Morning INR update

Yellen asserted that the pace of rate hikes in 2017 should be more than 2016 and consequently rate hike chances for March are at 94%. This would mean that a rate hike is fully factored into prices and therefore further dollar strength on account of the same news is unlikely. On Thursday there is ECB announcement where a less dovish stance could therefore take EURUSD higher towards 1.0750 given the bullish price action last Friday.  I would expect a less dovish stance given the improving inflation outlook in the EU although substantial change is difficult given the line up of political uncertainties. On Friday the US NFP should be watched where the earnings data would be very important for March rate hike chances.

CNH and KRW have registered significant depreciation on account of dollar strength and more so because of the regional tensions. Irrespective INR is 30-40% correlated to CNH (according to the government’s new REER indices itself) and  therefore CNH at 6.8950 reduces the immediate chance of USDINR breaking out on the lower side. Equity markets continue to trade strong as polls indicate a near BJP victory in the UP elections (results on 11^th March). USDINR 1m NDF is trading 7p left which should keep the pair offered in the first half. CMP 66.76, Range 66.69-66.89.