INR update: Headed to 63?

Although Fed speakers yesterday lowered interest rate hike expectations but US yields did not weaken as much as the comments would warrant, this goes to show that the reason for US 10 Y yields hovering around 2.3% is on the back of expected balance sheet reduction and the next big fall in US yields and dollar can come if the FED doesn’t deliver on it in September. It’s a data heavy day in EU and the US along with the BOE.

 

Before the policy, the RBI yesterday allowed INR to appreciate, reasons unknown. There was nothing in the policy that should have affected INR as yields are more or less there only. But post the policy USDINR levels below 63.90 triggered a fresh round of selling and now has pushed the pair in a new price spectrum. Looking at the larger picture USDINR has broken 200 week MA at 64.16 last week, and has gained momentum this week, which should be significant and in my view can take the pair towards 63 in a few months or may be a fortnight or a week. The next big move in USDINR could come if debt limits are increased or USD weakens because of delay in balance sheet reduction in the US.

 

USDINR 1m NDF is trading 7.5p left. Asian currencies are weaker and USDINR is not tracking other EM currencies, otherwise it should have been 64.20 now. I would ignore other EM currencies for today along with equities. USDINR has broken a crucial range and would put participants in a stop sell mode be it the ones who had sold puts or the exporters who didn’t hedge. Nationalized banks are on bids now but as I said RBI allowed appreciation yesterday so it must be for more than 50p. CMP 63.62, Range 63.75-63.45.