Morning INR update

March rate hike probability is at 50% currently as market awaits Trump to speak on tax cuts today. It will be interesting to see how Trump justifies his plans for increase in fiscal spends, given that on 15^th March 2017 the US debt ceiling will freeze at USD 20bn and by the summer, the US government might not be able to spend. Therefore I would think, political brinkmanship to increase the debt ceiling should have preceded the announcement of tax cuts. Debt ceiling related slowdown risks, lack of clarity on fiscal plans and seasonal Q1 GDP slowdown should prevent the FED from hiking rates in March and therefore we might see a retracement in yields leading to mild dollar weakness against G7 currencies  in the next 1 week. This week is heavy on data (although NFP is on the 10^th March) and I would expect the dollar index to trade in  a range of 101.50-99.80 (CMP 101.15).

USDINR 1m NDF is trading 6p left even though KRW and CNH have registered mild depreciation overnight. Equity markets continue to look resilient although momentum seems to have decreased as the market awaits Trump’s statements. FPI inflows into the country is continuing at a moderate pace. For the next one month depreciation factors on INR seems to be limited and I would use upticks to 66.85 levels to crease USDINR shorts. Although overnight today I would want to stay square given the event risk. CMP 66.80, Range 66.85-66.60.