Post the robust print in New Home Sales USD weakness paused and Euro fell from 1.1960 to 1.1900 levels. Powell’s senate testimony showed nothing substantial except for the fact that he is likely to continue the Fed’s trajectory of gradual rate hikes. In an otherwise risk on and dollar weakness environment, the factors to watch are falling Chinese equities, Nov 30th OPEC meeting and the senate vote on the tax bill, which can temporarily change either of the trends.
Gujarat election results can play a critical role in developing a medium term USDINR view. I would think that in spite of the headwinds that the incumbent BJP faces, the opposition might not be able to convert the recent gains into votes. In case of a convincing BJP win (120+ seats) we can see a bout of inflows into Indian equities (somewhat like post UP but to a smaller extent). RBI has already bought much more than 2% of GDP in USDINR in CY2017 and in case of large inflows it would have no choice but to allow INR to appreciate supported by dollar weakness. Therefore opening the doors for new lows. Having said this 64.20 levels would continue to be a strong support.
USDINR 1m NDF is trading left while USDINR made a low of 64.35 in the offshore markets yesterday before opening at 64.53 again. TRY and ZAR registered sharp appreciation yesterday on the back of dollar weakness while KRW and CNH are trading stable without incremental gains. Equity markets are slightly in the red while I would expect Euro to be well bid in the European session. CMP 64.59, Range 64.65-64.35.
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