INR update: Higher US growth continues as EM selloff spreads

US Manufacturing ISM printed at a robust 61+ levels much higher than the highest of expectations. This is in contrast to EU manufacturing PMI which came in weaker than its prior print of 55.1 at 54.6. China PMI was also weaker than its prior print whereas global manufacturing PMI also printed lower. The point is that this indicates that the higher US growth differential continues and in this environment the FED is unlikely to stop raising rates or slow its tapering. Thus the growing strain of dollar liquidity is going to continue which in turn will make market participants dig for reasons to sell other currencies and specially EMs. On the price action front, dollar index is making its 12^th weekly attempt since June 2018,  to cross the 200WMA at 95.56 (CMP 95.35) and a healthy print on the US Services ISM tomorrow might be the trigger for the level to be decisively taken out.

USDINR 1m NDF is trading 10p right as compared to 9p yesterday while 1y NDF is trading 42p right as compared to 36p yesterday. EM currencies are flat while KRW has moderately appreciated since yesterday night. Brent has come lower from 79.2 to 78 levels. FII flows continue to be negative for INR. The Indonesian Rupiah seems to be the latest EM currency which has joined the selloff bandwagon. Yesterday it is likely that RBI sold aggressively in the morning but that proved to be ineffective by second half. Broader range now is 71.20-72.20 while for the day CMP 71.52, Range 71.40-71.60.