In spite of the last shot being played by the Trump
administration in the trade war (labeling China as a currency manipulator), the
ineffectiveness of the action ensures that the ball is still in Trump’s court.
Trump seems to be scrambling for options pushing the FED to cut rates
aggressively or intervene in the dollar market. Both these options seem to have
been turned down by the US Fed and Cabinet respectively. Between the two
options the Fed is less likely to give in while currency intervention might be
more under Trump’s control.
Trump would want to raise the trade rhetoric with EU as
well, before going in for currency devaluation/intervention. Therefore trade
war should worsen before it gets better. End of August Jackson hole might be
the catalyst for the FED to become more dovish than it was in the last FOMC,
which in turn could result in a fall in dollar against the majors at least.
USDINR is largely tracking USDCNH plus nationalized banks
are protecting a runway INR depreciation by selling dollars at the current
levels. USDINR 1m NDF is 10p right showing that buying pressure would have
taken USDINR well above 71 if it was not for nationalized bank selling. I would
think that Kashmir related geo-political tensions are still to be factored in
dollar rupee pricing. Overnight longs are recommended. USDINR should continue
trending higher till the Jackson hole (22-24th August) going towards
71.80 levels. CMP 70.83, Range for the day 70.65-70.95.
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