INR update: Oil falls with EM currencies

Another FED member (Rosengren) highlighted low interest rates as a risk to financial stability, essentially reiterating the FED’s concern on easy financial conditions. Oil prices fell on the back of a supply glut creating moderate risk off across asset classes with RUB falling over 2%. Over the weekend Russia said it will target US fighter jets in Syria after US struck down a Syrian jet. If the US and Russian tensions are for real then oil prices can fall further given my belief that US uses oil as a leverage against Russia. Brent prices below 50 is neither good for risk nor for global inflation.

EM currencies weakened with fall in oil prices even though US yields softened mildly. USDINR 1m NDF is trading 5.5 p left which indicates some selling pressure. In the recent past depreciation in INR has been on the back of dollar strength which doesn’t seem to be the case currently therefore I would expect limited upside in USDINR on the back of this move. SGD depreciation is also controlled as compared to other EM currencies along with CNH which perhaps is also positively affected by MSCI inclusion. Equity markets in Asia are moderately in the red. I would expect a lower high in USDINR as compared to last week’s 64.74 and would try and trade the range of 64.70 – 64.35 (intra week). CMP 64.63, Range 64.68-64.45.