Tuesday, April 25, 2017

Morning INR update: Weaker US data and stronger equities

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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