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.
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