Markets continue to move by what Trump and his advisors say and yesterday the target was a “weaker” Euro. I would think that data release or central banks (FOMC today) would hardly matter against such verbal interventions by government. On 10th of February Abe meets Trump in the US before which USDJPY can come under significant pressure and perhaps test 110. The argument here is that a stronger Yen should be good enough for the US to make Japan to agree on anything.
On the budget, I buy the argument that the government would not want to state that growth is lacklustre and therefore high fiscal dole outs are not required at the cost of 3% target for fiscal deficit. Therefore 3% target could be met and any dole outs that are given will be out of the remaining balances. This is partially reflected in equity and INR moves before the budget. This should be positive for INR and India bonds (not sure about equities).
USDINR 1m NDF is trading 5p left with KRW having appreciated 2% in the last 2 days. A weaker dollar outlook (till Feb 10th at least) can keep INR on the appreciating trajectory but room for further strength is limited as REER hovers around 116. As I stated at the beginning of the year the lower range for USDINR for the year should be 67 (higher being 71.5) and therefore I would encourage import hedging if we see 67.30 or something today. CMP 67.67, Range 67.78-67.45.
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