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.