INR update: Slowing inflows and rising trade deficit

US short term yields fell by 4bps on the back of weaker US data while the GDP tracking for Q2 for US were revised downwards. Consequently the mild dollar strength seen since the FOMC fizzled off. This week the focus will be on FED speakers as the data calendar is light (housing on Wednesday and Friday).

USDINR led the appreciation in EM currencies on Friday. Chatter hinted at central bank intervention near 64.70 which was later accelerated by others. While the longer term trend in INR could be of appreciation, but the turn in central bank strategy globally could create spikes in US yields as fresh data and FED comments come in which could result in the pair moving towards 65 in the medium term again. Equity flows have been flat while debt inflows are coming lower as limits are exhausted and local yields fall. Trade deficit numbers indicate that in the absence of FPI flows we might see some buying pressure on the pair. I would want to enter the pair from the long side near 64.30 levels. CMP 64.35, Range 64.28-64.50.