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.