INR update: USDCNY fix to be watched for sustained Yuan appreciation and dollar weakness

In otherwise muted markets CNY fix today printed at 6.9805 (from Friday's 6.9879) indicating that PBOC might be finally allowing the Yuan to appreciate in spite of the doubts markets had on the phase 1 deal. If this Friday's CNY fix is below 6.98, it would be significantly dollar negative for EURUSD and emerging market currencies alike.

While CNY fix must be seen to ascertain the direction for EM currencies in general, for USDINR appreciation would be controlled and limited because of continuous buying from nationalized banks in the futures and OTC market. Brent is trading higher at 68.30 because of increasing geopolitical tensions in middle east. Markets seem to be comfortable with Brent between 60-70 levels and we might not see any sustained impact on other asset classes till the time Brent moves higher than 70 levels.

With certain chunky inflows in pipeline for Jan 2020 and likelihood of fresh portfolio allocation along with a possibility of a lower USDCNY fix, first half of January 2020 might be positive for the rupee driving USDINR towards 70.70 levels from the current 71.3350. For the day CMP 71.34, Range 71.45-71.15.