Mnuchin again contradicted Trump on the President’s concerns
on a strong dollar. It would not be an accident or a dare that a Treasury
secretary can state the opposite of the President consistently, and therefore
must be by design. The idea could be to message particular countries only (may be
the ones in the list of 6) while Mnuchin ensures that US Treasury holders don’t
get scared with a weaker dollar rhetoric.
Reading the Treasury’s report on the list of 6 countries it
seems that the immediate target for currency adjustment for the US would be JPY
and KRW. China would get a slightly longer rope because of its interventions in
the last 6 months to prevent further depreciation of the Yuan and its cooperation
in North Korea. While Germany’s currency is tied to the rest of the EU which would
make a bilateral argument difficult to implement on the Euro.
In September 2016 there were reports that the commerce
ministry would make a representation to the finance ministry to demand a more
competitive INR. In an interview published yesterday Nirmala Sitharaman, the commerce
minister has stated that INR is not that overvalued. She goes on to state that
currency is representative of the overall state of the economy and is not the
only tool to incentivise exports. This shows the changing approach of the
government on currency since Dr. Rajan’s era and therefore further strength of
the INR is possible and specially on a carry adjusted basis.
NDF points are moving right showing reduced offshore selling
and unwinding. EM currencies are moderately weaker today on the back of dollar strength.
Yesterday we heard government payments going through and today we hear similar
chatter in the market. Nifty is higher on the back of recovery in the Dow while
Debt inflows continue. CMP 64.54, Range 64.45-64.73.
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