Trump administration blew hot and cold moving the markets both ways yesterday evening. Point is that the trade concerns continue while investment sanctions would have abated for the time being. US with its differential growth and foot stepping approach seems like the clear winner with US dollar appreciating against all currencies including JPY. I would expect to see 96 on the DXY now (CMP 95.22).
The fact that INR has depreciated along with other EM currencies would make RBI less worried and therefore gradual and coordinated depreciation of the currency will be allowed. REER arguments would now kick in with experts arguing that this correction of INR overvaluation was long due. Daily close above 69.25 plus continued dollar strength would lead to markets expecting 72 and new levels, giving them courage to build new longs. Therefore such a close could bring in 70 pretty fast.
USDINR 1m NDF is 36p right indicating increased buying pressure since yesterday. EM currencies specifically CNH has depreciated considerably over the last 2 weeks. CNH has been well correlated to EURUSD and at the same time it will give RBI the comfort to allow INR depreciation. We can see mild selloff in Indian equities and bonds because of INR depreciation. CMP 69.05, Range 68.86-69.25.
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