Wednesday, February 22, 2017

Morning INR Update

The global theme currently is that of US and EM equity market strength on the back of expected tax cuts by Trump (more details expected on Feb 28th ). I would not classify the current theme as that of dollar strength as US yields are in range, and as EM currencies appreciate while on the other hand Euro remains under pressure due to French political risks. Looking at CNH, JPY and MXN it seems that the respective countries who came under Trump’s direct fire for manipulating their currency levels, perhaps do not want to irk the most powerful office and therefore these currencies are stable to appreciating currently. FOMC minutes might move rate hike probabilities today affecting currency levels, I would expect March rate hike chances to increase from the current 36% post the release resulting.

USDINR 1m NDF is trading 6p left (from 4p on Monday) while KRW has appreciated 0.5% in the last 2 days. Equity markets in Asia are trading strong on the back of gains in the Dow. Equity and Debt FPI inflows continue to trickle into the country although in small amounts. We have recently seen Nationalized banks buying aggressively around 66.90 levels although their bids don’t seem to be there today. I would continue to be an overnight shorter of USDINR and good levels to create such positions are 66.95 now. CMP 66.90, Range 66.97-66.75.

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