0615

5 August 2009

New Delhi

Shedding the inhibitions I wrote about a couple of days ago, commodities have now hit a high for the year. Brent crude is up at 74 dollars a barrel, and copper is at a 10-month high, boosted by the news that pending US home sales are ticking up.

With global equities continuing to gain, even though weakly, the appetite for risk is resolutely moving to center stage. This means that fewer investors are looking to the dollar - and USD treasuries - as a safe refuge. In turn, this has sent the dollar to a 2009 low against a basket of currencies, as measured by the dollar index. This fact, and the enhanced optimism for commodities, has marked up the so-called commodity currencies, like the Canadian dollar and the Australian dollar.

Gold and silver are moving up, too, though they have not yet hit their earlier highs of the year: gold closed just short of 970 dollars per ounce yesterday, up a little over 1% for the day; silver gained more than 3% to 14.60 an ounce, but it has tended to be a lot more volatile than gold, and is still 30% off its life-time high of over 20 dollars an ounce.

For Indian investors, my belief is that higher oil prices remain a significant issue in the recovery: petroleum is our single largest import, and exports continue to drop. If our balance of payments deficit grows, the rupee could be under pressure, setting into motion concerns for the overseas investor, who doesn’t like to see his return pressured by adverse movements in currency. And with the huge borrowings program of the Indian government, foreign funds are critical to our growth.