INR update: Election results could guide Rupee today

 

A new governor has been placed so the panic that was created by the resignation of Mr. Patel can now be ignored. Therefore the reason for RBI to sell aggressively like yesterday does not perhaps exist today. On the other hand the fact that the ruling party has lost in state elections resulted in almost large FPI outflow yesterday and could be the reason for further weakness in INR. NDF 1 m is 6.5p right while 1 year is almost 50p right which indicates substantial offshore buying pressure. Oil looks weaker as prices are still trading in the 60-61 range in spite of the production cuts last week, but markets are not looking at that currently. We can expect more negative news on US-China trade talks or on Brexit which can in general hurt risk sentiments. CMP 72.12, Range 71.95-72.45. I would wait till end of this week to form a medium term view.

INR update: Like in October 2018, RBI defends Rupee

1m NDF is 4.5p right and 1y NDF is 38p right which is the highest I have noted in the last 2 months. USDINR has ironically moved lower from 72.45 to 720 levels. In October when EM currencies were sliding, RBI was expected to hike rates as the most obvious (but debatable) solution to support INR. RBI did not hike rates and immediately we saw RBI selling big in the USDINR market to back its decision of no rate hikes. I would think that today too after the RBI governor’s resignation, the selling has been done by RBI to alleviate market panic. INR has appreciated in spite of a very INR negative development of the ruling party loosing in 5 state elections. EM currencies have not appreciated either to help the Rupee. US-China friction should also help the view of Rupee weakness otherwise.

 

Therefore sentiment for Rupee should remain negative for some time, although RBI will support the local currency aggressively during the day. With half a day remaining, the downside could be significant for USDINR, but for now looks like 71.75,71.50 could be levels where RBI selling could pause. Overnight longs would make sense from a trading risk reward perspective. CMP 71.85

INR update: Like in October 2018, RBI defends Rupee

1m NDF is 4.5p right and 1y NDF is 38p right which is the highest I have noted in the last 2 months. USDINR has ironically moved lower from 72.45 to 720 levels. In October when EM currencies were sliding, RBI was expected to hike rates as the most obvious (but debatable) solution to support INR. RBI did not hike rates and immediately we saw RBI selling big in the USDINR market to back its decision of no rate hikes. I would think that today too after the RBI governor’s resignation, the selling has been done by RBI to alleviate market panic. INR has appreciated in spite of a very INR negative development of the ruling party loosing in 5 state elections. EM currencies have not appreciated either to help the Rupee. US-China friction should also help the view of Rupee weakness otherwise.

 

Therefore sentiment for Rupee should remain negative for some time, although RBI will support the local currency aggressively during the day. With half a day remaining, the downside could be significant for USDINR, but for now looks like 71.75,71.50 could be levels where RBI selling could pause. Overnight longs would make sense from a trading risk reward perspective. CMP 71.85

INR update: Oil production cuts? Trade Truce?

According to reports, oil production cuts might not be so easy to achieve as Saudi Arabia and Russia want to distribute production cuts across all members while the other members argue that production cuts should be first taken by countries who have increased production in the near past (Saudi and Russia among a few others). Thus like any major economic collaboration event the outcome of the OPEC meeting remains uncertain driving oil prices and with it INR.

 

Like North Korea discussions, it remains unclear as to what really was discussed between China and the US, and whether the meeting was a success. To top it Mr. Trump’s tweet that he is a “tariff man” hinted that the Trade truce might have been a wrong reading, but then no one can be sure either ways. This uncertainty along with the never ending and unpredictable Brexit headlines led to the USD gaining against other currencies and specially EMs.

 

RBI has no reason to raise rates given the benign inflation prints. At the same time the central bank has to anchor to its “calibrated tightening” stance for a few months before it can consider rate cuts making the announcement today a non event from a rate action perspective. Our economist team does expect that from a liquidity perspective it might want to allay tightness concerns and at the same time the inflation forecasts might be revised downwards, helping bond yields come down further.

 

USDINR 1m NDF is 2p right while 1y is 18p right which indicates moderate buying pressure. Brent below 61 is driving INR along with news of some inflow of $ 500 mio. On the other hand EM currency losses overnight will keep the buying pressure on USDINR in the second half. The price action in Rupee since Friday afternoon also hinted that there was a large outflow which seems to be absent today. With opposite forces making different arguments, view is which one you pick. Medium term I would expect USDINR to face stiff resistance at 70.90 and 71.30 as the major trend should remain lower for USDINR. For the day downside could be limited, CMP 70.60, Range 70.50-70.90.

INR update: Trade truce to boost risk sentiments

As Trump had done before with other world leaders, he concluded the meeting with China’s Xi on a high note and both countries have agreed to work on their trade issues resulting in a truce of 90days. The result has been supportive of risk sentiments with higher equities and stronger EM currencies. This is a crucial week for G7 with US and EU PMI and employment data setting direction for further FED speak and growth differential between the US and rest of the world.

 

Oil is 5% higher but the broad trend is still lower. OPEC meeting from Thursday needs to be watched for any large cuts in production. USDINR 1m NDF is trading 1p left while 1y is 17p right indicating reduced offshore selling pressure. EM currencies have appreciated on the back of trade truce including TRY, ZAR and IDR (these were trading in tandem with INR for whole of November). Given the broader current context of lower oil and stronger risk sentiments I would expect USDINR to move lower with the window of 70.15-70.30 acting as a strong resistance. Medium term view on USDINR could be difficult to conceive given the state election results next week while other than that the construct remains positive for INR. RBI policy on Wednesday, could be a non event with the central bank likely to be on hold. For the day CMP 70.00, Range 70.10-69.80.