US10-2Y spreads widened to 27bps, the highest in a month
indicating a pickup in risk appetite while the 10Y yields have started edging
towards the resistance of 3.1%. With trade threats becoming real, the chances
are that import tariffs and strong US growth are likely to keep US prices
elevated ensuring that the FED stays on a rate hike path for the visible
future. This week FOMC is likely to hike by 25bps but the most important aspect
of the meeting would be the dot plots and fine prints on yields and neutral
rate.
The economic affairs secretary for India believes that the
fair value of Rupee is near 68-70 with an outer limit of 72. This is very
different from what the same person believed a month ago, which goes to show
how difficult it is to value a currency. But what the comments do indicate is
that the government now aims to keep INR depreciation under control. With the
selloff in EM currencies having cooled off globally the task might not be as
difficult as it could have been 3 weeks back. The likely measure could be an oil
swap window.
USDINR 1m NDF is trading 6.5p right as compared to 4p right
on Friday. Most EM currencies have depreciated moderately since last week’s
close as dollar regained some ground. Oil prices are touching $80 while
Indian equities don’t show the nervousness seen last Friday. In the medium term
it seems that USDINR will trade in the range of 72.85-71.50 with a possibility
of a break lower. CMP 72.56, Range 72.69-72.30.
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