery remains sluggish.

Currency –

-   The Indian rupee has experienced notable fluctuations recently. On Monday, the INR fell to an all-time low, influenced by fears of a looming US recession and foreign outflows. However, it recovered on Tuesday, opening 25 paise against the US dollar, buoyed by improved risk sentiment and a rebound in the domestic equity market. Despite this, aggressive dollar demand amid global risk aversion has triggered cash outflows from the domestic market and continues to exert pressure on the rupee. The Reserve Bank of India's upcoming interest rate decision is critical. In the upcoming policy review, the RBI might opt for a 25 basis point rate cut, lowering the interest rate to 6.25%. However, the likelihood of this decision remains uncertain due to the threat posed by high food inflation. The central bank's intervention in non-deliverable forwards may support the rupee. Additionally, expectations of deeper rate cuts by the US Federal Reserve could weaken the US dollar, potentially benefiting the INR.  Overall, while short-term recovery is possible, the rupee's outlook remains cautious.

-  The US dollar has experienced notable fluctuations amidst global market volatility. As stock markets plummet worldwide, speculation has arisen regarding a potential emergency interest-rate cut by the Federal Reserve. However, such an action remains improbable and could prove detrimental, given that the current market downturn is attributed to carry trades that have happened with the Japanese yen rather than an economic shock. Thus though a rate cut of approximately 25 bps is expected it would happen timely in the next FOMC meeting.

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