Yellen’s one comment on Wednesday that rates need not be raised as much further to arrive at a neutral rate, was taken as dovish but since then market seems to have reverted to the higher yields trend. With BOC raising rates AUD has rallied as markets would expect the same from a similar economy. I would think that in an environment where equities are near life time highs there is no reason for central banks to tone down the expectations about tapering or balance sheet reduction. In this context the Euro looks like a good buy given the fact that it has not been able to sustain below 1.14. Today’s retail sales and CPI in the US can alter the yield curve and therefore global currency markets significantly.
USDINR 1m NDF is trading 5p left indicating the highest offshore selling we have seen in the last 2 weeks. According to my back of the pad calculation it seems that RBI has already bought USD 35 bn (after currency and yield revaluations) from the market in CY 2017. If RBI respects the USs 2% of GDP limit for currency intervention, then it has another USD 7 bn to buy for the remaining 5.5 months. Yesterday nationalized banks bought aggressively in the market and protected INR from appreciating. Debt inflows continue while equities flows are mixed to smaller. Other EM currencies are flat to moderately positive since yesterday while Asian equities are flat as well. In the medium term range (64.25-64.85) should hold unless huge inflows come in or other EM currencies appreciate, both look unlikely as debt limits approach its brink and US yields stay firm. CMP 64.46, Range 64.39-64.55.
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