INR update: China’s currency manipulator tag removed

US removed China from the list of currency manipulator list and said that China has committed to not enforce competitive devaluation of the Yuan. This would mean that for at least the next fortnight Yuan should maintain its stead appreciation trajectory with a target of 6.82 (CMP 6.87). This steady Yuan appreciation should result in limited RBI intervention in USDINR. CNHINR has moved higher from 9.87 in October beginning to 10.3 now which could reason enough for RBI to allow INR appreciation towards 70.35 in case inflows continue to get sold. Also, USDKRW had traded above 1154 for the last 9 months and now the pair has broken that support and is trading at 1153.
Markets seem to have ignored the breakout CPI print yesterday at 7.35% considering that core inflation was still at 3.7%. The interpretation being that food prices are driving the headline inflation and since core is still under control, the higher than 6% number is transitory in nature.
USDINR 1m NDF is trading flat. In the next 10 days there could be two large chunky inflows supporting some INR gains from here. While last 10 days of January could drive USDINR towards 71.50 as markets focus on budget on the 1^st of February. A break of 70.67 on USDINR can indicate 70.35 while a break of 70.95 would indicate the end of the downtrend in the pair. CMP 70.85, Range 70.95-70.67.