INR update: Dollar weakness to provide momentum to Rupee

 

The FED had been shifting its stance from overtly hawkish to less hawkish as the US growth seems to be peaking (from its unsustainable 4% levels). Yesterday’s Powell’s comments that current rates are near neutral rates seem to have been influenced by EU growth concerns plus recent crude price fall. The comments have led to a sharp selloff in USD across the board and has helped risk sentiments with the DOW closing 2.5% higher.

 

INR has been closely tracking TRY, ZAR and IDR in November and since yesterday all 3 of these currencies have appreciated by 1-1.5%. INR 1m NDF is trading just 1.5p left as compared to 5p left yesterday indicating reduced selling pressure in offshore market. Technically USDINR looks headed to 69.40 but with Trump-Xi meet and local state election results we can see some volatility. I would expect Trump-Xi meet to have a positive impact on INR therefore until next week we could see 69.40 on the Rupee. Crude is lower by ~2$ since yesterday on the basis of higher inventory in the US. CMP 70.12, Range 70.20-69.80.

INR update: Trump-Xi meet awaited

I would think that Trump-Xi meet should result in positive headlines supporting risk sentiments, this is going by the recent history of Trump claiming victory after all his trade discussions (NK, Canada, Mexico). Dow seems to be factoring a positive outcome as well. Any major revision (although unlikely) to US GDP today could move markets in the US session.

 

USDINR 1m NDF is 5p left consistently indicating stability in sentiments in offshore markets. Today being expiry the price in the first half is driven by fix related unwinding of arbitrage positions between futures/ndf and otc markets. FPI flows and crude price have been supportive of INR gains in November while 10Y yields have moved lower with liquidity conditions easing. In the medium term 70.60-71.20 break (daily close) should result in fresh direction, my thought is that it should break lower. For today, CMP 70.66, Range 70.55-70.85.

INR update: Crude downtrend could take Rupee towards 70

 

Oil has moved surprisingly fast reemphasizing that it is an international politics driven asset class, as neither demand nor supply has changed so much to warrant a 32% drop from its October beginning peak. Euro zone economic activity weakening was confirmed by PMI data while US PMI flash also printed lower than consensus but still reads much better than EUs. Given this backdrop and the surprise fall in oil it is likely that ECB now surprises on the dovish side. Today we have ECB’s Praet speaking again which can verify the assumption. Trump has followed a trend of terming his meeting with other leaders as positive therefore I would expect risk to be supported after Trump and Xi meet during G20.

 

USDINR 1m NDF remains 4p left like it has been in the last 4 rupees INR appreciation, which shows that the down move has been led by exporter selling or importers not buying. Typically capital account inflows result in large selling in NDF leading 1m NDF to 15p left which has not been the case till now. Crude is in a downtrend and the next important levels are 57 and 50 (CMP 59.70), a monthly close below 60 should result in further down move which is positive for the Rupee. Crude fall related risk off (in India at least) is sometime away and can be ignored at the moment. EM currencies are not moving in tandem with Rupee except ZAR, TRY and IDR. The fact that RBI has not bought aggressively suggests that INR appreciation is the preferred trajectory for the authorities currently. During the day USDINR should track small moves in Brent while the larger move is still lower. Medium term USDINR should now trade between 70.18-70.70 while for the day CMP 70.52, Range 70.60-70.25.

INR update: Limited Rupee gains likely

The US economy is showing very early and non conclusive signs of peaking out (Retail sales revision and housing data yesterday while for a couple of months the ISM data is coming off from the unsustainable 60 levels), this perhaps has led the Fed to review its overtly hawkish outlook which was visible in Powell’s comments on Friday. Nevertheless the Fed is on track for the Dec rate hike. On the other hand EU and Japan have conclusively shown data which suggests a marked slowdown in the respective economies, therefore if broad dollar weakness against DM currencies, has to gather steam, then I would think it is still some time away. On the other hand talk of US-China trade deal has ensured that USDCNH stays well below 6.95 and going by Trump’s administration’s record of ultimately solving the problems it creates (NK, Mexico, Turkey and Canada), they are likely to announce that they have struck a “magnificent and beautiful” deal with China, helping risk in EM countries.

The balance of power in the oil triad has shifted away from Saudi Arabia since the killing of the Saudi journalist in Turkey, ensuring that oil moves in the direction of US’s desire, i.e., lower. Having said that it is unlikely that oil would be allowed to sustain below 60 levels which create risks for leveraged commodity companies plus puts US alliances with oil producing countries at risk (like it happened under Obama after 2014).

On 14^th November I had expected INR to head towards 71.50 when it was at 72.14, the target has been achieved. Market seems to be taking the Dec 11^th election risk in its stride and focusing on the positives created by the fall in oil prices. FPI inflows have marginally picked up ensuring support to the Rupee. Market participants are now talking about levels of 70-71 by end of this calendar year which is resulting in exporter selling. For another fortnight Rupee should trade strong albeit for RBI buying to boost up its reserves again. USDINR 1m NDF is 5p left (4p left yesterday). The more fragile EM currencies (TRY, ZAR, BRL, RUB) have significantly appreciated  (10-15%) in the last 2 months which indicates that there could be more downside for USDINR as well. In the near term RBI buying would check the pace of Rupee appreciation while in the medium term state election results will remain a question mark. Medium term range for the Rupee now should be 71.75-70.70. For the day, CMP 71.38, Range 71.45-71.10.

INR update: Oil fall accelerates amid global growth concerns

Global growth concerns are weighing on equities making today’s EU GDP and IIP data very critical for risk sentiments and the Euro. A negative surprise in this can decisively break the 200 WMA in EURUSD at 1.1310 taking the pair towards 1.10 while a positive surprise can make the 200 WMA a medium term bottom. Given Praet’s dovish comments yesterday the chances of a negative surprise looks more likely.

The pace of fall in oil prices is increasing which shows that the bottom can still be some distance away. USDINR 1m NDF is trading 4.5p left while other EM currencies have not appreciated as much (except CNH). Fall in EURUSD should on an intraday basis affect the Rupee (and vice versa). Looking at the price action since morning it seems that USDINR might head towards 72.20 again before it gets sold off. Last time when Brent was at 65 levels (March 2018) USDINR was at 65.5 levels, although it is not a one to one comparison but most of the negativity in Rupee this year was on account of higher trade deficit, and therefore if other factors support the downside for USDINR pair could be significant. Medium term range now shifts to 72.40-71.50; CMP 72.14, Range 72.20-71.90.

INR update: Rupee likely to follow crude and high real rate

The markets seem to be focusing on country specific concerns like US trade tensions with China, lack of a Brexit deal and US earnings topping out. This has resulted in dollar strength across other DM currencies while equities have got sold off. Crude trades below 70  on demand related concerns plus the fact that the earlier supply cut threats from Saudi Arabia have been taken back.

INR is likely to follow crude oil plus the fact that the CPI print is much below the target of 4%. The result is a sustained high real rate for the Indian economy with reasonable fiscal hygiene which should attract debt investments with the caveat of approaching political risks (state election results on 11^th Dec). USDINR 1m NDF is trading marginally left while other EM currencies have mildly appreciated today morning. CMP 72.57, Range 72.65-72.45. Medium term range for USDINR should be 72.25-73.

INR update: US-China trade deal surprise results in risk on

Two days back Trump threatened to place more tariffs on China in December while headlines now indicate that a trade deal between the US and China is likely. Likewise risk swings like a pendulum with CNH leading the way from 6.98 to 6.90 now. While it’s easy to follow the trend in a fundamental driven market, in the current scenario the next headline could be very different.

The market has totally ignored the RBI-Gov spat and it is likely that there will be no action till the RBI board meeting on 19^th November. With the global risk on move USDINR 1m NDF is trading 3p left while EM currencies are trading strong. I would still think that the RBI will behave conservatively and would want to rebuild its reserves (it has spent ~$50 bn of reserves since February18) therefore I would expect limited downside. Having said that the momentum is lower and therefore it is not advisable to buy USDINR immediately. If the pair closes below 72.70 today than there could be room for further down move and a close above 73 should reaffirm my assumptions. CMP 72.91.