INR update: Trade deadlock, Repercussions of Iran sanctions, Growth, credit & Political concerns domestically, to drive USDINR higher

The US China trade war intensified and now a solution looks some time away (perhaps till G20 meet in June). US sanctions on Iran would not be without a reaction either, the first signs of which are the attacks on Saudi oil tankers in Iranian controlled strait of Hormuz. This could be a coordinated move by China and Iran who share a common adversary.

Domestically the narrative seems to be more and more convincing that a growth slowdown is for real. On the other hand the 9 consecutive days of fall in Nifty seems to suggest that markets are not confident of continued political stability. What has not got enough headline is the deteriorating credit environment. All these factors might paint a good picture for inflation (something that has not been a problem since 2014) but it would certainly hurt credit and consequently growth.

INR will continue to follow CNH along with other EM currencies. Risk off might not bring Brent lower because of growing tensions in strait of Hormuz. NDF 1m is trading 13p right. Nats had sold USDINR yesterday and today morning also. But their conviction to protect INR in spite of a slide in CNH will be lower than last week. We have 4 days before 19^th May evening exit polls are released. The global recipe plus the emerging domestic slowdown story could take USDINR above 71 before Friday. I don’t see a reasonable basis to form expectations about next week.

INR update: US-China trade deal uncertainty continues, CNH and Chinese stocks give positive queues

To state the obvious, Trump’s picking on Chinese trade imbalance is first a political move rather than an economic policy step. Trump has portrayed an image of himself as a shrewd businessman president who gets the deal he wants. This plus his history of successful trade deals (Canada & Mexico)  or talks with NK indicate, that Trump would not want to lose this spat. He doesn’t win by increasing tariff and making goods more expensive. Trump wins by messaging that he has struck a deal and the Chinese have bent the knee. To this effect I would expect a positive outcome in the ongoing standoff with either the higher trade tariff getting postponed (although technically in effect now) or China agreeing to import additional x billion dollar of goods every year in y years. The idea would be to kick the can down the lane and portray victory domestically for Trump. This would make me believe that global risk sentiments next week should be much better than they have been in the last few days.

Nationalized banks have been selling USDINR aggressively to prevent a runaway move in USDINR. Dollar rupee for now is mirroring the moves in USDCNH, which is not moving higher today as it did yesterday. Shanghai stock markets are up by 1% indicating positive trade deal expectations perhaps. USDINR 1m NDF is trading 10p right indicating offshore buying pressure. EM currencies have been stable since yesterday afternoon or have registered mild appreciation. From a risk reward basis I would think USDINR should consolidate in 69.95-70.25 range before it starts moving lower again next week, subject to a risk positive outcome in US-China trade deal. CMP 69.95, Range 69.80-70.25.

INR update: Trade war risks abate, EU data holds, Inflows dominate price action in Rupee

With no retaliation from China, the duty imposed by Trump on Chinese import has become blunt in terms of market impact, as participants seem convinced that the move was more of a negotiating tactic rather than a policy step. The Chinese have shown tenacity and have refused to get provoked which has continued to help risk sentiments. EU data has shown mild resilience which has prevented the Euro from convincingly breaking 1.1150 levels, but I guess it is a matter of time before a down trend starts in EURUSD.  

USDINR 1m NDF is trading 5.5p right as compared to 6-7p yesterday morning. Equities in Asia are flat to mildly positive while EM currencies have also registered moderate gains since yesterday evening. Oil price seems to have been controlled by OPEC under the US demands post the Iran sanctions. Price action in USDINR everyday suggests some chunky inflows going through. Anecdotal evidence suggests a continued eagerness to complete capital account transactions before India election results. CMP 69.35, Range 69.35-69.20. Medium term it looks like USDINR would break towards 68.30 levels again in view of the capital account inflows and abating risks to Rupee (like oil and trade war).

INR update: Less dovish FED, slowing global manufacturing, Less volatile oil gives no clear direction for Rupee

The FED was clearly less dovish in ruling out any reason for a rate cut in 2019 which was negative for risk sentiments, as markets were expecting incremental dovish statements as a counter to slowing global growth. With US manufacturing ISM slowing down below expectations accompanied with less than consensus China PMIs, global manufacturing clearly seems to be decelerating. The next critical pieces of information would be EU inflation, NFP and services ISM tomorrow.

USDINR 1m NDF is trading 6p right which is less than the deviation on Tuesday. Oil continues to hover around 72 levels with the upward momentum waning after Trump’s tweets last weekend. USDINR seems to be driven by some inflow which drove it lower on Tuesday. Today’s price action suggests some selling as well. Given oil at 72 and EM currencies like USDKRW and USDCNH at elevated levels, I would have expected USDINR to move higher. CMP 69.56, Range 69.38-69.90.