INR update: Expect more aggression from Trump as his risks increase

With Trump’s associates confirming felony charges against themselves they have put the President in the dock, i.e., if he loses the midterm elections in November 2018. The elections are being held for all the 435 seats of the house of representatives and 34 seats of the senate. Thus Trump would now be more desperate than ever to ensure that Republicans do not lose the elections which was visible in his comments yesterday about the markets crashing if he is impeached. Basis this I would think that Trump would step up his aggression against immigration and trade in the next 2 months. That would mean increased volatility in the currency markets with dollar gaining against the EUR, GBP, AUD and other EM currencies. US data disappointed yesterday but then politicians have become more important for markets now.

USDINR 1m NDF is trading exactly the same as yesterday, i.e., 5.5p right while the more fragile EM currencies have depreciated since yesterday evening. FII flows have picked up in August but do not seem to be enough to counter the demand arising out of the trade deficit and the pressure on other EM currencies. Oil is back at 75 levels which should continue to put pressure on INR. A close above 70.15 today would be further rupee negative. CMP 70.14, Range 70.11-70.40.