The war of words between Trump and North Korea has resulted in a mild risk off affecting Asian equities, JPY and KRW in particular. North Korea is backed by China and too close to South Korea and Japan for a war to result. My ongoing belief is that in a globalized world two large countries of financial significance don’t fight a traditional war, in this case China and US. US would attack NK only if China withdraws support which would not happen as NK is a substantial bargaining chip for China to keep control over Japan and SK. Thus the arm twisting is likely to continue without any on the ground action unless Trump decides to do something which is not rationally foreseeable.
Yesterday US job openings data resulted in moderate rebound is USD index while today morning’s Chinese inflation data has resulted in CNH appreciating in spite of the NK concerns. USDINR 1m NDF is trading only 3.5p left which is half of the spread last week. Yesterday INR bulls started again by selling at 63.75 and have been doled out the recurring NK news which would make me think that USDINR can head higher today as shorts exit. Equity markets are in red are is on its way to register the first weekly loss since June 2017. INR has generally reacted more to geopolitical news than other EM currencies like SGD. Medium term view for INR remains of appreciation towards 63.20 (Aug end). CMP 63.77, Range 63.72-63.91.
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