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.