Draghi perhaps took the first step to exit the continued
accommodation in the EU and now Friday’s EU inflation data will be keenly
watched. Fed speakers including Yellen implied that financial stability is
there bigger priority and equity markets look overvalued, therefore we can see
a phase wherein the FED proceeds with their rate hike rhetoric in spite of
small correction in equity markets. On the other hand IMF reduced US growth
forecasts from 2.3% to 2.1% while the Trump administration lost further
political capital as health care bill was postponed for voting in the Senate.
Today at 7pm IST 4 central bankers speak including Carney, Draghi and Kuroda,
where Draghi can be expected to stand out driving EURO further higher.
CNH has appreciated from 6.8470 to 6.80 currently, a large
move of 0.8% which has been ignored by other asset classes. Yesterday everyone
focussed on EUR gains leading to EUR EM carry trade unwinds as yields in DM
went higher. CNH is the single most important currency mirror for INR, in my
view and a 0.8% appreciation in CNH in 1 day should be reflected in INR over
the next week or so. This could be complemented by quarter end selling tomorrow
and day after and debt inflows in the first week of July as RBI increases
limits. I would expect USDINR to head towards 64.25 in a week’s time.
For the day USDINR 1m NDF is trading 4.5p left while
equities are flat. KRW levels do not support the INR appreciation view
currently as EM currencies face mild carry unwind pressure because of EUR and
GBP gains. Debt and equity inflows continue to trickle in. CMP 64.56, Range
64.67 – 64.45.
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