22nd April 2019

INR likely to open around 69.60

The Dollar has opened stronger against EUR (now below 1.1250) and JPY (close to 112.00). EUR is down on weak German manufacturing data. Crude has sharply moved up to 72.60 on reports that the US is withdrawing waivers for countries importing from Iran.

This week would see the RBI FX swap auction, BOJ decision and US GDP data among others. INR would continue to move in the range with small depreciation bias, as significant additional flows are hard to come by till election results. Oil price would now be in market focus and could lead to some pressure on INR. As we keep re-iterating, long periods of calm would give way for a volatile period, especially during a large event such as the election. Keeping protection intact using options is the optimal way of hedging in this environment.

23rd April 2019

INR likely to open around 69.70

The Dollar is flattish against most currencies in thin holiday trading. EUR is at 1.1250 and USDJPY at 111.70. Brent crude continues its surge and is now trading at 74.30. INR would be pressured a bit by the rising crude.

The RBI fx swap auction is set to happen today. It would be interesting to see the bid amounts and the cut-off rates. Forward premia and MIFOR have retraced the entire fall which occurred post the announcement of the second auction. If the total bid amount against comes very high, one can expect that the short term forward premium would continue to be elevated.

INR continues to have slight depreciation bias as election positivity is replaced by cautious flow situation and rising oil prices. A sharp move in either direction would be hard to come by till the election results and it is prudent to prepare for this potential post-election move with options/option structures.

24th April 2019

INR likely to open around 69.70

It has been a fairly quiet trading day for currencies with marginal moves in most. The Dollar is a bit stronger on good US housing data. EUR is trading around 1.1220 and JPY at 111.90. Brent is mildly lower at 74.10. US equity markets surged to fresh highs as this quarter’s corporate earnings seem to be better than expected.

The RBI FX swap auction resulted in surprisingly high bid amount and a high cut-off 3y forward premium. The total bid was worth 18 billion, and the cut-off 3y forward premium was 8.38 rupees, almost 0.25% higher than the market expectation. This goes to show that the system is now flush with USD liquidity and the market would pay more premium to swap the USD liquidity into INR. Further, only 5 out of 255 bids were accepted, which means that most market participants would be stuck with Dollar funds. Forward premium and MIFOR jumped a bit after the auction results and one can expect a bit of upward pressure on the hedge costs from now on, given the surging Dollar liquidity. 1y forward premium is now at 3.25 rupees and the 3y MIFOR is around 6.5% (25 bp jump).

INR range is intact for now and it seems that the currency would glide along till the election results, barring any global event.

25th April 2019

INR likely to open around 70

The Dollar saw one of the stronger days in the recent past yesterday. EUR is sharply down at 1.1150 and USDJPY is around 112.10 level. AUD saw a sharp fall on weak inflation numbers and a lot of EM currencies such as ZAR and TRY also saw weakness. While equities seem to be holding on to all-time highs, the Dollar has been creeping up slowly as the US economy is seen to be relatively better performing.

In spite of some depreciation, INR has been one of the better performers in the emerging market basket, when compared to the South African Rand, the Turkish Lira, and the Ruble.  The recent INR range (below 70.00) could be broken today and till elections, the slow INR depreciation bias might continue unless global news/events take a different turn.

26th April 2019

INR likely to open around 70.10

The Dollar continues to maintain its strength as markets expect that the relative strength of the US economy vis-à-vis other large economies would continue. EUR is mildly lower at 1.1128 and JPY is a bit stronger at 111.60. INR has seen some weakness, driven by strong Dollar and surging Brent crude. Brent fell yesterday, from 75.40 to 74 now and this could help INR stabilise.

BOJ policy was fairly uneventful and on the macro front, US GDP is expected today. The USDINR range has been slowly shifting up on lack of any positive news on the domestic front. If the status quo continues, USDINR could slowly creep up a little more, especially if crude continues its surge. Given the uncertainty around election results, moderation in hedging on either direction may be the way to go and dynamism in the hedge ratio can be automatically achieved by option hedging.

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