With US tax reforms passed and digested by markets, risk sentiments need a fresh impetus to continue soaring. Till then we are witnessing December profit taking in equity markets globally. Global PMIs hover around 54 which would suggest substantial scope of improvement going forward. In the US the focus might gradually shift to the Mueller’s Russia investigation where Trump’s position is weakening gradually. The view remains of a weaker dollar which has been corroborated by the fact that the actual passing of the bill last week, was not able to boost the greenback either.
Today we have the RBI monetary policy where higher inflation reading since the last policy would prevent the RBI from cutting or sounding dovish. The RBI could actually sound hawkish with higher inflation projections for 2018. USDINR had moved lower in the last couple of occasions before and immediately after the policy. But with the central bank likely to be less dovish in a relatively lower growth environment, I would think this policy could bring in a mild risk off immediately after driving USDINR higher.
USDINR 1m NDF is trading 2.5p right while other EM currencies have depreciated since yesterday. Asian equities are deep in the red with Nifty slipping gradually for the last 1 week. I would expect USDINR to head higher before the Gujarat election results next weekend. For the day, CMP 64.42, Range 64.34-64.65.
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