Trump clearly wants to beat the trade war drums louder and
louder before the midterm elections. To reiterate, every time we have seen a
new piece of information which negatively affects global trade, the greenback
gains. On Friday Trump said that the US would put tariffs on additional $267 bn
of Chinese imports raising the total target to ~$500 bn now. To add to this
average hourly wages increased by 0.4% mom which was the highest since 2009.
Average hourly earnings was the one component in NFP report which was not
justifying the rate hike path taken by the FED, now with this parameter also
showing robust US growth the case for rate hikes, FED balance sheet reduction and
therefore USD gains becomes stronger. This might be the week when USD index
breaks the 200 WMA AT 95.56 (cmp 95.45) convincingly and move higher than 96.
Google trends show that the public interest in USDINR in Aug
2013 was at 85 which peaked at 100 in September 2013 (perhaps due to the FCNRB
announcement). This parameter currently stands at 42 only indicating that
public interest and therefore the effect of the move in USDINR, is not as much
till now to warrant any major policy action by the government/RBI. Also in 2013
USDINR had moved higher by 30% (53 to 69) visavis 12% (64to72) currently, which
is also an indication that the move higher from here also can be substantial.
USDINR 1m NDF is trading at 11.5p right which is similar to
Friday levels. Other EM currencies have depreciated on the back of a fresh
assault by the US on trade with China, but USDINR seems to have been the worst
hit today morning. Equity markets and government bonds seem to be starting to
react only. In 2013 Nifty had fallen by 9 percent before FCNRB policy was
announced. The range for this week should now be 72.20-73.20. CMP 72.40, Range
for the day 72.25-72.55.
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