6th May 2019
INR likely to open around 69.20
Just when there was a calm in global markets, Trump has re-ignited risk aversion by tweeting that, by Friday, the US would increase tariffs on 200 billion worth of Chinese goods to 25%. They would consider the remaining 300+ billion of China exports into the US in a later round. US equity futures are down 2%, as there are rumours that China has cancelled their scheduled US visit for negotiations.
The Dollar was weaker after the Friday’s US non-farm payroll release. While the jobs number at 263k beat expectations by a margin, the wage growth was lower than expected, helping the narrative that inflation pressures in the US economy are not yet a worry. While this number does not change Fed’s dovish stance, it also spoils the chances of an immediate rate cut.
The Dollar was weaker against EUR post the jobs data, but has started strengthening mildly on the back of the tariff news and is flat from Friday level. JPY has been the biggest beneficiary of the risk aversion, trading at 110.40. USDCNH is up more than 1% to trade at 6.8 level.
INR’s continued strength might stall due to the risk aversion in global markets. But, Brent also has reacted to the tariff news and is sharply down to 69.05 and this would support INR. An escalation of the trade war can affect flows into India sitting on the fence, awaiting election results, and can potentially even affect the post-election move. But, for now, markets could be a bit volatile and headline-driven until there is again some sense of resolution of the trade conflict.
7th May 2019
INR likely to open around 69.30
Markets calmed down by the end of the day yesterday, after the initial jitters due to the Trump tweet on increasing China tariffs. China said that the trade delegation visit would occur as per plan, though the Chinese vice-chairman would no longer be part of that and this calmed the markets. US officials commented late in the day, that they would move ahead with tariff increases on Friday as China has reneged on some promises. It seems that, in spite of all the positive comments over the past few months, the trade war is set to continue much longer and turn aggressive.
The Dollar has been fairly flat, but US yields are falling – a sign of risk aversion. USDJPY is holding at 110.70 level. Emerging market currencies such as ZAR and Turkish Lira are under pressure. EM assets require a stable global environment to prosper, and a potential instability due to the trade war can bring investors out of a bit of complacency.
Brent is higher, at 71.25. While bad trade news pulls Brent down, potential Iran escalation is exerting the opposite pressure. If the trade war escalates further, Brent is not likely to provide heavy support to INR if the Iran situation also intensifies. For now, the Rupee is one of the best-performing currencies and it is up to the elections to determine if the faith in INR fructifies or not.
8th May 2019
INR likely to open around 69.60
Risk aversion deepened yesterday and US equities fell close to 2%. JPY is strong, trading at 110.20 level. Even though China delegation and the Vice-Chairman have confirmed their US visit, markets continue to be jittery that this would escalate to a full-blown trade war. Chines yuan is trading weaker around 6.79. US yields are down on safe-haven buying. EUR is trading around 1.12 and Brent is trading at 70.20. Brent is holding on in spite of the trade war pessimism, as Iran sanctions and Venezuela situation weigh on the market.
In spite of the increasing volatility in other markets, the Rupee is stuck in a range and this behavior could be the norm till the May 23rd result day.
9th May 2019
INR likely to open around 69.70/75
Risk aversion continues and markets are now very sensitive to headlines and official comments on the China trade deal. Trump’s latest comments that “China broke the deal during talks and they will be paying” spooked the markets further. There were reports that China is also preparing retaliatory tariffs. USDJPY is now below 110.00. EUR is flat at 1.12 and Brent is below 70. USDCNH is at 6.81, and the spike happened after the latest Trump comments.
The Rupee is under some pressure due to worsening global sentiment but is holding relatively better due to election hopes. Till the election results, this sticky behavior with moderate moves could be the base case.
10th May 2019
INR likely to open around 70
Risk aversion continues to linger on, but some hopes of a potential China deal are emerging on the back of some positive official comments. Additional tariff hikes are set to kick in tomorrow and market is nervously watching whether they would indeed be implemented. Dollar gave up some gains as US markets reversed most of the intra-day losses. EUR is trading at 1.1230. USDJPY is at 109.85. Brent is above 71.
If additional tariffs do get imposed, there could be another wave of risk aversion and further pressure on all risk assets. Talks for today have ended and are set to resume tomorrow.
Global environment continues to be jittery and INR is under pressure. Till election results, the market would be headline driven and volatile.