INR update: FOMC dovish on rates but unchanged on growth/inflation indicates a structural change

Before the FOMC yesterday the message was that 2% CPI in the US is enough for the FED to consider hiking rates but Powell’s comments that persistent high inflation is required to hike, changes that expectation. Yesterday US CPI printed at 2.1% but now the FED doesn’t see it as reason enough to even consider hiking in 2020.

For 2020 the FOMC has kept GDP and inflation forecasts at September levels but lowered the rate forecast from 1.9% to 1.6% which is a change of approach for the FOMC. The reason for this change of approach could be trade war concerns with an objective to reach even lower levels of unemployment. If this change indicates a structural shift then it perhaps paves the way for a substantially weaker dollar in 2020. Dollar index CMP 97.03 with immediate objective at 96.01 (200WMA).

USDCNY fix came in lower at 7.0253 against 7.0383 indicating moderate optimism ahead of the trade deadline. Although for Trump the choices are increasingly difficult, delaying additional tariffs would suggest Chinese victory and implementing incremental duties could result in a stock market fall. Price action suggests that the large inflow in USDINR is over although the trend is still lower with next support zone at 70.30 (200 DMA) to 70.55 levels. With other EM currencies also supporting INR strength one can expect USDINR to head lower towards 70.50 today. CMP 70.66, Range 70.50-70.75.