Trump directly commented on a stronger dollar, the FED raising rates and other countries manipulating interest rates and their currencies. The Fed’s interest rate policy would be not affected by what Trump says and rather it would make it more difficult for the Fed to retreat from its gradual rate hike path in case the economy actually warrants that. Going forward any trade war related news would have a muted dollar positive move. On the other hand PBOC today made the biggest single injection of medium term lending facility funds to its major banks. This is in continuation to the various measures China has taken to lower its lending rates and inject the system with more and more liquidity. Easier monetary conditions results in depreciating local currency. Therefore with two forces acting against each other , only thing certain is uncertainty, in times of which, safe haven assets and currencies gain. Namely JPY, CHF and the USD.
Overnight we have seen across the board dollar weakness which has driven USDAsia lower as well. USDINR 1m NDF is trading flat while USDCNH is trading stronger today at 6.7722 from Friday’s 6.8+ levels. Brent on the other hand is trading stable in the 72-73 range which makes it a not so important factor for short term movements. Given the PBOC’s action I would continue to expect a depreciating Yuan which should keep USDINR well bid. In the times of uncertainty I have not seen INR appreciating. Medium term range 68.30-69.10. For the day CMP 68.71, Range 68.65-68.85.
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