Market seems to be factoring in that Trump will continue to
tweet but not deliver. The fact that equity markets are rising in spite of this
shows that the rally is France election results led. Thus if Trump surprises
tomorrow and delivers tax cuts (without Border Tax) then US equities would
rally along with global equities. USD would strengthen against G7 but equity
would guide risk currencies towards appreciation. If Trump fails on the tax
cuts then USD would weaken while equity markets might register mild negatives
only. Thus I would say that Trump is perhaps a little less important for risk
sentiments now. Similarly debt ceiling issue might affect USD and yields more
than it would affect equity markets.
US data continues to surprise on the lower side with Bloomberg
data surprise index moving lower since end March 2017. US GDP growth for Q1 is
expected at 1.1% (due on Friday) and a negative surprise there would strengthen
the belief that US economic activity in 2017 is not as great as the previous
year. On the other hand markets are watching the ECB on Thursday to ascertain
what Draghi has in mind for the Euro and whether the single currency will be
allowed to appreciate.
USDINR NDF 1m has moved 7.5p left as compared to 3p left
yesterday indicating offshore selling. Debt inflows along with Masala bond
conversions due tomorrow would be leading to selling in the offshore market. Other
EM currencies have not registered incremental appreciation since yesterday
therefore we might see significant Nationalized bank buying around 64.30.
Yesterday nationalized banks bought aggressively at 64.44 levels. Debt inflows
continue to pour in with USD 4bn coming in April too. Given the global risk on
construct indicates USDINR might break the support zone of 64.25-64.30 today or
overnight. CMP 64.32, Range 64.38-64.25.
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