Reports that Trump will come up with his infrastructure plan in Jan 2018 boosted the dollar unexpectedly while the debt ceiling deadline was postponed till 22nd Dec 2017 which helped the cause as well. Today we have the NFP wherein recent ISM data suggests limited room for disappointment, therefore I would expect dollar index strength going into next week’s FOMC.
Next weekend (18th Dec) we have the Gujarat election results while on the 14th Dec evening we will have the exit polls. Basis reports, I would think that a BJP tally of 120+ will be pro risk and 100- will be adverse for sentiments. In case of 120+, USDINR trends lower but RBI would continue to intervene unless fresh FDI and FII flows also flow in, therefore from a trading perspective the risk reward lies in higher USDINR. I would think that the market is not positioned for the same and that positioning should happen between today and Wednesday, which can take USDINR to 64.85 levels. Caveat is there is a PSU inflow of USD 500 mio between today and Tuesday (not certain) and the positive equity markets can also keep USDINR offered.
USDINR 1m NDF is trading 1p left as compared to 2p right yesterday. EM currencies have depreciated yesterday on the back of dollar strength and local factors in a few countries. Asian equities seem to have broken their losing streak and are substantially in the green today. FII flows into Indian equities are substantially in the red while debt flows are positive but not huge. India 10 Y yields are at 7.08% again showing lack of positive sentiments. Since morning we are seeing selling pressure in USDINR from various banks. CMP 64.48, Range 64.44-64.60.
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