The FED minutes indicated significant chances that there could be more than 3 rate hikes in 2018. This led to higher US yields while the dollar index continues to strengthen on the back of stronger US economic sentiment. BOE was hawkish as well making the broader equity markets shudder with fears of increasing rates globally and spoiling risk sentiments. Dollar index (CMP 90.08) faces resistance at 90.50 levels and a weekly closing above that could trigger another 2% up move. The broader dollar weakness view continues to hold till we get a weekly close above 92.51.
The RBI minutes showed concern on inflation and consequently India 10 Y yields are higher at 7.78% against a close of 7.71% yesterday. USDINR 1m NDF is trading 3p right indicating offshore buying pressure. The up move in USDINR has been led by offshore buying as outflows from equity and debt pick up. The higher yields could result in panic buying of the pair even though currently nationalized banks continue to offer. A weekly close below 64.87 (unlikely) can reverse the move while the next target on the higher side is 65.55 and then 65.90. CMP 65.03, Range 64.90-65.30.
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