Commodities could be out of woods soon, rupee may touch 72/$ again

People are moving some capital into gold at this time, given the uncertainties around the pace of rate hikes by the US Federal Reserve and the US-China trade war

Commodities have been battered in November on a toxic cocktail of drivers, with crude sinking amid speculation off oversupply, metals getting hit on concern over slow growth, and investors fretting over the outlook for the trade war between the US and China.

This week, leaders from the G-20 gather in Argentina, offering presidents Donald Trump and Xi Jinping a chance to address their trade spat, while Russia’s Vladimir Putin has an opportunity to address crude policy with Saudi Crown Prince Mohammed bin Salman.

Crude oil prices plunged last week, with the WTI benchmark sinking to the lowest in 13 months. Oversupply fears appear to remain the source of selling pressure. The latest drop seems to have been triggered by comments from Saudi oil minister Khalid Al-Falih, who said output increased again this month.

Brent crude oil closed last week at $58.80, confirming a downside break of the trendline connecting the January 2016 and June 2017 lows. Currently, prices are down more than 30 percent from the four-and-a-half-year high of $86.74 reached in October.

The near 90-degree sell-off is now looking overdone, as per the 14-day relative strength index (RSI). The corrective bounce, if any, could be short-lived unless fears of oversupply suddenly subside.

Precious metals are recovering this week, as fears of a slowdown in global economic growth and uncertainty surrounding the US interest rate trajectory bolstered the metal's appeal ahead of a G20 meeting. People are moving some capital into gold at this time, given the uncertainties around the pace of rate hikes by the US Federal Reserve, the US-China trade war.

Base Metals are trading lacklustre as China rejected fresh US accusations of perpetuating “unfair” trade practices and urged Washington on November 22 to stop making provocations, showing little sign of backing down days ahead of a high-stakes meeting between leaders from both countries.

The rupee has elevated quite significantly, from almost 75/$ to 71/$, in the backdrop of over-supplied crude oil. The fall in oil gives India a big relief on the CAD and this keeps the rupee bears at bay for now. Rupee value is a function of crude oil and this is being reflected in the price now.

However, USDINR has discounted all factors as oil prices inched above $60/bbl. Month-end oil bids also remain supportive, so we can see rupee depreciating towards 72/$ again.

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