Friday, September 1, 2017

INR update: September is INR's month to register further appreciation


US PCE (YOY) increased from 0.2% in Nov 2015 to 2.2% in March 2017. Since Mar 2017 it has fallen to 1.4%. Basis this measure the chances of the FED going ahead with the Balance sheet reduction in September 2017 FOMC is limited, but the FED seems pre committed as of now. Today’s wage growth in NFP release would tell us more. On the other hand EU inflation which fell from 2% in Mar 2017 to 1.3% in July has registered an uptick to 1.5%. Euro can be bought with a stop below 1.1850 for a move back above 1.20.

 

September is the second most positive month for INR after March. In this Financial year FPIs have pumped in only USD 1bn into Indian equities which would make me expect equity FPI flows in September. Other capital account transactions like ECBs/FDIs also tend to get clubbed in quarter ends. CNH appreciation has not been reflected in INR till now even though geopolitical tensions have reduced. Basis these factors if INR has to continue its appreciation trajectory then we might see a move lower to 63.20 in the month of September.

 

USDINR 1m NDF is trading 5.5p left while other EM currencies have registered moderate appreciation. Asian equities have moderate gains as dollar weakness returns post 2 days of a strong correction. India’s GDP growth was a negative surprise and hopefully it will make the government take more growth focussed measures and also make the RBI consider incremental rate cuts. CMP 63.93, Range 63.98-63.85.

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