INR update: Dollar weakness, reduced borrowing, RBI policy next week

The Dow was not able to hold onto Monday gains. A weekly close below 23500 on the Dow can open the way for 22900 (CMP 23850). US treasury 10-2Y spread is at 51bps which can make the USD index trend lower, below 89.20 we can expect 88.5 (CMP 89.3). The overall market sentiments seems to be that of a moderate risk off on the back of trade concerns plus tech stocks sell off. In the midst of this currencies should continue to be in broad ranges except USDJPY which can trend lower with risk sentiments supporting  a stronger Yen.

INR’s correlation with CNH has become very low and off late it does not seem to be closely  following dollar weakness or strength either, may be because of the financial year end flows. Since yesterday it has jumped up by 30p and after 12-30PM today I would expect some correction.  India 10Y yields have come off from 7.63 to 7.30 on account of reduced borrowing for the first half of FY 19. This, dollar weakness and RBI policy next week (where could be some increase in bond limits) could bring in a temporary bout of INR appreciation (64.50 next week?). The view for the next quarter is that of slow INR depreciation towards 66. For the day CMP 65.01, Range 65.10-64.89.

INR update: Trade Tariff a Euro Positive while EM currencies could weaken

Historically the US push for free trade was based on the premise that the world needed dollars to trade goods, which in turn gave dollar the reserve currency status. This in turn ensured that in spite of high current account deficit the dollar remained strong during crisis situations and otherwise because the world needed to hold its savings in the USD. Now if the US is retreating on its free trade agenda then the world will go back from holding dollars. This is more relevant in case of China which has more muscle as compared to other countries. One and a potent form of retaliation from China could be to shift reserves from USD to most probably Euro. This should manifest in higher US yields and higher EURUSD as this trade standoff extends (contrary to the initial market reaction). I would think that EURUSD could be bought for 1.2550+ levels with a failure below 1.2250. Meanwhile USDJPY continues to move lower and has the potential to move to 103.30.

This is not exactly a dollar weakness story for EM currencies (perhaps Yuan is no more an EM currency). Trade standoff should drive equities lower and countries with inflexible imports like ours could see their currencies depreciating. 1m NDF onshore spread indicates mild buying pressure on USDINR while EM currencies have depreciated over night. Losses on Nifty can extend further than the current 1.38% during the day as the external negatives will only add to the adverse domestic sentiments. The March end INR appreciation yesterday stopped at 65.05 and for now the pair is likely to test 65.30 again. CMP 65.17, Range 65.12-65.30.

INR update: Hawkish but under confident FED drives USD lower

INR update: Hawkish but under confident FED drives USD lower

The FED kept total 3 rate hikes for 2018 intact while increased 1 rate hike forecast for 2019 and 2020 each. So the FED was hawkish but dollar sold off. The reason for this confusion could be that while the FED upwardly revised GDP growth forecasts for 2018 and 2019 it left the 2020 forecasts flat at 2%. Market perhaps focussed on the economic outlook more than any other forecasts and decided that the projections still included doubts on long term sustainability of growth in the US. The FED also acknowledged that trade tensions would become a concern for the committe going forward. The 10-2 US treasury spread consequently remained at 58 bps (yesterday at 55bps). Once the FOMC was behind, the market also focussed on the white house announcement that on Friday it will announce new trade restrictions against China. News on Trade war has been dollar and equity negative. For some time, headlines from trade protectionism should continue to drive the markets. Today the BOE might provide an opportunity to buy GBPUSD at a lower rate in case the central bank turns out to be more dovish than market anticipates.

USDINR 1m NDF spread continues to show mild offshore buying pressure. Asian equities are mixed while dollar has weakened across the board. The INR negative rhetoric on account of stoppage of buyer’s credit is perhaps behind us. USDINR has traded in the broad range of 65.25-64.85. I would think that during March end it can head back momentarily below 65 while in April it should head towards 66. CMP 65.10, Range 65 to 65.15.

INR update: FOMC decision awaited

The dots for FED rates for 2018 and 2019 would be critical along with the inflation forecasts, in the FOMC. A higher fed rate forecast could lead to flattening of the 10-2 US treasury spread leading to equity losses and dollar weakness. On the other hand if the outlook on the economy and inflation is more positive leading to US10Y yields rising, then we can see dollar strength and gains in equities. After the FOMC and press conference if EURO continues to trade above 1.2264 then it can be headed towards 1.245+ levels again.

The Dow recovered yesterday in spite of negativity surrounding Tech companies. Asian equities are in the green while Asian currencies are trading flat ahead of the FOMC. USDINR 1m NDF continues to show mild buying pressure on the pair. Although fundamentals locally look negative for INR, an immediate run up above 65.35 looks unlikely on the charts. The pair should trade in a tight range ahead of the FOMC today. CMP 65.21, Range 65.15-65.30.

INR update: Dollar strength and mild risk off ahead of the FOMC

The dollar index is gaining strength ahead of the FOMC (21stMarch) where the markets expect the committee to be more hawkish with 2018 forecasts on rate hike, economic growth and inflation forecasts for 2020-21. The price action could be similar to what happened during the last ECB where market expected the ECB to remove the statement concerning addition APP, and it did, Subsequently Euro rose by 50 bps and then got sold off by 150bps. Similarly dollar strength could continue till the FOMC is behind us taking the index to 90.55/90.93 levels (CMP 90.3).

Risk sentiment continue to remain subdued while USDINR 1m NDF shows mild buying pressure. This along with dollar strength should keep USDINR well bid during the day. I continue to expect the range of 65.20-64.64 for the rest of March while a sharper INR depreciation (till 66) can be expected April onwards. CMP 65.02, Range 64.99-65.09.

INR update: IPO and debt inflows eyed

Continuous white house restructuring and the joint comments (from Nato members) against Russia (on the nerve gas incident) are perhaps keeping the markets slightly short of confidence even though  US data came in positive. Kuroda was reinstated as BOJ governor for 5 years which ensures that the yield curve control stays in place and therefore gradual Yen appreciation should continue. Market ascribed the strong dollar comments as the reason behind the bounce in dollar index, but I would think it is the range rather than any specific reason.

India’s trade deficit came in better than expected at $12bn to which INR did not react by much. 1m NDF-onshore spread indicates slight buying pressure at 1p. Participants are slightly short USDINR in spite of negative local sentiments because of expectations of inflows from ongoing/linedup IPOs of Rs. 13,000 crs and certain other debt drawdowns of around $650 mn. This will continue to ensure than 65.05 is protected in the short term while a couple of hours of trading below 64.85 can take us to 64.64. The next substantial up move in USDINR could come in April 2018 only as seasonality stops supporting INR. For the day, CMP 64.92, Range 64.80-64.98.

INR update: US starts focussing on India's bilateral trade surplus

US10-2Y spread is back at 55bps from almost 80 bps a month back and 65bps a week back. This indicates the increasing lack of confidence on sustainable US growth given the trade rhetoric plus the lower revised GDP forecasts after yesterday’s retail sales disappointment. The decreasing spread is dollar negative. On the other hand Larry Kudlow (the new Economic advisor to Trump) believes that a strong country needs a strong currency and he asserted that Trump also believes in the same. With this and the confusion that Mnuchin created in Davos we have no clue what the Trump administration really wants and therefore the price action is what we should focus on which for now seems to be headed towards 89.25 and then 88.5 for the USD index, CMP 89.65.

The US has apparently moved against India’s export subsidy in the WTO. This along with the recent comments on motorcycle import duties suggests that in April when the US treasury comes out with the watch list for countries indulging in currency manipulation (which is likely to include India given that RBI bought more than $56bn of FX to prevent INR appreciation in CY 2017); the bilateral trade surplus that India has with the US is going to come under pressure, which could increase India’s trade deficit further. Although this will unfold in several months but it’s important to keep an eye on these developments.

USDINR 1m NDF is trading flat while EM currencies have depreciated slightly since yesterday given the negative equities. Several IPO flows could prevent USDINR from crossing 65.05 for now while we saw strong bids at 64.85 levels yesterday also. The increasing hard stance on free trade in the US is likely to keep risk off the table in the near term. With this the range for USDINR for March should be 64.64-65.20. For the day CMP 64.93, Range 64.85-65.05.

INR update: Dollar weakness as Trump gets bolder; RBI bans LOUs

Tillerson’s firing raises concern on the possibility of Trump scrapping the Iran deal or pressing ahead with further sanctions on China after accusing the country of violating intellectual property rights. This would lead to a heightened trade war and retaliation because of which we are seeing the overnight dollar weakness along with equity losses. A 4 hourly break of 89.25 on the dollar index would bring on 88.5. On the other hand USDJPY if it trades below 106.50 for a couple of hours more, then it can head for the recent lows again.

RBI banning LOUs will ensure that the buyer’s credit as a product is not available to the Indian importer. The alternatives are INR credit and suppliers credit. Supplier’s credit takes time to set up as it needs change in invoicing and could also entail the supplier accepting a bank’s facility letter as it becomes financial creditors in the suppliers balance sheet. Therefore the easiest alternative is INR credit which would result in buying pressure on USDINR as short term debt in the economy unwinds. On the other hand lack of buyers credit would reduce the paying pressure on forwards resulting in forwards coming lower. Thus in spite of dollar weakness the buying pressure on USDINR should keep the pair in the range of 65.10-64.90 for now. The upcoming IPOs could result in testing of 64.64 during next week, but temporarily only.

INR update: India CPI and trade balance could keep rupee under pressure

The NFP brought cheer to risk assets with higher job creation and lower wage growth. This makes tomorrow’s CPI print in the US the next important data across asset classes. US equity markets are within 3% range of all time highs while DAX and locally Nifty continue to lag behind. US10 year would need significant inflation pick up for it to cross 3%. USD Index continues to remain in a narrow range with 90.5 as a strong resistance.

NDF shows mild buying pressure while EM currencies have appreciated along with the risk rally overnight. Today we have the India CPI (prior 5.07%, consensus 4.74%). Trade number should be out on 15th or 16th March (prior -$16.2 bn, consensus -$14.2bn). Going by the past few months both these prints can put upward pressure on USDINR, driving the pair again  towards 65.20 or slightly higher during the week. But once these 2 prints are digested, markets might look at seasonality and financial year end flows which can take the pair towards 64.60 by the end of the month. CMP 65.00, Range 64.95-65.10.

INR update: EURO surprises, NK talks peace, NFP awaited

The ECB removed the line that they will increase the APP if required, which was hawkish and took EURUSD to 1.2440. But the lower revision in inflation forecasts (10bps) and a dovish Draghi during the press conference resulted in EURO getting sold off to the current 1.231 levels. A break of 1.2264 could take the EURO lower than 1.2150 now.

Asian markets cheered up on the news that NKs Kim is going to meet Trump before May 2018. This is unprecedented and perhaps brings in the possibility of a nuclear weapons free Korean peninsula. On the other hand markets ignored the fact that Trump signed the tariffs for steel and aluminium and put the economic world on the brink of a trade war. Today we have the NFP which will decide the course for the dollar index into next week.

USDINR 1m NDF is flat while FIIs continue to pull out small chunks everyday from debt and equity markets. The view of INR appreciation gets checked given the turn in EURUSD and dollar index. Although equities in Asia and locally are in the green, but we have seen significant bids in USDINR irrespective of equity gains yesterday and today morning. CMP 65.10, Range 65.04-65.24.

INR update: Trump pushes ahead with tariffs, ECB comments awaited

Trump is likely to sign the trade tariffs today which can push the dollar lower. But before that we have the ECB which the market had expected to be relatively more hawkish giving incremental details on tapering. But with the dark clouds of trade wars rising, I suspect that ECB could end up giving itself more time before it signals further withdrawal. This could temporarily push the EURO lower towards 1.2350, a level that should hold. Once the ECB is behind us we could start seeing dollar weakness again as the market looks ahead to the NFP tomorrow.

USDINR 1m NDF is trading flat, it was trading 4p right 2 days back. EM currencies are trading flat while Asian equities are trading in the green. Although equities look weak, March seasonality, flows, recent price action and most importantly dollar weakness makes me think that INR can move towards 64.64 levels in the next week or so. CMP 64.98, Range 65.05-64.87.

INR update: Protectionism worries rise

Markets as it is had ignored the threat of North Korea and therefore the positivity around the announcement that North Korea is ready to talk denuclearization was short lived. Gary Cohn’s resignation made markets think that Trump is more serious about import tariffs and/or pulling out of Nafta than what markets assumed yesterday morning. There is also chatter that Trump is preparing further tariffs on Chinese imports. Cohn’s resignation also puts into doubt the rollout of Trump’s infrastructure plan which was one of the causes for the recent recovery in equity markets. This has led to Dow futures trading 1.5% in the negative today morning. Protectionism rhetoric should continue to push USD lower against other G7 currencies.

 

USDINR 1m NDF is trading 1p right as compared to 4p yesterday. KRW appreciated along with most other EM currencies after the North Korea news and then the dollar weakness. Although Dow futures is down 1.5% and Nifty is looking like it can head into a digit lesser, INR should follow currency markets and upticks in USDINR should be sold. CMP 64.96, Range 65..05-64.80.

INR update: The noise of trade protectionism; local macros worsen

Since the US economy is at full employment it would not have surplus labour to create jobs in steel and aluminium manufacturing at sustainable costs and therefore the impact of the tariffs on the US economy would be negative. Thus it should be a non starter, even though Trump’s proposal would give him enough mileage with his voters for at least trying. The rhetoric of trade protectionism will ensure that other currencies maintain strength against the USD. The levels to watch for the USD index is 88.5-90.50 (CMP 89.95). Mnuchin testifies in front of the appropriations committee (8-30PM IST) today which can move the greenback.

In an environment where global PMIs are rising, India’s service PMI came in at 47.8 indicating contraction. This lower growth indicator along with below expectation GST collection numbers with rising inflation and current account deficit does not auger well for INR. It also creates doubt whether the political stability that Indian has witnessed will continue after the 2019 elections. Thus, in an environment where dollar weakens INR will appreciate moderately, but when we see corrections in USD fall then I would expect USDINR to make new recent highs.

USDINR 1m NDF is trading 3p right which should bring in bids in the on shore market. EM currencies have mildly appreciated with equity markets rising. India bond yields continue to rise. CMP 64.99, Range 64.88-65.05.