USD weakness against EURO, GBP and JPY returns as the FOMC was digested by the markets. AUD fell on account of dovish central bank speech saying that Australia has no intention of joining the global rate hike bandwagon. Korea again said that it would like to test a hydrogen bomb driving risk off sentiment in Asia.
The India macro issues story has just been noticed by the markets at large so it will take time before things cool off. Markets would now focus on the incremental problems that can arise as fiscal room tightens. Oil price rise will create fiscal and inflation jitters. Capital account outflows can drive yields higher thereby affecting equities. RBI is unlikely to support INR as exporters need the shot in the arm and it seems that the government thinks that a higher USDINR would be good thing for exporters at the cost of national financial confidence. Best thing is to stay with the trend and set small targets, currently the same for USDINR is 65.56.
USDINR 1m NDF is 8p right which shows the kind of offshore buying that’s driving USDINR higher. EM currencies have depreciated overnight but USDINR is an individualistic story currently. Equity markets are significantly in the negative and I would not buy the theory that stimulus will help equities immediately. There can be some announcement by the government during the day creating volatility in the markets. 64.80 looks like a good support now till the time things change considerably. CMP 65.07, Range 64.90-65.30.
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