INR update: Higher global yields could lead to further INR depreciation this week

The Euro weakened ahead of Thursday’s ECB as markets unwound longs fearing a dovish ECB, given the weak string of EU data since February. US bond yields rose and the curve steepened again, as markets shifted focus away from trade wars and geopolitical tensions. This week we have the BOJ and if there is any JPY appreciation decision post the Trump-Abe summit, then the BOJ could be the catalyst for the same to be implemented. I would look to sell USDJPY near 90.5 on dollar index, while EURO can head to 1.2150 by Wednesday.

 

USDINR 1m NDF is 6p right as offshore buying pressure continues. Bond outflows continued at a heightened pace while dollar strength kept other EM currencies under mild pressure only. The bulk of USDINR move is India specific while dollar strength expectation this week can take the pair towards 66.55 levels. Oil prices and India 10Y yield continue to be the most important driving force behind USDINR currently. CMP 66.23, range 66.11 to 66.45

INR update: Rupee reaches critical levels

Dollar index registered moderate gains as 10-2y yield steepened. Into next week’s ECB, Euro might register losses on the back of recent weak data which could result in a more dovish tone from the central bank taking the dollar index towards 90.5 levels.

 

USDINR 1m NDF is trading 6p right which along with the move up to 66.15 yesterday shows strong offshore demand. EM currencies have depreciated along with INR overnight as equity markets in Asia today is in the negative. Bond markets locally today seem to be much more stable even though bond outflows continued yesterday. Since last 3 days price action suggest that RBI is undertaking decisive intervention during the day. I would continue to think that RBI would not allow standout INR depreciation. On a weekly basis a close above 66.10 could open flood gates of new buyers for the pair bringing the next 1% up move sooner than expected. On the other hand a close below 66.10 could put the pair in the new range for consolidation before it moves up higher towards later. CMP 66.04, Range 66.10-65.85.

INR update: Higher Crude and local bond selloff

Metals and commodities came under pressure over supply concerns relating to the trade sanctions put on Russia meanwhile the flattening of the US curve continued to gather attention but with limited impact on other asset classes. The beige book survey revealed that steel and aluminium stocks are being built in fear of increased tariffs and the price rise is being fed to customers in some cases, this could firm the inflation expectations in the near term make the yield curve flatter. Trump and Abe’s summit resulted in expected and measured statements.

 

Brent trading at 73.9 levels and India 10 Y at 7.59% (yesterday 7.54%) would continue to put pressure on INR. EM currencies have mildly appreciated since yesterday although USDINR did not show signs of coming lower in the offshore market. Bond outflows continued along with moderate equity outflows. Price action suggests that RBI sold USDINR yesterday above 65.75 and today at 65.85 levels, giving me confidence in my belief that RBI would not allow a runaway INR depreciation considering its large reserves. CMP 65.79, Range 65.74-65.95.

INR update: Expecting controlled and gradual depreciation in INR

Dow rallied yesterday on the back of stronger reported earnings while the volumes on the exchange was one of the lowest in this calendar year. On the other hand the 10-2 spread continued to narrow in the US (43 bps), which could now propel dollar index lower. The lower volumes and narrower 10-2 spread makes me think that equity markets could have limited upside from here in the medium term, although a sharp fall is something one cannot bet on either.

 

USDINR 1m NDF is trading right by 5.5p as compared to 4p yesterday. We saw large outflows in bonds and equities yesterday while India 10Y yields continue to hover around 7.5%. Although the sentiment in USDINR looks like that the pair should go higher but I would expect 66.10 to hold for a month at least. Sharp INR depreciation would result in higher capital outflows and thereby could push yields higher as well. This could compound the problems for the government on the fiscal front. RBI is very well aware and would use its large reserves to ensure that runaway depreciation does not happen for INR. The move up in USDINR should therefore be controlled and gradual. Therefore I would expect INR to remain in the new range of 66.10-65.30 for some time (May end perhaps!). For the day CMP 65.68, Range 65.60-65.75.

INR update: USDINR climbs in spite of dollar weakness!

The 10-2 year US treasury yield spread made a new low at 45 bps which should bring in further dollar weakness. Equity markets perhaps shifted their focus to earnings rather than Syria but twitter remains more important than Bloomberg for short term trades. Trump saying that Russia and China are devaluing their currency is implying that he would rather have a weaker USD. GBP outperformance continued on the back of seasonality and USD weakness. GBPUSD has not given a weekly close above 1.4262 (76.4% retracement of the pre Brexit high of 1.5010 to post low of 1.1841) and a weekly close above this level now would call for 1.5010 over the next 6 months. USDJPY continues to hang above 107 and with the current dollar weakness and ignored geopolitical tensions, I would look to sell the pair with stop above 107.70.

 

USDINR 1m NDF has moved significantly right to 4p indicating offshore buying pressure. In spite of dollar weakness, EM currency strength and flat to mildly positively equities USDINR has been bought today morning. A couple of hours trading above 65.55 would give fresh longs the courage to enter driving the price higher immediately towards 65.80 levels, but not sure if that happens today. One could perhaps watch India 10Y yields to ascertain the path of USDINR during the day. CMP 65.53, Range 65.55-65.45.

INR update: US currency report highlights India but gives a longer rope

The attack by US and allies does not change the balance of power in the Syrian civil war which ensures that Russia need not retaliate to maintain status quo.  At the same time there are talks of more sanctions on Russia, for Syria using chemical weapons, which has made RUB depreciate 1.5% today. The fact that strikes happened on Saturday morning itself, I would expect markets to be nervous this week in spite of Dow futures showing mild positive currently. Ultimately in the current global setting US-Russia are perhaps never going to jump at each other’s throat, but on the other hand the markets could not be so resilient, that the very next day of the strike, we would see a continuation in risk buying.

 

The US treasury report on currency manipulation added India to the watch list while castigated China for not opening its economy enough. The outcome of a report was not a surprise so it should not have an immediate impact. The report although put India on the watch list, but gave a longer rope to the country mentioning its overall current account deficit, INR appreciation in spite of intervention and also complimented the RBI on disclosing details on intervention. The fact that the report also mentioned that according to IMF INR is not undervalued takes the pressure off RBI/Indian government to not intervene in times of inflows. Therefore they would continue intervene without the fear of this report in the future. On the other hand the fact that reserves as a percentage of GDP has been taken without forwards ensures that RBI would continue to build reserves in forwards to avoid getting highlighted on this sub parameter.

 

Brent continues to trade above 71 while geo political tensions always affect INR more than other asset classes for some reason. USDINR 1m NDF is trading 3p right showing offshore buying pressure. Asian equities are in the red although Indian equity markets are trading near flat. USDJPY will have to break 106 for USDINR to cross 65.50. Medium term (2-4 week) view on INR remains that of 66. For the day, CMP 65.39, Range 65.45-65.30.

INR update: Trump retreats as oil continues to trade strong

Trump retreated on TPP also which in effect diluted both his threats of China trade war and Syria strikes. The equity markets rebounded with Dow closing up 1.2%. In an environment where markets move basis comments from leaders who change their stance frequently, the rational thing to do is to trade basis longer term fundamentals which is still focussed on USD weakness because of its increasing fiscal and trade deficit.

 

Similarly for India now I would focus on the increasing trade deficit which is aggravated with Brent trading above 71 now and experts talking about it heading towards 80. This would increase the pressure on domestic bonds and consequently would affect INR adversely. USDINR 1m NDF is trading slightly right although bulk of the pressure has come for onshore buying in the last couple of days. EM currencies have depreciated since yesterday evening while equity markets in Asia are mixed. Positional longs should aim at a stop below 65.08 only. CMP 65.27, Range 65.22-65.44.

INR update: US-Russia tensions increase, Oil Rises, USDINR gathers momentum

As many thought, Trump has caught on to Syria and thereby Russia as his next subject for tweeting. Although the rational self knows that a US-Russia war/skirmish is highly unlikely in the foreseeable (and unforeseeable) future, but even then the reality show type tweets, will keep the markets from taking on risk and we will see moderate selling in equities, yields coming off, JPY appreciation and USD appreciation against other riskier currencies like Euro, GBP and EM currencies. This playing to the gallery should continue for a week at least. FOMC minutes showed hawkishness and confidence in economy but the release was overshadowed by social media wars between super powers.

 

INR came under pressure as Brent crossed 72 levels and local bonds sold off. Back of the pad calculation suggests that 1$ rise in oil price increases India’s CAD by $1bn per year. Saudi Arabia perhaps wants oil to reach $80 to get greater valuation for Aramco whose IPO should happen sometime in 2019. India’s capital account could remain flat or register small outflows till political certainty returns (which could only be after 2019 central elections). Therefore in the current situation dips in USDINR should be bought. Importers continue to be unhedged and therefore positioning would also drive USDINR higher in times of increasing demand. For the day CMP 65.39, Range 65.30-65.55.

INR update: Syria tensions, Oil Rise and Local Bond Selloff

The focus now will perhaps shift from US-China trade tensions to US-Russia tensions in middle east which could reflect on oil. The fact that Saudi Arabia said that it wants Brent near $80 also drove oil prices higher. Dollar index should continue to trade between 89.5-90.5 (CMP 89.59) as the range will only break lower in a pro risk environment where flight to safety does not help the greenback. Perhaps for another few sessions that environment would not be seen given the Syria situation. Today we have the US CPI and FOMC minutes which can help the USD bounce from the lower end of its range.

 

USDINR 1m NDF continues to trade slightly left which indicates that the buying pressure is led by onshore demand. EM currencies have depreciated since yesterday with pressure mounting on RUB because of US sanctions. Equity markets in Asia are in the red in spite of the overnight gains in the Dow, mainly because of the Syria situation and rising oil prices. India’s bond sell off since yesterday is also brining bids in USDINR. If the USD index now bounces to 90.5 then USDINR could head higher towards 65.50 levels. For the day, CMP 65.10, Range 65.20-65.05.

INR update: Xi's positive comments, Trump finds himself in a corner again

If markets were believing what Trump says then the Dow would not be at 24000, therefore the risk of an actual trade war was pretty less and after Xi’s positive comments today morning, it becomes clear that China is not going to react in a hurry to Trump’s jibes. With a raid on Trump’s personal lawyer the focus is back on the investigations surround Trump, which could make the President rake up more dirt in an effort get the attention back on things that cannot be. The next big war of words can be with Russia after the chemical attack in Syria. Consequently I think USDJPY is nearing sell levels again, I would cut my short positions if the pair closes above 107 levels on a weekly basis.

 

USDINR 1m NDF is trading 3p left while EM currencies have appreciated this morning. Asian equities are in moderate green because of Xi’s comments. USDINR has failed to appreciate beyond the 64.85-65.20 range, despite the positive news of RBI increasing limits and today morning’s Xi’s comments. A failure to go below 64.85 by mid day today would give a buy signal for 65.20 again. The currency manipulation report by US treasury is due by end of week. CMP 64.91, Range 64.98-64.85.

INR update: Dollar weakness, RBI increases bond investment limits

The weaker NFP headline numer (53k addition to jobs after previous month adjustments) led to mild USD weakness. The average hourly earnings was at 0.3% on expected lines. The USD continues to trade in the broad range of 89.5-90.5 for now and the next trigger could be the US CPI which comes out on Wednesday. Trade war will continue to move markets both ways. The chemical attack in Syria can increase tensions between Russia and Nato members which is already at elevated levels, after the nerve gas attack in Salsbury, England.

 

RBI increased bond limits but the headline number was less than expected at 0.5% per year of outstanding stock in Gsecs as compared to 1% or higher increment per year. The positive was that the increase in limits was allocated as 50% to open category as compared to earlier 25% which makes Rs. 16k crores immediately available for investment in GSEC open category. Anecdotal evidence from investors suggest that currently the appetite for new investments into India is low and at the same time they do not seem to be in a hurry to withdraw money either. So in terms of flow the increase in limits would not result in an immediate surge of investments which should cap INR appreciation between 64.70 and 64.82. The impact on 10Y yields have been negligible post the announcement.

 

USDINR 1m NDF is trading 4p left while all EM currencies have appreciated on the back of overnight dollar weakness. Equities in Asia are slightly positive in spite of the losses on the Dow. For today INR could appreciate to 64.70 levels while in the medium term it looks that these levels could remain the bottom for USDINR. In April I would expect the pair to move higher than 65.50. CMP 64.87, Range 64.70-64.93.

INR update: Risk swings with trade war comments, RBI FPI limt increase awaited

Dollar index continues to trade in the broader range 90.5-89.5. US administration continues to talk in the range of President wanting more tariffs and the others suggesting that talks will help calm down trade tensions.  Euro zone retails sales disappointed again this month driving Euro lower from 1.2282, the mild negative surprises in EU data recently should ensure that the recent ranges in the currencies would continue for some more time. Today we have the NFP where we already know that the labour market in the US is robust, only a surprise reading in the headline number or average hourly earnings will move the market significantly.

RBI was more dovish than expected yesterday. Now the market focuses on the possibility that RBI will increase the FPI limit investment for bond markets within the next few days. On Wednesday a news report said that the government has given its recommendations and now RBI will take a decision within a week’s time. Our bond trader is of the view that inflation print this time is going to shoot below 4% and both these expectations will keep bonds well bid and INR strong till the 12th April CPI release.

The morning news of Trump asking for more tariff on Chinese products spoilt the risk sentiments in Asia. USDINR 1m NDF is trading 2p left showing mild offshore selling pressure. EM currencies have depreciated sine yesterday and consequently USDINR has moved higher by 20p since its offshore lows of 64.80 levels. In the second half of April we could see USDINR moving higher than 65.50 but for now we can expect the range to continue, 64.85-65.20. For the day CMP 65.03, Range 65.09-64.92.

INR update: Mild rupee appreciation ahead of RBI policy tomorrow

EU data surprise had gone into negative territory since March 2018 beginning and is now showing some signs of bottoming out. In the last 2 years whenever EU data has improved EURUSD has made new highs. This would make the EU HICP, Unemployment, PMI and Retail sales data release this week important, even though individually these prints seem to make little impact as compared to an NFP, US GDP or US ISM (services ISM comes out today). In the shorter term though the market continues to cherry pick on tweets and articles in US media, speculating about what Trump is thinking about today. Trump’s modus operandi seems to be to first scare and then negotiate a deal through talks (North Korea is a good example) which is what he could be looking at with China.

USDINR 1m NDF is trading 2-3 p left which indicates mild offshore selling.  EM currencies are trading mixed since yesterday with Asian equities in moderate positive territory, tracking the overnight gains in the Dow. Before the RBI policy tomorrow, INR can remain stronger on expectations of a FII limit increase in bonds. Also the fact that most participants are sitting square or long would help INR appreciation to 64.85-64.70 by EOD tomorrow, which would be a good level for importers to hedge their exposures till July maturity. CMP 64.93, Range 64.85 to 65.00.

INR update: Equity volatility continues as US yield curve flattens

Equity volatility continued into the second quarter with Dow Jones touching the 200 DMA for the first time since 2016 and S&P closing below the 200 DMA. In spite of the strong economic growth the recent equity volatility has been led by tech stocks and partly by the concerns on trade war. Like the military tensions with North Korea the noise on trade tariff will also slowly fade, and what would remain is the strong US growth reality. The 10-2Y spread for US treasuries dived to its lowest since 2007 at 48 bps. The curve flattening could lead to USD index heading towards 89.59 and then 89.25 this week (CMP 89.97). US non manufacturing ISM and NFP would be the 2 important pieces of information this week.

 

USDINR 1m NDF is trading 2p left indicating mild offshore selling in the pair. EM currencies have shown moderate appreciation since last week while Indian equities seem to have shrugged off the overnight losses in US equities and are trading flat currently. This week we have the RBI monetary policy announcement on Thursday where the central bank is expected to keep the interest rates unchanged with a neutral stance. RBI is likely to increase the FII limits for debt investments into India which might bring in a temporary INR appreciation towards 64.90-64.70. For the day CMP 65.08, Range 65.15-64.90.