This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Global Macro: India Tries to Fend Off Currency Speculators

NEW YORK ( TheStreet) -- Since the Federal Reserve apparently intends to rein in bond purchases, investors have pulled funds out of emerging markets due to higher U.S. interest rates and a stronger dollar.

The lack of easy credit and fewer dollars circulating through financial markets have caused investors to pull funds out of countries like India. As funds were pulled, the Indian rupee vastly depreciated against the dollar, leading to a massive current account deficit.

It's a classic balance of payments crisis, where speculators attack a weak currency and quickly devalue it.

The Reserve Bank of India has raised short-term interest rates to try to fend off short sellers. That has had negative effects, though, as struggling corporations have seen their borrowing costs increase.

The RBI's latest effort has been to call for joint action among other members of the G20. India's mere presence at the summit this week signals that it may be trying to state its case to foreign governments, coordinating with them to buy rupees and help stabilize the currency.

The first chart below is of United States Oil (USO) over WisdomTree Indian Rupee (ICN). The pair represents oil priced in rupees. As the rupee has fallen, commodities have inflated in price, weighing heavily on the Indian consumer.

With the International Monetary Fund stating that emerging markets need to produce domestic demand for growth as the global economy gradually recovers, high oil prices will continue to weigh on Indian consumers' spending.

Similarly, the violence in Syria has magnified the effects of higher oil prices. Although the price of oil appears to have reached intermediate-term overbought levels, increased tension in the North African region or further loss of confidence in the rupee could greatly affect this pair's price level.

The next chart is of PowerShares India (PIN) over Vanguard Total World Stock Index ETF (VT). Indian equities have been sold off as investor sentiment in the country has deteriorated alongside the rupee.

The pair has gained some strength recently as world leaders have rallied together in an effort to stabilize emerging-market currencies and bring strength back to those regions.

The only issue ahead lies in how investors react to emerging markets as central bank liquidity in developed countries dries up.

The mere rumors of U.S. tightening or ineffective Japanese policies have led to massive speculative selloffs in countries such as Brazil, Turkey, and India; thus far, however, coordinated policy effort -- perhaps achieved at the G20 -- could give short sellers a break for a few months. That would be bullish, or at least neutral for emerging economies that have seen weakness.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
ICN $21.26 0.28%
PIN $22.54 2.69%
VT $62.03 0.70%
USO $17.23 0.53%
AAPL $126.37 2.53%


DOW 17,976.31 +263.65 1.49%
S&P 500 2,086.24 +25.22 1.22%
NASDAQ 4,947.4410 +56.2220 1.15%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs