Morning INR udpate. G20 awaited.

Ahead of the G20 meeting (today and tomorrow), US treasury secretary yesterday said that a strong dollar does create problems in the short term. There are news reports that the draft communiqué of the meeting accommodates some of Trump’s ideology by dropping statements which asked members to abstain from any form of protectionism. There are reports that Germany is circulating a separate document (which is unusual) to member countries apart from the communiqué, to ensure that countries adhere to their vow of global free trade against the push from US.

All these reports would make me believe that direct trade protectionism will be countered by allowing USD to weaken in the medium term. I would say this as the USD appreciation over the last 4 years is a strong argument and one that the exporting countries cannot win. To reiterate, the G20 meeting of FinMins and Central Bankers has been risk positive and therefore in the current context, I would expect USD to weaken against G7 and EMs, equities to moderately rally as US yields move lower. G20 communiqué comes out tomorrow although the document doesn’t capture the magnitude of market impact that the meeting has had previously.

USDINR 1m NDF is trading 11p left as EM currencies continue to trade strong. Equity markets are trading flat to mildly positive. Today morning we saw profit taking on short USDINR positions driving the pair from 65.48 to  65.65 in a hurry. Nationalized banks have not been seen buying aggressively since morning today, indicating that above 65.40 RBI is comfortable. I would carry an overnight short (given my view on G20) and would like to enter around 65.65 levels. Friday being the end of the week could see some volatility in the second half. CMP 65.58, Range 65.70-65.40.