US house passed the tax bill and that failed to boost the dollar although yields did move higher moderately. This shows the gathering belief in the resumption of dollar weakness. US data continues to be robust even though yield curve continues to flatten, indicating a market belief that inflation is not going to rise to higher levels. A flatter yield curve could show that a recession is approaching but looking at the US, EU, Japan and a recovering China it looks unlikely and therefore I would think the other alternative is for the longer run US yields to rise on the back of increasing fiscal deficit in the US.
Moody’s gave a big boost to India confidence levels by doing a rating upgrade by 1 notch. USDINR closed at 65.30 and opened at 64.75 levels onshore making a low at 64.60. Since then we have seen nationalized banks buying. Participants were not materially short yesterday so I would not think that people would buy to take profit at these levels. General market view yesterday was of a higher USDINR and therefore there would be more longs than short. Yields look attractive for bond inflows (-10bps since yesterday) and there is Rs. 15k cr limits left in corporate and GSECs for further investments. Other EM currencies have appreciated since yesterday as NDF 1W and 1M trade flat as compared to yesterdays 2-3p right levels. After the initial volatility I would think during the day exporters and fresh shorts would enter USDINR. CMP 64.77, Range 64.85 – 64.45.
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