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.