News that China will launch a crude oil contract denominated in Yuan and backed by gold is perhaps the most significant step àny country has taken in recent times to counter the US. In the longer run what this means is that China doesn’t need its $3 trillion of reserves as Yuan could become an international currency. US Federal reserve bank today has only $120 bn of FX reserves. What this means is that oil can be traded in another currency except USD which would mean that other countries need to hold lesser USD and more Yuan. The said Yuan oil benchmark is in its infancy but this is part of the war between the US and China which is now being played out in oil markets along with North Korea and South China sea. On the other hand an appreciating Yuan should put appreciation pressure on INR because of trade linkages between the two. But all this is in the medium to long term and right now we need to continue to see CNY movements which could have implications on dollar weakness and further INR strength.
On the NK crisis news reports suggest that UN will vote for tougher sanctions on 11th Sep while China might come up with oil supply cut and choke North Korea. The comments of the US ambassador to the UN seemed mild and reinforces the deduction that US cannot act against NK given the geopolitical sensitivity. Euro holding up above 1.19 shows the buying pressure on the currency as market awaits the ECB meeting on Thursday.
USDINR 1m NDF is trading 6p left while other EM currencies suggest that USDINR should between 63.66-64.00 levels. Equity markets are in mild green even as JPY and CHF indicate towards mild risk off. KRW has depreciated mildly since yesterday while CNY appreciated to 6.5150 before bouncing to 6.5350 in the morning. CMP 64.15, range 64.20-64.00.
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