INR update: US slows and Oil gains; Rupee back in range

Weaker retail sales in the US has led to GDP estimates being revised to 1.5% from 2.7% a week back (by Atlanta FED for Dec qrtr). With EU and US both slowing down, the view of a slowing global economy is gaining ratification. Oil has gained on the back of further production cuts chatter, but global demand outlook doesn’t support a view of a runaway rally. The NOPEC bill (which would prosecute OPEC members for cartelizing and rigging oil prices) is unlikely to get favor in the US congress, and thus far has had limited market impact. Today the FED will suck out liquidity to the tune of $23 bn which is one of the reason for sustained dollar strength this week. EURUSD continues to trade below 200WMA (1.1334, CMP 1.1285) and a weekly close today will provide more conviction to a view of further losses in the pair (but I would wait another week before confirming a breakout).

USDINR 1m NDF is now trading 7p right indicating increased offshore demand. Broad dollar strength is not supportive of INR gains while the expectation of inflows have withered down. India 10 Y yield have inched up again showing signs of fiscal worries. Oil above 65 will start reflecting on INR if the price levels sustain. The attacks in Kashmir will make participants think of a possible retaliation by India, which should again cap INR gains. Lined up inflows should ensure that USDINR does not run up far above 71.50. I would revert to the view of broader range of 71 and 71.50. For the day CMP 71.25, Range 71.15-71.45.