18th February 2019
INR Likely to open around 71.35 and possibly inch up a bit higher towards 71.50 during the day.
India’s trade deficit for the month of January has been USD 14.73 billion. While the number is higher that December 2018 number of USD 13.08 billion, it signifies a monthly CAD of approx USD 5 bn. The same is generally financed by USD 3 bn. by FDI and another USD 2 bn. shortfall can easily be met by FPI or suported by RBI. ( The change in Jan is negative for INR but also signifies nothing to panic on INR)
Brent is trading 66.45 driven by more than expected production cut by Saudi and overall OPEC’s decisiveness to cut output to rop up prices. To add to that Venezuella issue will constrain sentiment from output side and US-China trade talk optimism boost sentiment from demand side. ( negative for INR on standalone basis)
Kashmir terrorist attack and expected response will make international investors jittery and hence INR will continue to be under pressure for a while. ( negative for INR on standalone basis)
This week German GDP, Sentiment, PMI, IFO will provide good picture about EU trend. FOMC and ECB minutes are expected and also Draghi speaks while FOMC publishes report on monetary policy.
We are not expecting hawkish central bankers. They have taken good and quick U turn. (Positive for INR on standalone basis)
20th February 2019
INR likely to open around 71.30
The Rupee has seen a mild depreciating bias this week, primarily due to oil and aided by the trade deficit data. Brent is trading close to 66.30, down a bit from its yesterday’s highs. All supply-side factors are coming together in supporting crude prices (OPEC cuts, Iran/Venezuela sanctions) at a time when the hope of China deal perks up the demand side.
The Dollar is weaker in yesterday’s session. EUR is trading higher, at 1.1350 and USDJPY at 110.90 as minutes of the previous FOMC meeting are slated to be released today. They are expected to bolster the Fed’s dovish stance further. The recent US data such as retail sales and CPI came in lower than the previous readings, and we don’t see any reason for the Fed to change its stance in the next few months.
China deal hopes continue, as Trump mentioned that the March 1st date is flexible and talks are progressing well. After the last week’s talks in China, the new round has moved to the US this week and higher level talks are expected later.
INR range stays for now. The Rupee could not sustain the strength post RBI due to oil prices, which would continue to prevent any large appreciation in the Rupee.
21 st February 2019
INR likely to open around 71.10
The Dollar is flat after the FOMC minutes confirmed Fed dovishness. The minutes were mostly on expected lines, and it is clear that the Fed is worried about market behaviour due to tightening financial conditions. The minutes mention that the Fed could announce plans for ending the balance sheet reduction later this year. Also clear from the minutes is the fact that they are going to be on hold for the foreseeable future. Our view is that the Fed has completely folded to market threat and we don’t expect a hike till September. Of course, the Fed stance can change if the China deal gets done this quarter and results in strong US growth next quarter.
EUR is flat at 1.1350 level. Oil continues its run – Brent is trading around 67, in spite of a surge in US shale production. Saudi comments that they could cut more than their OPEC commitments led to this move.
INR seems to have broken the short term correlation to oil in the past few days, but crude prices would continue to put a floor on the USDINR level. Oil could have some further steam left in the rally if China talks throw out positive headlines. The short term range of around 70.50 to 71.75 is intact for now and as we move closer to election season, a bit more volatility would creep in along with a bias of Rupee depreciation.
22nd February 2019
INR likely to open around 71.15
The Dollar is flat against EUR at around 1.1340 and against JPY, at 110.70. AUD fell on some reports of China closing access to Australian coal imports at one of the ports. Oil is lower, trading below 67 on Brent, even as markets remain hopeful of a US-China trade deal.
US data releases such as Philly Fed, Durable goods and existing home sales came in much lower than expected, but the Dollar remained unmoved. The US economy is clearly slowing some deterioration, and the labour market seems to be the only sweet spot. Unless the China deal gets done, it seems the slowdown is set to continue into the year.
With Fed out of the way for now, unless China talks create volatility INR is in a safe zone till we get closer to the election. The domestic scenario is fairly benign until the election news cycle starts. RBI policy minutes released yesterday showed the shift in focus to growth and one can expect more rate cuts in the coming meetings, thus supporting INR till elections hog the headlines. Broad range continues to be around 70.25-71.75 for now.