INR update: Cautious FED and CNH appreciation

The FED wants more evidence to ascertain that the economic weakness is only transitory, before hiking rates. The evidence received after the meeting therefore is likely to indicate that the economic weakness was not transitory and therefore I would think that US near term yields can fall more in the next week driving USD index lower. At the same time Draghi said that asset purchases can have more undesired side effects than negative interest rates hinting at ECBs growing discomfort with its asset purchases program. Next week sometime we have the Comey testimony and I would continue to pay attention to FED speakers for June rate hike probability movements. I continue to hold USDJPY shorts and EURUSD long views.

USDCNH moved lower today from 6.88 to 6.8650 as nationalized banks in China sold dollars (perhaps in defiance of the severely criticised Moody’s downgrade) . This is one of the sharpest movements in CNH that we have seen in the recent past. This along with KRW appreciation led to a stronger opening in INR although India Pakistan related military skirmish will prevent any sharp appreciation in INR immediately. FPI flows in equities are largely negative while debt inflows are mildly slowing down. USDINR 1m NDF is trading 7p left showing offshore selling pressure. Looking at CNH significant up move in USDINR is unlikely today. CMP 64.55, Range 64.60-64.45.