Fed’s Bullard continued to be dovish on further hikes saying that even if unemployment falls to 3%, inflation would only rise to 1.8%. This was expected as Bullard has indicated similar views before, but it also indicates that the FED will have to think hard before embarking on balance sheet reduction as that would lead to further lowering of inflation expectations. A failure to announce balance sheet reduction in September might lead to dollar losses as the same is substantially priced in currently. It’s a data light day with Job opening reports in the US being the most important.
CNH has appreciated 0.3% since yesterday on the back of improving Chinese data. KRW has registered mild appreciation along with other EM currencies. USDINR 1m NDF is trading 5.5p left indicating reduced selling pressure in the offshore market as compared to last week. Debt inflows continue to trickle into corporate bonds as government bond limits are nearly exhausted. Another 4-5k crs of limits can gradually be utilized (ignoring state government bond limits). I would continue to stick to the major trend of INR appreciation. A break of 63.90 will open the risk of 64.20. CMP 63.73, Range 63.80-63.55.
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