Morning INR update

Better than expected ADP print in the US led to higher yields resulting in further but controlled dollar strength. The reaction of USD to higher short term US yields has become muted which would mean that further dollar strength can only come with clarity of US fiscal plans or the FED announcing balance sheet reduction at some point of time.

In Netherland elections, the far right candidate Wilders is expected to get the maximum number of seats (25 out of 150) with the incumbent Prime Minister getting slightly lesser (around 20). Analysts expect that Wilders will not be able to get enough allies to form a coalition government which in turn is keeping the markets comfortable of the outcome. Although we all know how accurate analysts were in predicting Brexit or US elections recently. Today we have the ECB announcement which can provide a bounce in EURUSD towards 1.06, as I would expect the ECB to be less dovish now.

USDINR 1m NDF is left only by 5p as other EM currencies depreciated on the back of dollar strength. Empirically dollar strength on the back of higher US interest rates results in depreciating EM currencies while USD strength on the back of fiscal stimulus expectations is positive for risk and EM currencies. Most of the market participants intend to sell USDINR above 66.85 citing 66.89 as a good recent resistance. Markets expect a BJP positive result for UP elections and therefore I would think 66.90 should remain toppish for the day. CMP 66.83, Range 66.90-66.70.