Where is USD INR headed at the time of Corona Virus? (Expert View)

USDINR can range between 74.00 to 80.00, depending on the severity of Corona Virus impact. Let’s understand this in more detail.

Globally, with safe haven flows and liquidity need, dollar strength persists despite the Fed actions to pump up global USD liquidity. EURUSD has collapsed to 1.0650, and USDJPY is higher at 111.20, as the world scrambles to buy USD.

DOW settled down to some gains yesterday as oil prices jumped 25% on Trump’s statement that the US would buy oil for its strategic reserves in a bid to support the oil industry.

The virus, though, is rampaging at an exponential pace. The total global cases now stand at 244,000 – a jump of more than 26,000 cases in a day. The same day, last week had an increase of 10,000 cases. The US saw a rise of 4600 infections, while Italy topped 5,000. In the next few days, the US and other EU countries would likely see an Italy-like situation and enforce a complete lockdown. While governments are coming up with economic packages to alleviate the pain, the lockdown measures could have already dented the global economy significantly, and we might be looking at around two quarters of negative growth.

India is possibly preparing for a full lockdown. The PM’s speech yesterday asked for a voluntary country-wide curfew on Sunday, based on which policy action would be determined. The government is forming an economic task force to address the economic impact of the virus and the policy response.

India’s infection number as of now is not even 200 and that’s good. The question is whether community spread will happen in India or not because if in a country like India community spread happens that’s going to be catastrophic. The way some infected individuals have attended wedding, taken train rides or roamed in shopping malls raises the risk.

If community spread starts in India we will see 76.00 – 80.00 for INR depending on severity.

Even if community spread doesn’t happen, we will see 74.00-76.00 range till global dollar demand slows. In any case the dollar demand will continue for a while however RBI can be expected to support. RBI will have to balance the support as they cannot dry the rupee liquidity. So expect LTRO and OMOs side by side.

It will take some time before normalisation for sure. This king of global lockdown has not been seen in decades. Situation is like war just that not against aliens but viruses.

Most importantly we have to keep reassessing

1. Exposures

2. Views

3. Hedge choices

4. Strategies on continuous basis as new information flows in.

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