Brent oil fell from ~79 to 74.75 levels on the back of Libya production coming back into the market (at 350k bpd). This plus trade war hit commodities across the board driving US equities lower. I would think the recent escalation in trade sanctions (US-China, US-EU) led to the CNH weakness and dollar strength across DM and EM currencies. What is not explainable is the bounce in equities that we have witnessed across Asia today morning, which just reiterates the fact that it doesn’t pay to be an equity bear. Today US CPI would be critical for currency and bond markets. A YOY number of 2.8% and higher should ensure continuity of current market levels, while a lower print could result in markets driving shorter term yields lower and along with it the dollar index.
INR is the only currency which has not been hit with the overnight dollar strength, a true decoupling (temporary for sure!). On one hand there is the positive of a lower oil price while dollar strength against all EM currencies should have driven USDINR higher. USDINR 1m NDF is trading flat to slightly left. I would think that oil prices sentimentally would only affect USDINR for a shorter period of time while overall dollar strength/ weakness should remain the primary driver for USDINR. Medium term range 68.30-69.10. My view for short USDINR for a target of 68.40 would be under scrutiny today because of dollar strength. CMP 68.65, Range 68.55-68.85.
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