Morning INR update: China going against N Korea?

News report suggests that China has deployed forces on its border against North Korea, while South Korea and China discuss sanctions and actions against the authoritarian state. In another report China has asked North Korean coal ship to go back without unloading, cracking down on North Korean exports to China. Trump has stated that China will get a better trade deal if it supports the US in curbing the nuclear ambitions of North Korea. With Japan, South Korea, USA and China coming together against North Korea, it’s a dispute with little uncertainty of outcome. Although for now it looks that North Korea is showing signs of aggression by sending a navy strike unit towards the US.

It is the most unique risk off sentiment that one would witness in markets, with JPY, gold and USTs appreciating while all other pro risk assets (equities and EM currencies) largely unaffected (since yesterday). Either we should see the safe havens of JPY and Gold retracing (which should be the likely case as N Korea now seems to lack Chinese support) or we should see a fall in other pro risk assets.

USDINR 1m NDF is trading further left today at 7.5p while KRW and CNH are stable to mildly stronger. The two resistance for USDINR are at 64.66 and 64.84 while on the lower side 64.40 should hold for now. Today we have the Indian CPI where the consensus expectations are around 3.9%. Indian equities are moderately negative while inflows have slowed this week. CMP 64.66, Range 64.84 – 64.50.