INR update: Markets quiet but on alert for fresh jolts

US economic policy uncertainty index which measures policy uncertainty basis newspaper articles in the US rose to 400 levels in August 2019 which was the highest level seen since 2008 GFC. This uncertainty should continue to drive dollar and government bond strength. Overnight Mnuchin claimed that US doesn’t plan to intervene in dollar markets as yet, which is more driven by the Trump administration’s lack of ammunition as allowed by law rather than intent.

PBOC faces the challenge of striking a balance between arm twisting US by driving USDCNH higher  and at the same time ensuring that a weakening Yuan doesn’t result in flight of capital from China. USDCNH is higher at 7.1730 as compared to yesterday afternoon’s 7.16 levels. Indian equities are in the red along with 10Y bond yields which are at 6.57 which is the pre fiscal windfall levels. Till the time there is further and definitive development in US-China trade war, USDINR should trade in 71.35-72.25 range. Market positioning for USDINR is neutral to marginally long (this is basis anecdotal evidence only). For the day, CMP 71.96, Range 71.80-72.25.