Weaker US data (CPI and Retail sales) has not had a material
impact on short term US yields (US2yT yields came down by 4bps). Fed speakers
now would determine if the FED would want to change its June rate hike outlook
although it looks unlikely given their hawkish tone recently. Recovery in
commodities over the last 10 days would keep the reflation trade alive helping
EURUSD move higher with support from weaker US data.
India CPI print below 3% on Friday would make the market
believe that there is more than trivial chance that the last rate cut of the
cycle by RBI is not behind us. This should facilitate further inflows in bonds
which have been registering steady and large investments consistently. On the
other hand we continue to hear of inflows on account of various IPOs and QIPs
which should keep USDINR capped at 64.25 in May with a possibility of 63.50
before month end. USDINR 1m NDF is trading 5p left while other EM currencies
have also appreciated on account of weaker US data. The lower CPI pricing in
USDINR is still pending I would think. We have seen mild bids from Nationalized
banks since morning. CMP 64.06, Range 64.11 – 63.90.
Good analysis..
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