Monday, July 1, 2019

INR update: Russia-Saudi agree on oil prodution, G20 meet leads CNH and INR gains



Saudi Arabia and Russia agreed on the sidelines of G20 before the OPEC+ meet today, to continue the production cuts in order to keep a lid on the abundant supplies. The timing of the announcement (i.e., along with G20) seems to suggest that the US is also in agreement to this and therefore the view that oil prices should not go above 70 continues to hold (given Trump’s open criticism for higher oil prices). US economic surprise index has dipped significantly in June taking with it the GDP forecast to 1.5% for June quarter. This developing reality of a slowing US should continue to get priced in US yields and therefore the dollar.

The US-China announcement was in line with market expectations although concession to Chinese firm Huawei are being dubbed as a significant positive development.   

Higher oil prices, nationalized bank’s buying of USDINR and 68.80 support should prevent further and immediate INR appreciation. As I had expected last Monday USDINR has trended lower breaking the 69.30-69.80 range but further appreciation would happen only because of CNH or growth positive developments locally. US-China trade dispute should drag on so I would not expect much from CNH in the near term. Locally one can expect a breather to the liquidity issues of NBFCs and with budget on this Friday there are possibilities of certain pro growth announcements as well. For the week we should see 69.20 before USIDNR breaks 68.80 convincingly, medium term target is 68.30. For the day, CMP 68.90, Range 69.05-68.75.

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