Morning INR update: Risk on sentiment to take USDINR to 63.50?

Risk on sentiment to take USDINR to 63.50?

US yields went higher in anticipation of tax cut announcements today by Trump. Trump is expected to give a road map of corporate tax cuts and how they would come down to 15% from the current 35%. It would perhaps materialize (or fail) by September when the US budget is discussed. USD index has broken an upward sloping trend line and a weekly close below 98.80 (if accompanied by US 10Y yields below 2.25%) could drive USD index towards 96 levels. This could be supported by Draghi who is likely to accelerate taper and interest rate hike expectations tomorrow or in the next ECB meeting, as the outlook on EU political risks becomes positive. USDJPY continues to move higher with equity markets and against the trend of dollar weakness making a directional call difficult at the moment. Weekly close in USDJPY above 112 would make me change my view of USDJPY moving lower towards 107.

My expectation on USDINR 1 Y forward is that it should come lower towards 275-250 levels. Contrarily, it has been paid by Nationalized banks as RBI bought USDINR spot and built forward reserves. My stop was a weekly close above 333 which has not been triggered as yet (current levels 329). Current interest rate differential is at 5.35% and USDINR 1Y forwards are at 5.15%. Seasonality suggests that in May 1 Y forwards come lower and a receive side trade here therefore looks attractive.

I have been expecting USDINR to come lower since 64.48 and was expecting the pair to break 64.25 overnight. USDINR 1m NDF went left yesterday to 9p as markets started expecting a few bond inflows in the last few days of the month. INR has again appreciated ahead of other EM currencies again but this is not a decision making factor for RBI/Government currently. Nationalized banks continue to buy although not decisively. Price action suggests that there is some inward flow in the market and therefore we might see another move lower during the day as nationalized banks pause their buying (we have witnessed them moving away every now and then in the last 2 months). We might head towards 63.50 in the next week as equity markets make new highs world over and India is dubbed as the outlier on the positive side. CMP 64.00, Range 64.10-63.75.