INR update: Range prevails as views remain muted

While last week’s retail sales in the US painted a rosy picture for the world’s largest economy, other data prints (like Empire state manufacturing survey yesterday and lower GDP growth expectations for the current quarter) show that the US economy is slowing down. For the FOMC decision tomorrow, markets see only a 20% chance of a rate cut while the expectations for July FOMC rate cut is at 80%. Therefore it seems rate action tomorrow is highly unlikely and the task at FED’s hand is to tinker with July rate cut expectations only. There is no advantage to the FED to increase the July rate cut chances beyond 80%, rather it would want to keep the door open with market expectations around 60% only and therefore we could see a marginally less dovish FOMC tomorrow. But overall given the slowing economy and recent FED speak July rate cut should remain the base case.

Currently USDINR prices are driven by RBI action plus CNH moves. RBI wants USDINR to stay range bound for now and therefore at 69.80 levels from a near term perspective USDINR should not be bought. There is no news to suggest that US-China trade dispute is coming to an end immediately but what is clear is that China has not weaponized its currency  and has shown more sanity than its adversary. I would continue to believe in the theory that the ultimate result of US-China trade dispute will be a strong CNH as a concession to the US. For the day, CMP 69.80, Range 69.90-69.60.