INR update: Oil price volatility to drive USDINR in the near term

With US continuing to grow above consensus while EU and China continue to disappoint, the dollar should remain on a stronger footing. On the other hand weak inflation dynamics in the US GDP data should reinforce the belief that the FED is likely to remain patient. First week of the month will see bunched up data releases everyday from the EU and US, recent data suggests that the next few days might provide the perfect story for EURUSD to break below 1.10.

USDINR 1m NDF continues to trade 7p right (same as last week). CNH and KRW exude weakness on account of dollar strength and higher oil prices. Oil prices should continue to be volatile with supply concerns driving the prices higher while Trump’s demands could keep a lid on the price, keeping the market’s guessing. Main drivers for USDINR for the time being should be oil followed by other EM currencies. The pipeline for inflows seem to be dry for now while as we near election results on 23^rd May, we could see partial unwinding/de-risking of the equity portfolios. May historically has been a negative month for equities and INR except for the election years of 2009 and 2014, both of which provided a stable government. CMP 69.77, Range 69.72-69.95.

INR update: Oil Politics, Euro gaining momentum, US GDP to be watched

Today the US GDP data could push EURUSD below 1.10 mark given the recent build up in downward momentum. Most DM central banks are turning dovish and a stronger US GDP data can have its maximum impact on EURO. Saudi Arabia will likely cooperate with the US to ensure that oil supply concerns does not result in higher oil prices. The US Iran nuclear deal in 2015 was the major reason the two long term allies (US and Iran) developed their differences, which led Saudi to cooperate with Russia. Now with the US pulling out of the nuclear deal and reinstating sanction on Iran, there is nothing that Saudi would like more. Therefore Saudi is likely to pay heed to the US demand of lower oil prices with sufficient supply. Technically a break of 71.8 calls for 78 levels which can be due to Iran’s counter measures, but a runaway move looks unlikely in spite of reduced supply because of the international politics involved.

USDINR 1m NDF is trading 8p right while CNH has mildly appreciated since yesterday although KRW continues to exhibit weakness. This accompanied with dollar strength and higher oil prices does not bode well for INR. It seems that there are no major inflows in pipeline for USDINR in the next 2 weeks. 70.18/20 was a major resistance which has been broken yesterday and today again, which makes it a convincing break. USDINR could head towards 70.88 levels in the next fortnight with downside limited to 69.85. CMP 70.17, Range 70.10-70.35.

INR update: Delayed inflows, USD strength and higher Brent to weigh

German IFO data continued to paint a gloomier picture for the EU which along with BOC’s dovish outlook led to dollar strength. If at all anything then the BOJ also tilted towards an aggressive monetary easing stance although there were no surprises there. A weekly close on EURUSD below 1.1150 should call for 1.10 and lower. The recent downward momentum in EURUSD points to a higher possibility of the pair finally breaking out of the range this week. The first estimate of US GDP growth in March quarter is expected to be at 2.2% while the current quarters expectations are at 2.8%. This reflects the growing contrast between the US and other DMs which should continue to boost the USD.

USDINR 1m NDF is trading 7.5p right while EM currencies have depreciated overnight on the back of dollar strength and higher oil prices. The inflows in USDINR seems to have been largely done. The only expected inflow in the next week could be the ongoing rights issue of a telecom operator which also according to some chatter has been completed. Other inflows seem to have been completed or have been delayed due to various reasons. Given this backdrop of reduced inflow expectation, higher oil prices and a breakout in range for USDINR, the pair seems to be headed to 70.35-70.50 next week. CMP 70.02, range 69.95-70.25.

INR update: Relative US outperformance, RBI swap auction, while Rupee waits for clarity on flows

Surprise negative consumer confidence data from the EU accompanied by contrasting positive data from the US led EURUSD marginally lower and kept USD well bid. Strong equity performance on the back of better than expected earnings in the US also helped risk sentiment and consequently USD against the other G10 currencies. Today Germany’s IFO survey would be important for the Euro. A break of 1.1150 on the euro should bring in 1.10 levels fairly quickly now.

The RBI swap window saw a much higher than expected cut off at 6.40% while markets yesterday was trading at 6.22%. The higher number of bids perhaps indicates there is significant paying interest left in the market. RBI recognizes the liquidity shortage in the market because of which it announced the OMO of 25k crores yesterday to be conducted in May. Its second objective of bringing the FX implied cost lower has been less than partially achieved as 3 year Mifor trades at ~6.55% as compared to 6.82% before the first auction was announced. This liquidity shortage plus higher 3 year forwards should make RBI announce further swap auctions in the near future, which only would calm the 3 year forward levels.  

USDINR 1m NDF is trading 4p right while other EM currencies have mildly depreciated on the back of USD strength overnight. Oil rally has slowed down on the back of comments suggesting that Saudi Arabia would step up production to make up for the reduced supply. Overall oil supply fears are likely to linger on for some time with counter threats from Iran. Pipeline for USDINR inflows continues to look strong according to news reports. Today NCLT decision in a steel majors debt resolution would be critical to INR. Price action in the last 40 minutes shows some aggressive offers at higher levels. CMP 69.85, Range 69.95-69.60.

INR update: Iran sanctions to push Brent higher, RBI swap auction, while inflows continue

If the US could not do anything to North Korea it was because of NK’s nuclear arsenal. On the other hand Iran’s main deterrent is its control over the strait of Hormuz which enables it to protect its regime against a US-Saudi enabled topple. Now with the US sanctions back in effect Iran would threaten closing the strait of Hormuz which in turn will create supply fears for oil globally. Break of 72.80 in Brent, technically also signals 78 levels in the next 1-2 months.

News reports of sale of a packaging companies stake to a US PE again proves that decision makers want to close their stake sale / capital raising / borrowing plans before the 23^rd May election results. The story in USDINR remains the same, Brent is pointing towards a higher level for USDINR while inflows and intervention keep Rupee losses in check. Today we have the RBI swap auction because of which price action during the day could be a bit unpredictable. Looking at the selling in USDINR yesterday it seems that 69.87 should hold for the day, while further gains in Brent can take it beyond 70 levels towards 70.30. On the other hand Brent prices would ensure that USDINR would be unable to go below 69.30 levels in the next fortnight. CMP 69.59, Range 69.87-69.30.  

INR update: Brent surges, RBI swap window, Inflow pipeline to keep markets guessing

A Washington Post report suggested that the US will this week withdraw all sanction waivers from Iran with a target of zero oil exports from the country. This has driven Brent to 74 levels on account of reduced supply fears. US retail sales last week alleviated concerns of a sharp slowdown in growth there which helped the dollar register gains against the Euro. EURUSD has continued to trade below 200 WMA at 1.1340 and fresh set of week data from the monetary union or any signs of further pessimism from the ECB should lead to a large move lower in the pair.

USDINR has given a gap up opening at 69.75 on account of the jump in Brent prices. Dates of large telecom operators rights issue confirms that companies would want to get done with capital raising / stake sale/ large borrowing plans before the May 23^rd election results. Corporate India seems to be lining up to raise dollar funds.

Tomorrow we have the RBI swap window where the Mifor has already got paid and is trading at 6.1% currently as compared to last cut off of 5.95%. This could mean that relatively lesser number of players might be interested in paying Mifor for 3 years which could result in dollar selling from participants who have gathered dollar funds ahead of the swap auction. Tomorrow NCLT will pass a critical order on Arcelor Mittal’s takeover of Essar Steel, this could again result in expectations of large inflow or disappointment depending on the judgment. Overall given the inflow pipeline a runaway move in USDINR looks unlikely unless Brent continues to run higher. Last week after the break of 69.60, the next expected level was 69.85 which has been seen today morning. In the last 30 minutes we suppose that nationalized banks have sold USDINR above 69.80 levels. Given this backdrop I would expect USDINR to remain capped at 70 levels for the next 15 days. CMP 69.85, Range 69.95-69.60.

INR update: Improving Chinese data plus US China trade deal hopes drive sentiments

Chinese data (GDP, IIP) released yesterday added to the optimism around the dragon economy after its surprise export growth last week. US Beige Book reading does not change the luke warm outlook on the US economy although the real information would be the retail sales print later during the day. US retail sales would set the risk sentiments either way for the markets.

USDINR 1m NDF is trading 5p right while CNH has appreciated on the back of hopes that US-China trade deal could be sealed by as early as next month. The inflow expectations are digested while the real price action is awaited. The break of 69.50 on Tuesday is convincing and this should now take the pair towards 69.85 levels, the risk to this view is one of the talked about inflows hitting the markets. CMP 69.45, Range 69.37-69.69.

INR update: Positives priced into Rupee and Nifty, India & China export growth surprises

FED’s Evans made dovish comments stating that inflation should be allowed to remain above 2% for certain periods to counter the impact of stubbornly lower inflation. With dollar index stuck in a range, most of the other G10 pairs have also followed suit. German Zew survey would be watched today although EURUSD has been pretty resilient to any sort of information of late.

Oil is trading around 71 levels while EM currencies have mildly lost since yesterday evening. USDINR 1m NDF is trading 5p right while price action in the last 1 hour has been confusing. Fix is trading positive today. The inflow pipeline is priced in USDINR as the market now awaits actual selling as and when it happens. Nifty trades at all time high indicating the optimism that markets have priced in for the elections. Export in March 2019 were the best ever, this accompanied with China positive export surprise indicates that global demand is not as negative as earlier envisaged. Half an hour of trading above 69.60 today would confirm a breakout of my expected range for April of 69.50-68.50, this could then take the pair towards 69.90, on the other hand failure to break would take the pair sharply lower towards 69.25/30 levels again. CMP 69.55, Range 69.60-69.30.

INR update: Risk on sentiments, US China trade deal, Inflows continue to support Rupee

There is a general risk on sentiment post the NY session in Friday on the back of reduced concerns on global growth plus increased optimism on US China trade deal. Dow was up 1% while Asian stocks are also up ~0.5% today morning. KRW and CNH have shown appreciation since Friday while dollar has moderately depreciated against G10 as well. This week China macro data on Wednesday will be important along with US retail sales on Thursday.

USDINR 1m NDF is trading 3p right which is softer than last week while other Ems have registered mild gains since Friday evening. On Friday a supreme court decision put on hold a large inflow (of USD 7 bn) that markets were expecting around end April but in spite of this INR negative news, USDINR got sold off after an initial spike. This affirms the presence on inflows and a left side bias for the pair. There are more inflows in the pipeline as per news reports. Low inflation numbers in India would continue to help bond inflows while Crude prices spike remains a risk (although unlikely). To reiterate, I would continue to expect 69.50-68.50 range for the rest of April, which in turn would make me a seller above 69.30 levels. I would expect a left side surprise given the flows, risk on sentiment globally plus the RBI swap auction on 23^rd April which should keep the markets flushed with dollars resulting in intermittent mandatory selling from foreign banks. Near term forwards could again rise before the auction which can be a negative drag on short USDINR bets. CMP 69.29, Range 69.37-69.00.

INR update: Uneventful global wires, Inflows and election focussed action in USDINR

With low volume and surety from the ECB of accommodative monetary policy for longer periods, Euro remains the best DM funding currency, and therefore it would be logical to expect EURUSD to not cross 1.1340 (200 WMA) convincingly. On the other hand from a 3-6 months the pair can be sold near 1.1340 with a possibility of a move towards 1.10 and lower. Not much happening otherwise globally US-China trade standoff should get resolved, perhaps like US-North Korea standoff resolution, wherein markets and US will rejoice and nobody will understand what has really changed. But status quo is not a bad option for risk sentiments.

USDINR 1m NDF is trading further right today at 9p while EM currencies are moderately weaker since yesterday night. The buying since 9AM today morning could have been because of stops plus Nationalized banks buying USDINR in cash to ensure cash tom remains at normal levels before the 23^rd April auction. The major driver for USDINR for the last week and perhaps the next 2 weeks would be inflows which are doing the news rounds. Therefore I would expect USDINR to remain in 69.50-6850 range for most of April. Currently beyond April there doesn’t seem to be a reasonable basis to forecast USDINR levels, but at least in case of an unexpected Modi defeat USDINR would move higher by 4-5 biggies while the move lower could be restricted to 66.5-67 levels only. For today I would look to sell the pair at 69.25-30 levels for a move back to 69 levels. CMP 69.15, Range 69.30-69.00.   

INR update: Near term forwards move higher as dollar liquidity increases

Not much news globally. US China trade deal remains on card while the FOMC minutes and ECB gave further confidence to the fact that DM monetary policy is going to remain accommodative for longer period of time, which is risk positive.

USDINR 1m NDF is trading 6p right as near term forwards are going higher again because of excessive systematic dollars ahead of the RBI swap on 23^rd April. Last month when the same thing happened USDINR got sold. Oil moving higher is mainly because of productions cuts while world demand outlook doesn’t support a higher price forecast. The bond sale/stake sale inflow pipeline for USDINR looks strong for the next 2-4 weeks. Most of these would be done before the May 23^rd election results as the decision makers would not want to run a digital risk on a stake sale / necessary capital raising plan. I would continue to expect 69.50-68.50 range for USDINR for April with a possibility of a surprise on the lower side given the flows pipeline. CMP 69.02, Range 69.15-68.74

INR update: Inflows keep USDINR moderately offered

IMF revised global growth lower on expected lines but this along with renewed trade tensions between the US and EU would keep global risk sentiments slightly negative. Today we have the ECB policy announcement which could finally lead to a break in EURUSD on the lower side below its support zone of 1.1175-1.12, given the recent run of negative data from the EU and trade tensions the ECB could be more accommodative and sooner than what the market expects. US CPI and US FOMC minutes today, on the other hand would give more clarity on the FED’s next rate action.

USDINR 1m NDF is trading 7p right since the last 3 days. The price action yesterday was driven by some inflow. News reports suggests that there could be more bond issuance/stake sale/ FPI related inflows in the pipeline between now and end April which should keep USDINR offered. I would continue to expect a  range of 69.50-68.50 for the rest of April. For the day CMP 69.17, Range 69.25-69.00.

INR update: Neutral risk sentiments and inflows to keep Rupee in range

The outlook on US China trade deal remains positive although the timing remains uncertain with White house indicating that significant work is still pending. This week IMF will revise its global growth outlook (likely lower) while US CPI on Wednesday might give more clarity to rate cut expectations in the US in 2019.  ECB policy on Wednesday would be critical and EURO might break the 1.1174-1.12 support zone ahead of the meeting itself. May accepted that a positive vote from the parliament on a Brexit deal might be difficult to achieve in the near future. Given the confusion around Brexit related politics in the UK, the lack of consensus and delay might ensure that UK ends up staying in the EU.

Brent oil has moved higher on the back of ongoing production cuts plus military clashes in Libya. This makes it seem that the break of 70 in Brent is idiosyncratic and therefore does not suggest an immediate risk to INR. USDINR 1m NDF is trading 7p right while near terms forwards are trading at normal levels in the onshore market. There are a few bond and stake sale related inflows in pipeline which should keep USDINR well offered. A daily close above 69.55 levels should take the pair towards 69.85 levels this week (unlikely though). I would expect USDINR to trade in the range of 69.50-68.50 for most of April. CMP 69.49, Range 69.55-69.30.   

INR update: Rupee to remain in range with a positive bias

Increasingly the noise suggests that US and China will reach a deal to allay the trade war concerns. This is reflected in stock markets for now. Next week IMF would release its global growth forecasts which is likely to be revised lower again (it revised the forecasts lower in January 2019 last) considering recent statements on growth by Laggard. PMI data released this week has been less disappointing that what market would have expected last week, which has perhaps helped in US and German yields bouncing resulting in less talk of a global recession. Oil has moved higher on OPEC production cuts (against US wishes and without Russian cooperation)  and with global growth concerns it is unlikely to sustain above 70 levels (Brent).

With a view of oil remaining below 70 there doesn’t seem to be a visible risk to India’s current account. As compared to March 2019, Apr has seen much lesser FPI flows but I would continue to expect one more round of investments into India in April before May election results. Currently the more interesting aspect of currency markets are near term forwards and not spot. Given the high cash/tom levels it is speculated that RBI would have bought in spot heavily from 68.50 to 69 and received cash tom to normalize the levels from 2p to 0.85p now. INR fix is trading at +1p and USDINR 1m NDF is trading 7p right. I would continue to expect 69.50-68.50 range for the next 10 days. For the day,CMP 69.22, Range  69.43-69.00.

INR update: Global risk on plus lower forwards suggests INR strength

World equity markets seem to be buoyed by expectations of accommodative stance from major central banks plus the fact that China PMI has shown signs of growth bottoming out in the world’s second largest economy. The slowed growth momentum in the EU and the slowing momentum in the US have been ignored for now or on the contrary has helped price in easy liquidity for 2019 and beyond. Uncertainty related to Brexit continues even though a custom union kind of a deal came very close to a positive vote yesterday. Except a no deal Brexit any consensus (no brexit / another referendum/ some deal brexit) should be GBP positive while bolstering the Euro for a shorter while.

 

In the risk positive global backdrop where liquidity expectations are easing, flows into India should remain positive as each passing day suggest that the Modi led government is gaining an edge on the opposition leading into the Apr-May elections. This accompanied with another announcement by RBI for a $5bn swap window should ensure that forwards continue to move lower. The lower forward costs incentivizes the participants to arrange for funding in USD terms. The lower forward expectations should also make exporters sell sooner than later. Plus the RBI seems to be on a easing cycle with markets expecting a rate cut on Thursday which is also growth positive given the current high real rates. The above mix of risk on sentiment, with positive flow expectations along with lower forwards therefore should keep USDINR well offered in the first half of April at least (making me expect a range of 69.50-68.50 for the next 2 weeks). For the day USDINR 1m NDF is trading 3.5p right while fix is at -0.5. The price action in the last 30 mins suggests some inflow. CMP 69.21, Range 69.35-69.00.