The FED speak continues to be dovish while the US government shutdown has been ignored by the markets for now. Dollar index should continue to drift lower with 95.3 as a crucial support (Currently at 96). With concerns of a global slowdown and assurances by Saudi Arabia of further production cuts, oil looks balanced at 60 levels. Technically, the run up in oil prices seem to have lost momentum for now.
The sentiment for INR seems to be primarily driven by concerns on fiscal slippage. Indian assets do not seem to be in favor currently given the upcoming elections resulting in FPI outflows on a daily basis. On the other hand expectations of a rate cut and lower trade deficit numbers are the arguments in favor of the Rupee, which should ensure that USDINR’s higher run would be lower than market expectations (which ranges from 71.50-72.50) in the current move. Given that oil prices have a lagged impact, the maximum gains in trade deficit could be recorded in January. This, along with the news of oil companies drawing down on ECBs recently could curtail buying in USDINR. Given balancing arguments for INR, for the medium term, I would continue to expect price to be in more traded zones, rather than breaking out into less traded area of 71.50+. For the day, CMP 71.04, Range 71.15-70.85.
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