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.