The noise from US-China trade talks is positive (USDCNH below 6.75) while the FED seems to be talking cohesively signaling a wait and watch 2019, which is positive for equity markets. Market expects US CPI to print below 2% today which if true, could lead to further dollar weakness. Given the disappointments in ISM and softer crude prices, a softer CPI looks more likely. US shutdown should start creating some concerns from a USD weakness and risk perspective which would keep equity markets sideways for now.
Brent is creating only mild concerns on INR as 70.50 top remains intact (closing basis). INR NDF 1m and 1y have become 1p and 30p right which indicates moderate USDINR buying, also because of fiscal slippage concerns. News of oil companies drawing down ECBs would shave off oil buying demand from the market in the coming days while India CPI and Trade number should be further supportive of INR gains. The outflow that we saw from Monday seems to have gotten over sometime yesterday, most of the commentary suggested that it was defense related. Medium term range should be 70.50-69.50. Friday could see a reversal of the up move seen during the day, CMP 70.41, Range 70.50-70.28.
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