US tax reform announcement was as expected, ambitious. Whether it passes and becomes legislation or not will be seen in 2018 but what would become clearer in the near term are the budgetary implications of the plan. To take a step back the tax reforms or fiscal stimulus was first ideated in Jackson Hole 2016 from where the FED has accelerate policy normalization and now a fiscal stimulus is being worked upon. This essentially means that the trajectory for US yields is on the higher sides as US government’s appetite for fiscal deficit increases. With higher US yields we should see USD strength against low yielders like JPY and EM currencies like INR. EURUSD should not lose as much given that EURO story is more to do with reserve reallocations with improving political scenario.
Nifty is showing increasing signs of weakness as FPI outflows continue. NDF 1m USDINR is trading 3.5p right indicating sustained offshore buying. Other EM currencies have depreciated 0.5% or more since yesterday same time. IPO post allotment outflows should result in significant USDINR buying today. 65.50 was 200 DMA and that has been convincingly broken which should make the medium term target 66.50 for USDINR. CMP 65.87, Range 65.75-66.05.
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