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.
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