Morning INR update

In the absence of any comments from team Trump the markets are directionless with opposing forces in EUR and JPY keeping dollar weakness at bay for the time being. A 4 hourly close below 112 in USDJPY can take the pair towards 111.30 while 99.50 on dollar index is still critical to watch on a weekly basis. In the US the JOLTS data yesterday showed that job openings are still higher than actual hiring, indicating that demand for labour in the US is very strong and employment is not the biggest problem that Trump could be addressing.

Today we have the RBI policy where market expects a 25bps rate cut. Given that the economic survey indicated that inflation has come lower plus there is a temporary growth impact due to demonetization, I would think that a 25bps rate cut is on the cards and would not move the markets by much given that the eventuality is priced in. On the other hand no rate cut might be taken negatively by equity markets and USDINR could move higher.

USDINR 1m NDF is trading 5.5p left while KRW and CNH are at similar levels as yesterday. Equity markets in Asia are mildly in the red while dollar continues to trade well above 100 levels. CMP 67.33, Range 67.40-67.20.

Morning INR update

The growing support for the far right French presidential candidate Le Pen (who wants France to exit EU), is driving peripheral yields higher in Europe and affecting risk sentiments globally. Consequently reserve currencies like USD, JPY and CHF strengthened while EUR remained offered. The major theme still would be what the most powerful administration in the world desires and therefore I would stay away from EURUSD as a pair for the time being. Risk off sentiment coupled with dollar weakness policy folds in perfectly to add to USDJPY shorts for a move below 110 by EOW.

Today we have the Chinese FX reserves data which can affect risk sentiments in Asia. Equity markets are mildly in the negative while USDINR 1m NDF is trading 7p left. Immediate global factors seem to be INR negative (as EM currencies depreciated) but the fact that we have the RBI policy tomorrow (where it seems that RBI is most likely to cut) makes me believe that upside for USDINR is limited and risk locally should remain supported. CMP 67.34, Range 67.39-67.15.

Morning INR update

Headlines from Trump administration will remain the focus for currency markets globally as he meets Abe on 10th Feb, before which I would expect USDJPY to trend lower (a break of 112 can take the pair towards 110). US data although relatively strong printed below consensus last week further increasing the bet on dollar weakness, although USD index failed to give a close below 99.5, which could open the door for another 2% down move. Expectations of Dodd Frank regulations being relaxed drove equity markets higher last week making the risk sentiments positive currently.

Dollar weakness has led to significant appreciation in KRW (6% since January lows) while CNH and INR appreciation seems to be more administered. Recent Chinese rate hikes plus the January intervention in CNH indicates that China’s Yuan strategy has changed from gradual depreciation to range bound levels (similar to INR), as the threat of being labelled as a currency manipulator by the US increased along with capital outflows being accelerated by a depreciation expectation. Asian equities are in the green while USDINR 1m NDF is 5p left which should help further mild appreciation of INR. Last year Arvind Subramanian (India’s chief economic advisor) had said that India’s reserves should then had been USD 700 bn which would make me think that substantial INR appreciation from here on is difficult, unless Trump’s coming leads to a change in government’s currency policy. I would expect a move towards 67.30 during the day as RBI exercises control while INR should move towards 67.05 overnight. CMP 67.20, Range 67.30-67.05.

Morning INR update

Markets continue to move by what Trump and his advisors say and yesterday the target was a “weaker” Euro. I would think that data release or central banks (FOMC today) would hardly matter against such verbal interventions by government. On 10th of February Abe meets Trump in the US before which USDJPY can come under significant pressure and perhaps test 110. The argument here is that a stronger Yen should be good enough for the US to make Japan to agree on anything.

On the budget, I buy the argument that the government would not want to state that growth is lacklustre and therefore high fiscal dole outs are not required at the cost of 3% target for fiscal deficit. Therefore 3% target could be met and any dole outs that are given will be out of the remaining balances. This is partially reflected in equity and INR moves before the budget. This should be positive for INR and India bonds (not sure about equities).

USDINR 1m NDF is trading 5p left with KRW having appreciated 2% in the last 2 days. A weaker dollar outlook (till Feb 10th at least) can keep INR on the appreciating trajectory but room for further strength is limited as REER hovers around 116. As I stated at the beginning of the year the lower range for USDINR for the year should be 67 (higher being 71.5) and therefore I would encourage import hedging if we see 67.30 or something today. CMP 67.67, Range 67.78-67.45.

Morning INR update

The argument between dollar weakness and strength will be most strongly played out in USDJPY as BOJ would remain stern to prevent JPY appreciation unless the two policies converge and a trend emerges.

In continuation to my doubts on US being able to create factory jobs is the dichotomy between US median factory wages and US median household income. US median factory wages is USD 22k per year while median household income is USD 56k. Assume that in a household there are two factory workers the median factory job household income comes to around USD 44 k. Thus with the addition of manufacturing jobs US wages should fall which is a non starter unless degrowth becomes policy. Conversely manufacturing in the US will need increasing wages and higher costs which should be inflationary. Add to this near full employment and the future becomes even more difficult to comprehend. But in the near term Trump’s policies should be inflationary in the US resulting in higher than expected rate hikes and therefore USD strength! But then higher cost products should result in growth peaking out sooner than later, i.e., in the medium term.

USDINR 1m NDF is trading left by 3 p as compared to flat yesterday while KRW has appreciated 0.5% along with mild dollar weakness since yesterday. Equity markets are in the red but the correlation between currencies and equities has become low as dollar policy takes centre stage. Yesterday overnight USDINR traded at 67.75 and with budget tomorrow, euphoria should precede. CMP 67.87, Range 67.95 – 67.72.