The fact that the healthcare bill did not go through will
make the market wonder if Trump can enact the fiscal stimulus that he had
promised. The debt ceiling in the US has kicked in and sometime by 15th
June 2017 the US government will not be allowed to spend any more. Last time
the US government hit its limit, the US was downgraded by S&P (and USD
appreciated!), but times have changed and the result might not be the same
anymore given the fact that since then EURO has become a funding currency while
USD is the G7 risk currency. Given the fate of the healthcare bill the markets
will doubt if Trump will be able to get the ceiling raised; Alternatively if
the ceiling is raised then there would be a lot of arm twisting to control
fiscal spends, thus putting the fiscal stimulus plans in jeopardy. Either ways
people would be more circumspect than ever, before going long on the US dollar.
USD index has still not given a weekly close below 99.5 and this might be the
week it does.
Yesterday US consumer confidence hit its highest levels
since Dec 2000 while house prices also showed strong underlying economic activity.
This resulted in US yields rising by 4bps resulting in a moderate uptick in US
dollar and equities.
USDINR 1m NDF is trading 10p left. FPIs are pouring money
into Indian debt with over 3.5bn inflows in March till now. Given March end we
would expect substantial FDI and ECB inflows to happen over the next 3 days.
Today is the expiry of all USDINR contracts (Futures and Forwards), and given
that USDINR has surprised on the lower side we might see more selling in expiry.
One can expect RBI to allow further appreciation so as to not subsidise the
bunched up inflows. CMP 64.98, Range 65.05-64.75.
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