Daily Morning Update: Global Markets and USDINR

Dollar stable amidst lower yields. INR range-bound. US NFP this week

(4th December 2023, 7:00 AM)

INR likely to open around 83.25

Dollar traded stable on Friday, even as yields remain subdued on expectations of rate cuts in 2024. Dollar Index is now at 103.25, with EUR at 1.0880, GBP at 1.2685 and JPY at 146.50. US 10y is stable around 4.25%. Equities remain euphoric. S&P 500 closed near the 2023 high and Nifty ended Friday at a new all-time high. ISM manufacturing PMI came in at 46.7, suggesting continuing softness in manufacturing sector.

This week’s macro data out of the US, especially the jobs report, will be looked at carefully to gauge if the data ratifies the view of a mild slowdown or whether any signal regarding a hard landing will be apparent. USDINR remains uncorrelated to global events and has not budged from the current rate for significant period of time now. Unless this week’s macro data throws significant surprises, the base case scenario will be that of a docile USDINR trading in a range.

Dollar stronger, but still vulnerable. US PCE in line. Rupee stuck in a range.

(1st December 2023, 7:00 AM)

INR likely to open around 83.30

Dollar strengthened yesterday, probably due to month-end rebalancing flows, even as the US PCE inflation confirmed the downward inflation trend. US jobless claims were lower than expected, helping the Dollar. US yields are higher. EU inflation came in lower than expected, and EUR fell as a result.

Dollar Index is at 103.25. EUR is at 1.0905, GBP is at 1.2645, and JPY is trading at 147.75. US 10y has risen to 4.32%. US equities had a solid day, with DOW ending 1.45% higher. But S&P 500 got dragged down by weakness in tech stocks. Indian indices closed mildly in the green. India’s GDP came in much higher than expected at 7.6%. Indian equities will react positively today.

US PCE inflation was at 3% – lowest since March 2021. The combination of slowing inflation and resilient economic activity has kept equity markets buoyant. The current situation is very unique since the sharpest rise in rates in decades has failed to bring on a meaningful slowdown in the US economy.

As for the Rupee, the short-term stability is set to continue, given the inflation in the US remains docile. Next week’s jobs data is important for the Rupee, as small surprises in labor data have been impacting Dollar off late.

Dollar falls in line with yield crash. Dovish Fed expectations keep Rupee stable.

(29th November 2023, 7:00 AM)

INR likely to open around 83.25/30

Dollar fell yesterday following a dip in US yields, which reacted to a Fed member’s comments. Dollar Index is at 102.55. EUR crossed 1.10, GBP is above 1.27 and USDJPY is close to 147. The US 10y yield has crashed below 4.28%. Fed’s Christopher Waller who is considered a hawk, almost confirmed the end of the rate hike cycle and went further to discuss conditions for the start of a rate cut cycle. The move in the US 10y is a clear indication of an expectation of lower rates in the future. It seems to us that this is a verbal intervention by the Fed to contain runaway bond yields and make the situation easier for the government to fund their deficits.

Reverse repo balances at the Fed have been dwindling fast – suggesting liquidity injections into the economy even as the Fed is trying to suck up liquidity. As the reverse repo balances ( amounts banks lend to the Fed) fall to the absolute minimum,  liquidity tightness could start to be a point of focus for the markets and help stabilize the Dollar soon. While the short term Dollar weakness is a direct result of rate cut expectations, the question remains whether the Fed will cut interest rates preemptively or whether they will be forced to start a rate cut cycle in a panic – as was the case in the past 2 rate cut cycles.

As of now, Dollar weakness remains a positive tailwind for the Rupee.  But given the RBI stance and the structural domestic factors, INR might not see much appreciation despite the Dollar weakness.  Risk appetite is good in global markets, which is yet another positive factor for the Rupee. For now, INR could remain range-y with a slight positive bias.

Dollar weak, but Rupee remains tethered. PCE this week.

(28th November 2023, 7:00 AM)

INR likely to open around 83.35

Even as the Dollar remains subdued due to easing inflation concerns and stable long-term US yields, Rupee has been range-bound and has refused to partake of the benefit of the Dollar depreciation. Dollar Index is now at 103, with EUR at 1.0960, GBP at 1.2640 and JPY at 148.05. US 10y is hovering around 4.4%. Risk appetite was muted in yesterday’s trading and US equities ended around 0.2% in the red.

Despite expected flows this week due to MSCI rebalancing, Rupee remains firmly contained implying structural factors at play. While FII related flows remain positive, they are not voluminous enough to move the needed on Rupee. We surmise that the inherent demand from importers due to historically low forward premium coupled with lack of hedging intent from exporters is keeping Rupee weak, despite the global Dollar weakness. Unless there is a significant trigger in the form of an unforeseen event or data surprise INR could meander along in small steps with a depreciation bias.

The US economy has been showing signs of slowing growth, and yesterday’s housing data showed softness. This week’s PCE inflation could lead to some movement in currencies, but the broad trend in inflation is down. The slowdown concerns have brought the entire US yield curve down, but the sheer volume of treasury borrowing in the coming months could again revive concerns regarding debt sustainability. The Fed’s emergency window has been seeing an uptick in borrowing from US small banks and this is an area to watch out. We are heading for potentially volatile times in 2024. Long-term bias remains towards Dollar strength.

Currencies sideways as US markets closed. Rupee stable.

(24th November 2023, 7:00 AM)

INR likely to open around 83.30

With US markets closed yesterday, currencies saw muted moves and yields traded stable. Dollar Index is at 103.75. EUR is at 1.0895, GBP is at 1.2530 and JPY is at 149.50. The 10y is at 4.45%.  INR remained tethered to a tight range and Indian equities traded flattish.

The next trigger for markets will be the next month’s US jobs report, especially since market reacted a bit to the jobless claims data. While currently USD is defensive, the medium term prognosis for the Dollar is positive, as risk aversion led flows can potentially occur as slowdown intensifies. But for the short-term, the Rupee could remain stable as long as the global environment is devoid of data surprises.

Dollar stronger on good jobless claims. INR steady.

(23rd November 2023, 7:00 AM)

INR likely to open around 83.25

Dollar is mildly stronger after the US jobless claims data showed that the labor market in the US is still resilient. Even as the Durable Goods data showed slowing factory activity, the labor market remains a bright spot in the economy. Dollar Index is at 103.65, with EUR at 1.09, GBP at 1.2500 and JPY at 149.20. The 10y is staying put around 4.4%. US equities ended around 0.5% in the green. Nifty closed 0.1% higher.

With the US yields settling down lower, the Dollar could trade in a range for some time as markets wait for the next trigger such as jobs and inflation data. Equities have seen a sharp rally over the past month and are set for a positive close and even a good Santa Claus rally in the coming month. USDINR could trade sideways for the rest of the year unless the incoming data throws a surprise.

INR likely to open around 83.30

Dollar is steady, as are US yields after FOMC minutes revealed a dovish Fed indicating a long pause ot end to the current date cycle. US 10y is hovering around 4.4%and Dollar is mild stronger at 103.60 in the Dollar Index. EUR is at 1.0915, GBP is at 1.2540 and JPY is at 148.30. US equity indices ended in the red. Nifty was up 0.45% yesterday.

Rupee has refused to budge, despite a global Dollar reprieve, indicating a strong bias towards weakness. But, given the positive global risk sentiment,  a large depreciation is unlikely in the short term. US economy is heading towards a slowdown, as indicated by consumer data and logistics industry parameters. Whether the Fed will pre-empt a deep cut in economic growth and act on rate cuts or not is the question before markets.

The next critical data will be in December first week. Markets are very hopeful that a slowdown will be mild, and the next business cycle will start along with Fed rate cuts. We are weary of such optimism and expect the Fed to stay put until the economic or market situation forces their hand. Rupee is now in a stable zone, but with a long term bias towards weakness

Dollar falls further, but Rupee still stuck. Yields remain subdued.

(21st November 2023, 7:00 AM)

INR likely to open around 83.30

Even as the Dollar retreats and US yields continue their downward trend, the Rupee has completely ignored the Dollar weakness and has not been able to capture any meaningful benefit from the global situation. JPY appreciated sharply yesterday, in a catch-up move after it seems the market has given up forcing the BOJ to intervene. Dollar Index is at 103.15. EUR is at 1.0960, GBP is at 1.2535 and JPY is trading at 147.75. The US 10y is down to 4.4% as a combination of Fed rate cut hopes and technical buying keeps the treasury rally sustained. US equities jumped 0.5-1% higher as risk appetite remains healthy going into the year end. Indian indices were subdued yesterday. Markets are awaiting the FOMC minutes to confirm the expectations of a dovish shift.

USDINR has yet to react to global Dollar weakness until now. As JPY finally catches up, the pressure on the Rupee to appreciate is now more. CNY is significantly stronger compared to the recent highs. While the rebound in oil prices is a headwind for the Rupee, the global backdrop is set up for a bout of Rupee appreciation going into the year end.

Dollar weak on lower yields. INR stable.

(20th November 2023, 7:00 AM)

INR likely to open around 83.25

Dollar has opened subdued as Fed rate cut hopes keep yields lower and risk appetite going. Dollar Index is at 103.55. EUR is at 1.0925, GBP is at 1.2485 and JPY is trading at 149.05. US 10y is stuck around 4.45%. US equities ended flattish on Friday and are expected to settle down after the burst after the FOMC meeting. Markets expect a rate cut as soon as potentially 2024 March. History tells us that rate cuts have always been preceded by a panic situation and hence a bout of risk aversion is more likely to be an issue for risk assets before any rate cut can occur.

As we move towards year end trading, the fall in the long-term US yields augurs well for risk assets, but the emerging indications that the economy is slowing down will keep risk appetite checked. INR has lost the correlation with the US 10y and has failed to capture any meaningful benefit from the Dollar reversal. For now, the depreciation pressure on the Rupee has subsided. Long-term risks continue to lurk in the background.

Dollar under pressure as yields fall further. Rupee still in range.

(17th November 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is subdued as US yields fall further on soft macro data out of the US, indicating a potential economic slowdown. Jobless claims release yesterday showed a slowing labor market, and with the inflation outlook vey benign, the yield curve is now off 15-20 bp for the week. Dollar Index is at 104.25. EUR is at 1.0855, GBP is at 1.2410 and JPY is trading at 150.45. The US 10y is back below 4.45%. US equities traded flattish as economic slowdown concerns counterbalance hopes around the Fed rate cut prospects next year.

The short-term correlation between USDINR and the US 10y has reduced, and the Rupee has not been able to capture an appreciation commensurate with the fall in the 10y. We are heading for interesting times in the coming year, as the pressure on long-term US yields due to the US fisc will tussle with rate-cut hopes and/or safe-haven demand. We stand with our view that a rate cut will be more forced than voluntary, and a rate cut cycle would be preceded by strong risk aversion/panic. Irrespective of whether the US 10y rises or falls, INR could structurally be biased to depreciate more in the coming months.

Dollar stabilizes as do yields after Retail Sales data. Rupee back to neutral bias.

(16th November 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is holding steady and US yields are seeing a mild rebound, after US retail sales data yesterday suggested that the US economy is in a stable zone still. Dollar Index is at 104.35, with EUR at 1.0845, GBP at 1.2405 and JPY close to 151.15. US 10y is up 8 bp – at 4.51%. US equities are in the green, and DOW is up 0.47%. Indian equities had a solid day yesterday and Nifty registered a 1%+ gain.

US retail sales fell 0.1% month-on-month, as per the release yesterday. But the fall is lower than the expected 0.3% cut. While the consumer economy in the US is slowing down, the outperformance of yesterday’s data has given further boost to hopes of a soft landing of the US economy. Markets slightly reduced the probability of a rate cut in March 2024 post the data, as a soft-landing scenario gives more time for the Fed to pause. But history suggests that the Fed rate cut cycle always is preceded by a market panic and the rate cuts lead to much lower rates than the initial market expectations indicate. The long end of the US yield curve has stabilized, as inflation and rate cut expectations are balancing out the fears of fiscal pressure. Soon, we expect another bout of yield rise as the focus shifts back to 8 trillion of debt rollover due from the US treasury in the next 12 months.

INR could not manage to benefit much from the Dollar weakness of the past couple of days, highlighting the asymmetry in INR behavior. A meaningful appreciation of the Rupee looks difficult at this point, and hence any dip in USDINR can be a good opportunity to buy for long term.

US CPI misses and triggers yield collapse. Dollar weak and INR in a comfort zone.

(15th November 2023, 7:00 AM)

INR likely to open around 83.00/83.05

Dollar fell sharply and US yields crashed 15 bp after lower than expected US CPI yesterday triggered firm expectations of end to the current rate hike cycle and the start of a rate cut process. Dollar Index is at 104, with EUR sharply higher at 1.0875, GBP at 1.2490 and JPY at 150.65. US 10y has plummeted to 4.43%. US equities jumped up, as risk appetite returned firmly to markets, marking the start of a potential year-end rally.

The headline US CPI inflation for October came in a 3.2% against expectations of 3.3% rise. The inflation rate was unchanged over the September reading, which was the lowest in over a year. The core CPI inflation rate was at 4% year-on-year and 0.2% over the previous month – a two year low. The inflation trend clearly seems to be downwards and this month’s data might suggest that the higher financial conditions are helping tame inflation.

Now that the US 10y has sharply fallen, USDINR has a chance to break the 83 level on the downside. The irony of the situation is that lower yields and higher equity prices lead to easy financial conditions again, keeping the inflation threat alive for the near future. Further, as the economy slows, the pressure on US government to borrow more would increase, especially given that 2024 is an election year. We have not yet heard the end of the story on the US yield move and 2024 could bring back the focus to high yields again. As such, any dip in USDINR remains a good hedging opportunity for importers and opportunity to trim hedge ratios for exporters. We continue to believe that options remain a good bet, especially for exporters, to optimize on potential tail risks.

Dollar firm and Rupee near all-time highs. US CPI this week.

(13th November 2023, 7:00 AM)

INR likely to open around 83.30/35

Dollar Index is at 105.70, with EUR at 1.0685, GBP at 1.2230 and JPY at 151.70. US 10y is firm at 4.65%. US equities saw a sharp rally on Friday, and the Indian indices traded strong during Muhurat trading. S&P 500 rose 1.5%+. Nifty is up 0.5%. USDINR rose to its highest intra-day level on Friday, amidst a system outage in the D2 trading platform.

While equity markets remain buoyant, the US yields continue to indicate caution. USIDNR has broken its recent spell of exceptionally tight trading and is biased towards upward direction now. This week’s US CPI is an important event for the markets and the Rupee, given the recent stance by Powell that inflation fight is not yet over and a revival in inflation is always possible. While USDINR could trade with low volatility for some more time, the bias has shifted to mild INR depreciation. Long-term risk factors such as the US fiscal issues, economic slowdown, remain very much relevant for the Rupee, implying caution for INR in the coming months.

Dollar supported by hawkish Powell

(10th November 2023, 7:00 AM)

INR likely to open around 83.25/30

Dollar traded stronger supported by a surge in US yields yesterday, on the back of hawkish Powell speech and lack of participation in a 30y bond auction. Powell, in his speech, was unexpectedly in favor of potentially more rate hikes and reiterated that inflation could remain an issue for longer.

Dollar Index is at 105.90, 1.0670, GBP at 1.2220 and JPY at 151.30. US 10y has shot up 15 bp to 4.65%. DOW ended 0.65% lower.

The 30y US bond auction failed yesterday triggering concerns of lack of demand , though the cause for the failure could have been technical issues which  prevented participation l. Nevertheless, as the US borrowing program increases in volume, there could be a situation in future when market starts to demand much higher yield – this aspect remains a significant long term risk factor for all risk assets.

The resurgence in US yields is negative for the Rupee, which could prevent a meaningful appreciation towards the year end. We will have to wait a few more days to gauge if the current move is durable. The next data point of interest is the US CPI next week, especially in light of Powell comments.

Dollar stable and US 10y falls further. INR set for more range-y days.

(9th November 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar is stable but the US 10y continues to decline, triggered by expectations of an impending slowdown of the economy. US equities snapped their positive streak and closed mixed yesterday. Dollar Index is at 105.35, with EUR at 1.0710, GBP at 1.2285 and JPY at 150.95. US 10y yield has fallen to 4.5%. DOW ended in the red, while S&P 500 closed moderately higher.

Yesterday’s Chinese data on exports and imports  implied that the economy is still struggling. US GDP growth is also expected to see slowdown this quarter, as being suggested by the live GDP trackers. The rise in long-term yields could do the job which the Fed rate hikes could not fully accomplish, which is to slowdown the economy. On the inflation front, while the recent releases showed a downward trend, the prognosis going into 2024 is not so certain and inflation could remain sticky above the Fed’s target of 2%.

USDINR has had an extraordinary period of calm for the past month or so. The correction in the US 10y is a significant positive for the Rupee, which has removed the depreciation pressure in the short-term. The structural factors which took the long-term yields higher, remain still relevant. The US interest burden has already officially crossed 1 trillion USD. Borrowing pressure could rise again in the coming months and hence the jury is not yet out on the outlook for the 10y. We remain concerned about the potential for a tail-risk event in markets which can cause a panic move in INR but are positive about the short-term outlook of the Rupee. Option based hedging would be the appropriate way to go in managing currency risks.

Dollar stable, but US 10y lower. Risk appetite neutral and Rupee stuck in a range.

(8th November 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar is slightly stronger even as US 10y is down after Dovish comments from FOMC members. Dollar Index is at 105.45. EUR is at 1.0690, GBP is at 1.2285 and JPY is at 150.55. US 10y yield is now at 4.57%. DOW ended 0.17% higher yesterday, helped by tech stocks. Nifty ended flat.

Fed member comments were dovish indicating pause in rates. The recent macro data out of the US has started to indicate a creeping slowdown. News that the company “WeWork” might dump their commercial real estate leases soon indicates the pressure in the commercial real estate sector. The Fed’s emergency window has been keeping regional banks safe for now, but the pressure from real estate portfolio coupled with the increase in treasury yields of the past couple of months, could bring back the focus on bank health in 2024.

INR is stable and could continue to be so for the next few weeks. Depending on how the year-end rally shapes up, there could be some upside to the Rupee as we approach December. The risk factor, though, is the potential reversal in yields, especially if the borrowing pressure rises again towards the end of the year. We continue to believe that any dip in USDINR remains a buying opportunity, as long-term risks are piling up and can become apparent as the global economy slows in 2024.

Dollar meandering and US yields settle down. Risk appetite positive but shaky.

(7th November 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar remains under pressure on dovish Fed and weak macro data out of the US. US 10y revived a bit yesterday but is still far away from the recent 5% high. Dollar Index is at 105.16, with EUR at 1.0710, GBP at 1.2340 and JPY at 150.10. US 10y is at 4.63%. Equity markets have cooled off after the post-FOMC rally and Asia has opened muted. US equities ended moderately higher in the overnight session. Nifty closed 0.9% higher following the previous day’s buoyant US performance.

INR is not yet able to take benefit of the reversal in the Dollar momentum. Flows into India remain shaky and are sensitive to the US yield behavior. A sustained fall in US 10y through to the year-end can induce flows and lead to some INR appreciation. But, given the technical nature of the current bond rally, a reversal is always on the cards once the positioning adjusts. In all, an INR appreciation is possible, but not enough to significantly alter the medium-term prognosis. EUR and GBP have seen some strength due to the US yield correction, presenting an opportunity to add on to hedges again.

US yields and Dollar fall on weak NFP. Rupee stable.

(6th November 2023, 7:00 AM)

INR likely to open around 83.15

The pressure on the Dollar intensified on Friday, after the US jobs data came in worse than expected, and sowed doubts about the labor market in the US. US yields fell further as a result, and the Dollar took the impact of lower yields. The US non-farm payroll report indicated 150k job additions against 180k expected. Further, the previous months’ job additions were revised down by 100k. The wage growth was also slightly muted, implying a soft report overall.

US 10y is now at 4.57%. Dollar Index is below 105, with EUR at 1.0725, GBP at 1.2365 and JPY is at 149.60. The technical algo buying of equities continued on Friday, and US equities ended well in the green. S&P 500 closed almost 1% higher. Equities seem to be set for a year end rally, as the incoming US data remains in a goldilocks zone, showing that the economy and the labor market is slowing down, but just enough to not cause a sharp recession.

The Rupee has not yet captured much benefit from the Dollar weakness of the past couple of days. The fall in US yields could help the Rupee in the coming days to regain some lost ground. But, given that INR did not fall to the same extent as the major currencies, the upside to the Rupee could also be limited. The year-end period could be volatile as the current yield reversal is technical and such tactical trading can lead to outsized moves depending on incoming data and news.

US yield crash continues. Dollar on the backfoot. US NFP report today.

(3rd November 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is weaker owing to a continuing crash in US yields which is exacerbated by algo trade positions such as CTA.  US 10y as fallen to 4.65%. Dollar has not yet been impacted fully by the sharp fall in the yields and the Dollar Index is still around the 106 handle.  EUR is at 1.0625, GBP is trading at 1.22 and JPY is at 150.40. US equities rose sharply yet again yesterday. DOW jumped 1.7%. Nifty also rose 0.75% and is set for a positive open today, given the overnight positivity.

Driven by falling yields, equities and risk assets seem to be set for a year-end rally as per the global positioning estimates. While the yield move is driven by expectations of reduced borrowing and a potential slowdown, the fact remains that the massive budget deficit and debt rollover of the US government will only be higher in case of a slowdown, especially in an election year. The yield move presents a temporary opportunity for risk assets including the Rupee to rally and catch up with some of the losses suffered due to the rise in yields.

Today’s NFP can magnify the expectations of slowdown if the data follows the ADP miss. For the Rupee, the coming few days to weeks could be a period of stability and strength if the US yields cannot revive quickly. USDINR has the potential to move below 83 in the short-term if there is a further move in the US 10y. Any such dip can be a good opportunity for importers to load up on hedges and for exporters to lighten hedge ratios tactically.

US yields crash after Dovish FOMC and lower borrowing expectations. Dollar subdued and Rupee stable.

(2nd November 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is mildly weaker, but US yields have crashed, aided by FOMC statements and weak US macro data. US 10y is now at 4.7% – down 20 bp on the day. Dollar Index is at 106.20. EUR is at 1.06, GBP is at 1.2195, and JPY is at 150.20. US equities jumped on perceived FOMC dovishness. S&P 500 rose 1.5%.

Weak ADP payroll data, followed by lower ISM data set the tone for lower yields and the borrowing program announcement from the US treasury, which revealed lower than expected issuance for the quarter, helped bring yields down further.

FOMC paused, as expected. Powell remained hawkish in tone, that inflation fight continues. At the same time, he acknowledged that the rise in yields has helped tightening the financial conditions, curbing the need for more hikes. Markets took this stance to mean that the Fed has reached the peak of this cycle and the entire yield curve fell around 20 bp.

Dollar has seen muted reaction to the yield move. If yields continue to trade subdued for a few more days, the Dollar could see some more weakness in the short-term. While some data points such as GDP growth and housing sales have been projecting a solid US economy, the ISM and other such metrics reveal a slowdown. In the coming months, the tussle will be between slower growth and the concomitant downward pressure on yields, versus the US fiscal pressure pulling the yields up. As long as both these aspects are relatively mild, Dollar and hence the Rupee could trade sideways for a few more weeks. But any escalation of either of these opposing factors could be Dollar positive and Rupee negative. We continue to believe that any dip in USDINR remains a buying opportunity.

Dollar stable ahead of FOMC.BOJ policy shifts. Rupee remarkably resilient.

(1st November 2023, 7:00 AM)

INR likely to open around 83.25

Yesterday was yet another day of remarkably calm Rupee as global currencies traded sideways. Markets are quiet ahead of the FOMC decision today.  BOJ announced a change to their years-long interest rate policy, which was supposed to help the JPY. But the Yen weakened more, in a sign that the market is willing to take on the BOJ and test its intent. Dollar remains steady and US long-term yields are slightly higher. Dollar Index is at 106.50, primarily driven by rise in USDJPY to 151.25. EUR is at 1.0570 and GBP is trading at 1.2140. US 10y yield is hovering around 4.92%. US equity indices ended in the green while Indian frontline indices closed lower. DOW closed 0.4% up. Nifty ended 0.3% down.

BOJ tweaked their interest rate policy yesterday and indicated that there is no specific yield cap pre-decided anymore. The policy shift indicates that the BOJ is willing to let the Japanese bond yields move higher than 1% – which means that the liquidity injection from BOJ could reduce in the coming months. Despite the policy shift, JPY weakened as markets wants to force the BOJ’s hand to act decisively regarding the JPY. For global risk assets, the medium-term impact of the policy would be that another source of liquidity for the markets could dry up, leaving just the PBOC the only major central bank with a dovish policy.

FOMC is due today and markets expect a pause. With financial conditions tighter, owing to higher long-term rates, the Fed would be comfortable to pause for some time and watch the impact of the tighter conditions on the economy. US economy remains surprisingly resilient despite the high rates. Yesterday’s employment cost and housing data confirmed a solid economy. But the Fed can afford to wait given that the move in long-term yields is very recent and the impact of higher rates could take time to percolate into the economy. For the Rupee, the FOMC is not expected to be significant in its impact. USDINR is set for more days of calm as long the US 10y trades sideways around the current levels. The US fiscal position and the long-term yields are the primary risk factors for the Rupee.

Dollar stable ahead of a data heavy week. FOMC in focus. INR in range.

(31st October 2023, 7:00 AM)

INR likely to open around 83.25

Dollar is steady and US yields remain elevated even as equities revived sharply higher yesterday. Dollar Index is at 106.10. EUR is trading above 1.06, GBP is at 1.2150 and JPY is at 149.45. US 10y yield is at 4.89%. DOW rose sharply, closing 1.6% higher. Indian frontline indices had a positive day yesterday. Nifty was up 0.6%.

BOJ policy is due today, and a report stating that they might tweak their yield curve control policy to allow the 10y bond yield to rise above 1% helped JPY initially. The BOJ policy tweak is a long-term negative for markets as it reduces the liquidity from the BOJ, which currently is the primary driver of global liquidity increase. The FOMC outcome is due tomorrow and is expected to see muted reactions.

Rupee remains extremely docile as capital outflows are balanced out by positive current account situation. Despite the US economic indicators flashing solid green, there seems to be signs of slowdown in the US economy indicated by reduced IT spending. Indian IT sector is seeing net reductions in headcount – a warning sign for the coming few quarters. In the short term though, Rupee has not much to worry about and could be stable in a range. Hedgers are better served to be cognizant of potential risks than be complacent about the current lack of volatility.

Dollar stable ahead of a data heavy week. FOMC in focus. INR in range.

(30th October 2023, 7:00 AM)

INR likely to open around 83.25

Dollar is stable, US yields are trading sideways ahead of a data-heavy week.  Risk appetite is shaky and Asian markets have opened tentatively awaiting BOJ policy followed by the FOMC. Equities are seeing loss of traction and US indices have entered a correction zone due to the ongoing negative days on the back of the Israel war and high yields. FOMC on Wednesday, followed by the US jobs report on Friday, are the key events in focus this week in addition to the BOJ policy where they is a chance that they shift to hawkish policy.

Dollar Index is at 106.40, with EUR at 1.0565, GBP at 1.2115 and JPY at 149.65. US 10y yield is at 4.87%. DOW ended 1.1% lower. BOJ policy is important for global markets, as any change to the dovish stance means lower liquidity flow. Despite the Fed’s tight liquidity stance, global liquidity has risen due to BOJ and PBOC contributions – a major reason why the global economy has been buffered from the sharp rate rises. FOMC is expected to repeat the same tone – that they are data dependent and rates could remain high for long. Last week’s PCE inflation remained in line, and was a non-event. A hawkish tone from the FOMC could be risky due to its potential for triggering another leg of the yield move.

USDINR is exceptionally stable, and is expected to be so unless the data points this week spring a surprise. The ongoing war remains a risk factor for the Rupee, but only if there is a major escalation with US backing. US 10y yield seems to have found a temporary placeholder around the 5% level, but the structural pressure could take it further up sooner than later. The bias still remains towards INR depreciation, but a trigger is needed for the next leg of the Rupee move. Until then, a mildly depreciating to neutral Rupee is the base case scenario.

Dollar steady on solid US GDP. Rupee range in tact.

(27th October 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is stable, but long-term US yields are down after the US GDP growth data smashed expectations with a 4.9% print. Dollar Index is at 106.40. EUR is at 1.0565, GBP is at 1.2135 and JPY is above 150. The US 10y is at 4.85% after hopes that high economic growth will put in less pressure on the US fiscal position. US equities gained initially but ended sharply lower on muted earnings and fears of more hawkish Fed in light of strong growth. Indian equities are also rolling over slowly as the euphoria is settling down and high US yields start to show their influence.

US growth was higher than even the most optimistic estimates. Combined with data on home sales, it is difficult to understand how the economy is breaking records at 5% growth. One explanation is that the corporate interest costs are still low, due to the covid era borrowing and further that the global liquidity pool is still supporting the growth. The issue remains that of the huge debt being piled up in producing this growth. The large budget deficit in the US is managing to sustain the economy, but  at the cost of rising long-term yields which have the potential to produce unforeseen disturbances. A strong US economy is a net negative for EM assets due to is potential to generate higher US yields.

On the war front, the US is slowly but surely entering the Israel-Hamas conflict, their latest act being bombing some Iranian facilities in Syria. While the war situation is still limited in the arc of influence, any further escalation involving more middle eastern countries will lead to significant risks for economies and the markets. For now, the war is not a major factor for markets.

INR is remarkably resilient, reflecting the strong domestic factors. Even as the US growth seems solid, the recent remarks from Indian IT companies regarding hiring requirements seem to indicate a creeping slowdown in global demand. In the short term INR will remain range bound if the US yields stay range bound. The next leg of the Rupee is very dependent on the outlook for the US 10y and a significant move in the 10y on either side could cause Rupee depreciation.

Dollar up on resurgence in yields. Rupee stable amidst shaky risk appetite.

(26th October 2023, 7:00 AM)

INR likely to open around 83.15/20

Dollar regained momentum after US yields jumped back up yesterday. US 10y is back to 4.96% and supported the Dollar well. Dollar Index is at 106.55, with EUR at 1.0550, GBP at 1.2090 and JPY at 150.40. The reversal in the long-term US yields from two days ago, reflects the underlying fiscal pressure. US economy remains upbeat, and the latest housing sales data smashed expectations belying expectations of a slowdown. The resilience of the housing market in the face of 8%+ mortgage rates is very surprising and probably is a result of institutional ownership of housing assets in the US.

Equities fell yesterday in the US after disappointing results from Alphabet added to the risk aversion due to rise in treasury yields. DOW fell 0.3% while S&P 500 was down 1.43% due to high tech stock weightage in the index. Indian markets also traded down with Nifty falling 0.8%. Mid cap stocks are seeing some pressure and the broader market sentiment is not positive given the global yield outlook.

INR probably will see yet another day of range-y trading today. For the Rupee, a solid US economy is a negative factor under the current scenario, as surging long-term yields puts pressure on risk assets across the board. A recession in the US economy is equally negative for the Rupee, due to a potential for credit/liquidity events. For now, INR is in a stable zone. The next data point to look for is the core PCE, and then the next month’s macro releases.

Dollar stable but yields lower. Rupee remains range-y.

(25th October 2023, 7:00 AM)

INR likely to open around 83.00/05

Dollar is stable and has recovered some lost ground yesterday, after initially being down due to fall in yields. EUR could not hold on to its highs after EU data indicated the reality that the EU economy is relatively weaker in comparison to the US. Dollar Index is now at 106.05. EUR is around 1.06, GBP is at 1.2165 and JPY is at 149.90. US 10y fell sharply yesterday, driven by algo driven reversals in positions, currently at 4.82%. Equities traded positive yesterday. DOW closed 0.6% higher.

US economic data remain positive and yesterday’s PMI data surprised on the upside. Even as rates top 5%, the US economy has been extremely resilient till date, as long-term yields were supportive. But, one of the primary reasons for the resilience of the economy is the 2 trillion budget deficit of the government. The impact of the deficit is now showing in the US yields. On the other hand, global liquidity is still not restrictive despite the stated positions of the Fed and the ECB. Even as the Fed is trying to withdraw liquidity with ECB being neutral, the BOJ and the PBOC have been net contributors to the global reserve positions, buffering the economy from high rates. With the rise in US long-term rates, the risk of a slowdown has increased in the coming months, but the central bank reaction to any market dislocation will determine the extent of market fall.

As for the Rupee, the current range is slated to continue for some more time. The 10y has retreated from 5% level, and one has to watch if the fall is durable or the borrowing pressure brings the yield back up. The best course to take on Rupee hedging seems to be to prepare for a tail risk panic event, while hedging primarily for a moderate depreciation. Hence, importers can use seagulls with larger protection ranges, while exporters can look at seagulls which provide reasonable hedge rate while keeping upside of sharp depreciation open.

Morning Update

(23rd October 2023, 7:00 AM)

INR likely to open around 83.15/20

Dollar Index is at 106.05, with EUR at 1.0585, GBP at 1.2160 and JPY at 149.85. US 10y is at 4.96%. Brent is trading elevated as fears of escalation in middle-east tensions can potentially disrupt global oil supplies.

EUR will be in focus this week, given the ECB policy. US Core PCE inflation is also scheduled this week. US 10y is again nudging towards 5%. Going forward, a risk aversion led treasury buying is the primary way the US long-term yields can come off. While the ongoing Dollar strength is driven by the rise in US long-term yields, a sharp correction in yields due to a panic event could also be Dollar positive. As such, the probability of a sharp appreciation of Rupee remains low, and any dip in USDINR remains a buying opportunity.

Morning Update

(20th October 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is trading muted after Powell sent out a balanced message regarding rate path. The 10y yield continued its rise yesterday and is on the brink of topping 5%. Dollar Index is at 106.15, with EUR at 1.0575, GBP at 1.2130 and JPY hovering around the 150 level. Powell reiterated that they remain data-dependent, but the long-term yield move has tightened the financial conditions, potentially alleviating the need for aggressive rate moves by the Fed. For risk assets, the long-term yield shift has become more important than the Fed outlook.

Equities are trading jittery on rising US 10y. DOW traded 0.75% down. Sensex was also down 0.35% yesterday and is set for a cautious start today. Risk appetite is fluctuating with each day but is generally weak as concerns around rising rates are keeping markets on edge. USDINR has been extremely resilient, but biased higher and could remain so for the foreseeable future. The medium-term impact of the sharp rise in the 10y remains to be felt and the longer the long-term US yields remain elevated, the higher the chances of disruptive events in the global economy. We remain vigilant about the US small bank health and liquidity issues in the coming months.

US 10y surges and Dollar supported. Rupee vulnerable in the medium term.

(19th October 2023, 7:00 AM)

INR likely to open around 83.25

Dollar rose and US 10y crept higher yet again yesterday, as the focus remains on Fed and US debt pressure. Dollar Index is at 106.35, with EUR at 1.0540, GBP at 1.2140 and JPY at 149.75.  The US 10y is at 4.95% now and is set to top 5% soon. The unrelenting move in long-term yields is a bothersome development for the global economy as the cost of capital rises for global investments leading to a relative devaluation in risk assets. Powell speech is in focus today, as to whether he will point to any change in perspective of the Fed, given the yield move.

INR traded yet another day in a tight range. Option volatilities have been falling for the past few months, and the recent docile behavior of the Rupee has impacted the short-term vols further. Importer options have become cheaper and can be explored for the short-term. We remain concerned about the unchallenged move in the US 10y. For the past few days, the correlation between the US 10y and Dollar has not been strong. But, once the 10y moves above 5%, capturing markets’ attention, Dollar will be buoyed again and can start the next leg. The bigger question remains – how long can the US government continue to afford the fiscal debt at such high yields, as the existing debt matures. For now, the short-term Dollar strength against most currencies, including the Rupee, is here to stay.

Dollar muted, but risk appetite shaky. US yields rise, but Rupee stable.

(18th October 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar is soft, but oil prices jumped yesterday after escalation in the Israel-Hamas conflict. US long-term yields remain buoyant, and equities are flattish after US retail sales blew expectations yet again, showing a surprisingly strong economy. Dollar Index is at 105.95, with EUR at 1.0575, GBP at 1.2170 and JPY at 149.75. US 10y is higher at 4.83%. DOW ended flat, and Nifty was 0.4% higher, tracking the positivity in previous days’ US equities. Brent is above 92, and further escalation could be likely given the increasing opposition from the Arab countries.

Even as risk appetite remains jerky, US 10y has resumed its uptrend -which is ominous for risk assets. Despite the war and potential for safe haven buying of treasuries, the rise in the 10y underscores the fiscal pressure in the US. The 10y is set to cross 5% – a psychological level which can trigger a downtrend in risk assets.

INR has been extremely resilient in the 83-83.25 zone for a few days now. The bias still is towards a higher level but would require a trigger in the form of a sudden rise in the US yields or a major escalation in the war. The US economy is still going strong despite the rate hikes, as evident in the latest retail sales data (0.7% against consensus of 0.3%). The underlying trends though remain worrisome. Credit card and other personal debt is rising fast, and can hurt sooner than later. As long as it lasts, the US economy will hold the global risk appetite. The question now is of timing – as to when the economy will rollover.

Rupee will remain pressured as long as risk events continue on the horizon. Forward premia have fallen owing to fears of Dollar shortage as large RBI FX swaps are due for delivery. This is an opportune time for importers to load further up on hedges, and exporters to lighten hedge ratios.

Currencies muted. Rupee in a tight range. No large triggers in sight.

(17th October 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is muted but close to its recent highs, even as risk appetite has returned to equities in the US. US 10y is back to its uptrend. Dollar Index is at 106.10, with EUR at 1.0550, GBP at 1.2195, and JPY at 149.55. The 10y is at 4.73%. DOW ended 0.9% higher, while Nifty traded flat.

It is the same story for the Rupee every day, that it has traded in a tight range. With no significant triggers forthcoming for the next few days, Rupee could remain tethered. Data from China is awaited this week, and Asian currencies could react a bit to PBOC’s actions. The Israel-Hamas war jitters have settled down, and the Rupee can be expected to be remain docile in the short-term.

Dollar strong on war jitters. Rupee range set to continue with increased probability of depreciation.

(16th October 2023, 7:00 AM)

Dollar strong after higher CPI. Yields rise. INR steady.

(13th October 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar took back the lost ground yesterday after the US CPI came in higher than expected. US yields rose after the data and stocks fell as the CPI release indicated persistent price pressures in the US economy. Dollar Index is at 106.25, with EUR at 1.0540, GBP at 1.2195 and JPY at 149.80. US 10y is at 4.67%. DOW fell 0.5%. Nifty traded flattish.

US CPI came in at 3.7% against a consensus of 3.6%. The Core CPI was in line at 0.3% MoM. Critical components such as shelter continue to see price pressures as per the data. While the CPI does not indicate out of control inflation, the stickiness of the data remains a concern for the market. As we come to the end of the current business cycle, sticky price increase can pose problems for consumers and dent the economy more deeply. While the Fed officials have been dovish in their comments, there might not be a sustained pause or cuts in rates unless the actual inflation data shows a clear downward trend. Combined with the last jobs data, this inflation print clearly shows, surprisingly, that the US economy is still jetting along despite the rate hikes.

As for the Rupee, the CPI data might not cause a change in the short-term trend. USDINR is well settled for now, and it could take a risk event or a sudden jerk in the US 10y to dislodge the pair from the current range. The low-volatility period is set to continue.

Dollar subdued and US yields lower. US CPI today. Rupee comfortable.

(12th October 2023, 7:00 AM)

INR likely to open around 83.15

Dollar is subdued as US yields retreated again yesterday, as dovish Fed expectations and geopolitical risks keep a lid on the yields. Dollar Index is at 105.70, EUR is at 1.0625, GBP is at 1.2315 and JPY is at 149.20. The US 10y is down to 4.57%. Treasury yields are pressured down due to the current war situation, which ironically is helping other risk markets as the recent factor for most risk assets has been the sharp rise in the US long-term yields. DOW ended green yesterday. Indian indices saw handsome gains of 0.5%+.

Today’s CPI is expected to be slightly higher than last month’s, at 3.7%. The core CPI is more in focus with a 0.3% m-o-m rise. Markets will be worried if the core CPI comes in more than expected, especially as the Fed seems to be turning more dovish.

Rupee has been stuck in a range and the INR volatility has reached a multi-year low. While the long-term INR vol has been falling gradually it still is more than the current vol. Despite the potential risk events on the horizon, markets have had extreme confidence in central banks’ ability to manage panic events. But structural problems such as ballooning US debt could still create issues for markets in the coming months. The Rupee could remain comfortable for more days to come. Long-term risks remain lurking.

Risk appetite revives.

Dollar and Rupee range-y. CPI tom.

(11th October 2023, 7:00 AM)

INR likely to open around 83.20

Dollar has retreated mildly and US yields are steady as dovish Fed comments help risk appetite despite the ongoing Israel war. Dollar Index is at 105.75. EUR is trading above 1.06, GBP is at 1.23 and JPY is at 148.70. US 10y is at 4.62%. DOW closed 0.4% higher yesterday and Nifty rose 0.9%. Markets have already moved on fully from the Israel war concerns unless there is a major escalation.

US CPI is due tomorrow. Rupee volatility has crashed completely as the global Dollar has settled into a comfortable range. The CPI data is unlikely to influence a sustained trend in the Dollar as long as the inflation comes in broadly in line. While the Fed seems to be dovish, the reason is that the financial conditions in the US have tightened due to rising yields. As long as the long end remains biased upwards, the pressure on risk assets such as the Rupee is set to persist.

Dollar muted as US 10y lower. Israel War shrugged off. US CPI this week

(10th October 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is mildly weaker and the US 10y yield is lower on shaky risk appetite amidst the ongoing Israel-Hamas war. Comments from Fed officials that rising US yields are helping keep the financial conditions tight, thus enabling a pause in rates, boosted markets. Dollar Index is at 105.75. EUR is at 1.0575, GBP is trading at 1.2245 and JPY is at 148.55. The 10y yield fell 8 bp and is at 4.64%. US equities managed to close firmly in the green, indicating that markets are not worried about the war as much, unless it escalates into a full-blown middle-east war. DOW closed 0.6% higher. Nifty was down 0.7%, but is set to open in the green today.

As we mentioned elsewhere, a moderate dip in the US 10y is Dollar-negative, as the primary drivers of the Dollar strength have been the surging long-term US yields. But a sharp correction in the yields, which can only happen due to a sharp risk aversion, will help the Dollar and hurt risk assets.

As long as the war is contained, the markets’ focus will remain on macro and US debt. This week has the US CPI, which is unlikely to cause significant move in currencies. As for the Rupee, the range-y behavior is likely to continue for a few more days. The Israel war and the 10y are the factors to watch out.

Dollar stable amidst Israel war news. Risk appetite weak in markets and Rupee remains vulnerable.

(9th October 2023, 7:00 AM)

INR likely to open around 83.20

Dollar is flattish despite a solid US jobs report on Friday and news of Israel – Hamas conflict over the weekend. Friday’s jobs report delivered a massive surprise with 336k job additions against an expected 170k consensus. Wage growth was slightly lower than expected at 0.2%. Dollar could not keep the initial post-data gains, as it seems to be more dependent on long-end yields rather than Fed expectations. The Israel war news has not yet created enough risk aversion to generate large safe haven flows into the Dollar.

Dollar index is at 106.05, with EUR at 1.0555, GBP at 1.2205 and JPY at 149.15. US 10y yield is lower due to safe-haven demand, now at 4.75% and equites have opened lower.

The Israel situation is not yet serious for markets. If the conflict broadens into a potential Iran war, global economy will be surely impacted, generating potential risk aversion. As of now, oil is higher from recent lows, but not enough to cause ripples in markets. The next few months will be crucial for geopolitical scenarios to play out, as a potential middle eastern war can compound the Russia-Ukraine turmoil or may cause political tussle in the US regarding the funding for both wars. The Israel conflict could add uncertainty to the Rupee for sure in the coming months.

USDINR is trading muted, as a mild dip in the US 10y remains a negative factor for the Dollar. On the other hand, a large fall in the US yields driven by panic flows into US treasuries will be a risk factor for the Rupee. Caution continues to be the name of the game as far as hedging is concerned.

Dollar and US yields steady ahead of NFP data. INR muted in a range.

(6th October 2023, 7:00 AM)

INR likely to open around 83.20

US yields traded stable yesterday as did USD with a mild weakening bias. US equities ended flattish to red as risk appetite remains shaky ahead of the US non-farm payroll data today. The hope is that the jobs data presages a moderate slowdown in labor market, just enough to keep rates under check. Any signs of a sharper dent in labor market outlook can trigger fears of slowdown and risk aversion. As for Indian markets, equities remain tentative, but near all-time highs. Today’s RBI policy is expected to toe the status quo line and not cause too many flutters in markets.

Dollar Index is at 106.15, with EUR at 1.0545, GBP at 1.2185 and JPY at 148.60. US 10y is stable at 4.72%. DOW traded flat and Nifty was higher by 0.5% yesterday. US NFP consensus is for 170k job additions. A significant deviation from the consensus could trigger risk aversion, especially in an environment where the US government is already going through the highest pace of debt addition in history. Markets hope for a number around the consensus or slightly lower and probably a dip in wage pressures.

Today’s RBI monetary policy outcome is not a major factor for the Rupee. The RBI is expected to pause and use a hawkish tone depending on their inflation reading. For the Rupee, US 10y yields continues to be the primary factor for the next few weeks. The unprecedented pace of US borrowing has the potential to cause a supply glut and lead to an unexpected freeze in the treasury market in the coming months. The bias remains firmly towards INR depreciation in the medium-term, while the short-term outlook is dependent on the incoming macro data around recession risk.

US yields and Dollar temper down after subdued US data. INR remains range-y.

(5th October 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar took a breather yesterday, as did US yields, after ISM services data and then the ADP data indicated a creeping softness in the US economy. ISM came inline with expectations, but down from previous month. ADP job additions were 89k – lower than consensus. The 10y is at 4.71%. Dollar Index is at 106.30. EUR is at 1.0520, GBP is at 1.2155 and JPY is at 148.51. US equities fared well yesterday, helped by the fall in yields. DOW ended 0.4% higher and S&P 500 jumped 0.8%. Indian equities traded in the red yesterday but are likely to be in the green today. Nifty was down 0.4% yesterday.

US 10y fell by 10 bp yesterday, as the weak data triggered hopes of a moderate slowdown and reversal in the Fed strategy. The incoming non-farm payroll data is critical now for guiding the short-term direction of US yields. The yield move has already led to large unrealized losses on banks’ treasury holdings, creating a perfect recipe for a potential bank crisis again. While markets are hoping that incoming data will be just weak enough to keep a lid of yields, while not weak enough to trigger recession and default fears. Our view remains that the long-term yield move is not driven as much by the Fed expectations as by a surge in the US borrowing pace, especially given an un-accommodative Fed.

USDINR will remain biased upwards as long as the US yields do not see a trend reversal. RBI’s policy decision is not going to have significant impact on the Rupee. The next stop is the US non-farm payroll release tomorrow.

US yields rip higher. Dollar well supported. Rupee remains under pressure.

(4th October 2023, 7:00 AM)

INR likely to open around 83.25

US long term yields surged yesterday, with the 10y breaching 4.8%. The relentless rise in these yields has now become the primary factor driving the markets. Dollar remains well supported by higher yields and is set for more strength in line with the move in the 10y. Dollar Index is at 106.75, with EUR at 1.0475, GBP at 1.2080 and JPY at 149.15. US equities fell sharply yesterday, with the DOW dropping 1.3% on rising interest rates. Nifty fell 0.55%.

The spike in the US 10y reflects the faster pace of increase in US debt. Currently, the debt is rising at a rate of 1 trillion USD a month. The interest expense has already reached 1 trillion per annum. Markets have started to recognize the unsustainability of this picture, especially when the Fed is withdrawing liquidity. The US House speaker was ousted yesterday due to internal tussle in the Republican party. With the stop gap funding extension of 45 days nearing, the instability in US political setup adds to the uncertainty for markets.

We are at the cusp of a potential risk event for markets and the rising long-term yields in the US could soon force the market’s hand. Rising yields could kill the economy, and more importantly, can trigger another banking crisis in the US as large unrealized losses on their treasury holdings will lead to capital erosion. A repeat of the US bank crisis is one risk factor we will keep an eye on. The other angle to the rise in the 10y is that it can force the Fed to abandon the tight liquidity strategy and loosen up liquidity through QE, if the economy sinks into a recession. Both the scenarios remain Dollar positive – one due to rising yields and the other due to risk aversion.

We could be heading into a volatile period for markets, and caution should be exercised in hedging. The structural bias for the Rupee is towards depreciation. Importers will be well served by keeping hedge ratios high, especially given the low forward premia. Exporters can explore option structures to keep the opportunity losses due to a sharp Rupee depreciation minimal.

Dollar back to strength as yields resume up move. INR vulnerable.

(3rd October 2023, 7:00 AM)

INR likely to open around 83.25

Dollar surged yet again after the US congress agreed to a partial resolution of the funding quagmire and averted a government slowdown over the month end. US yields rose after the deal helping the Dollar. Risk appetite is hanging by the thread, on hopes that corporate earnings will see a revival and a soft-landing of the major economies can be achieved.

Dollar Index is at 106.80. EUR has fallen to 1.0470, GBP is at 1.2075 and JPY is inching closer to 150. US 10y yield is at 4.68%. While the near-term yields in the US remain steady owing to more certainty about the FOMC activity, the rise in long-term yields is not based on rate expectations, is a reflection of the fiscal problems in the US. Equities are holding on to stability for now, but the relentless rise in the benchmark yields has the potential to create a large disturbance in risk appetite. Markets cannot take the high 10y for too long, in our opinion.

As the new month starts, more data in the form of non-farm payroll and US CPI will come forth for markets to assess the recession potential. USDINR has spent all the euphoria around the bond-inclusion index news and will now react more to the global pressures. While the Rupee has been and will continue to be an outperformer compared to other currencies, the path is still biased towards more depreciation as long as the US 10y is on upward trajectory.

Dollar stable amidst muted risk appetite. Rupee range-y.

(29th September 2023, 7:00 AM)

Dollar and US Yields relentless. Rupee managing to hold, but outlook shaky.

(28th September 2023, 7:00 AM)

INR trading at 83.20

Dollar continues to surge, supported by relentless rise in US yields. The US 10y is above 4.6% and Dollar Index is at 106.45. EUR is at 1.05, GBP is at 1.2135 and JPY is at 143.45. Equities remain flattish as jitters about the Fed, the rising yields, US funding bill uncertainty and China keep markets on edge.

USDINR is clearly in a zone where the bias is towards more Rupee depreciation. The rising 10y poses a significant threat to markets in the coming months and remains a major risk factor for the Rupee. The yield is reacting to host of factors, one of which is the tremendous rise in the US borrowing quantum. As the US economy is in the last stage of this business cycle and given that the next year is an election year in the US, markets expect a large deficit spending to prop up the economy and hence the pressure on long-term yields. For now, markets still hope for a soft landing, but the risk of the surging 10y causing havoc remains high. We continue to stress the importance of keeping the tail risk possibility in hedging strategy for USDINR and hedge with options to ensure such scenarios are managed well.

Dollar surges unchallenged. Risk appetite waning. Rupee vulnerable.

(27th September 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar rose yet again yesterday amidst elevated US yields and weak risk appetite. Dollar Index is at 106.25 now. EUR is at 1.0565, and GBP is at 1.2145. JPY is being hammered each day on lack of policy support from BOJ. It is widely expected that 150 will be the level on USDJPY where BOJ will intervene. US 10y is at 4.53%. US equities cracked yesterday. DOW ended 1.15% lower and S&P even more. Indian equities have been mixed off late, with the frontline indices managing decent to flat closes while small and mid-cap seeing some pressure. Nifty closed flat yesterday. Brent has also been on the rise, topping 94 Dollars to a barrel yesterday.

Worries about the coming September 30^th deadline on government spending in the US is keeping markets jittery. If the deadline passes without the Congress passing the spending bill, the US government will be shut down, creating some uncertainty for the markets.

The US economy still is continuing to surprise markets and the latest macro data yet again indicated a moderate tempering-down of the economy. Consumer confidence was lower, but house prices rose despite high mortgage rates. While soft-landing of the economy is the most expected outcome, the longer the high-rate environment stays, the higher the depth of the potential recession, in our view. For the Rupee, the bias remains towards more depreciation. But given the positivity around India, the Rupee might be protected from a panic move and large depreciation.

Dollar strong and US yields on a tear. Rupee back under pressure.

(26th September 2023, 7:00 AM)

INR likely to open around 83.10/15

Dollar traded firm yesterday, supported by a relentless rise in US yields across the curve. Fed hawkishness is keeping the 2y elevated, while the borrowing pressure and the looming September 30^th deadline for US budget approval and spending, are keeping the long-term rates higher. Dollar Index is at 105.70, with EUR at 1.0585, GBP at 1.22 and JPY at 148.90. US 10y has shot up to 4.56%. While equities in the US managed to close in the green yesterday, rising yields and other uncertainties keep risk appetite muted. DOW ended yesterday 0.15% higher. Nifty ended virtually flat.

Rupee has exhausted the good news related to India’s inclusion into JPM’s bond index. The rising US 10y yield remains the single most important risk factor for risk assets such as the Rupee. Equities the world over are hanging on to hopes of a soft-landing and eventual central bank rate cut cycle. Rising long-term yields can disrupt both the economy and impact financial risk. Latest comments from another Fed member remain hawkish, given the tight labor market in the US. The immediate news-worthy event would be a potential government shutdown in the US, as the Congress spars over spending bills. USDINR remains biased upwards as the positivity surrounding the Rupee is now spent. A dip in USDINR is a good buying opportunity for long-term hedging.

Dollar remains buoyed by high US yields. Bond inclusion news provides temporary reprieve to the Rupee.

(25th September 2023, 7:00 AM)

INR likely to open around 83

Dollar continues to trade firm and US yields have stabilize at the recent highs after an eventful central bank driven action last week. The BOJ kept the policy unchanged, leading to more weakness in JPY. Last week closed with muted risk appetite, and equities traded in the Red on Friday. Despite the continuing Dollar strength, Rupee has managed to hold fort on news on India’s inclusion in JPMorgan Bond Index from June 2024, which is expected to bring about 30 billion inflows gradually over the year from the date of inclusion..

Dollar Index is at 105.25. EUR is at 1.0650, GBP is weaker at 1.2240 and JPY is at 148.35. US 10y is at 4.46% – not too far from the previous week’s highs. DOW ended 0.3% lower on Friday and Nifty traded 0.35% down. Asian markets remain jittery as potential issues in China (especially the real estate sector) add on to concerns around persistent central bank hawkishness.

USDINR is still biased to move higher, albeit at a slower pace than other currencies. The relentless move in US yields does not bode well for risk assets – especially for EM assets and the Rupee. While the bond index inclusion euphoria could help the Rupee in the short term, the actual flows are still a few months away. If the US 10y cracks significantly above 4.5%, the Rupee has no choice but to depreciate. Geopolitical dynamics, given the Canada-India situation, could also play a role in the coming months, if any escalations lead to sanctions and if the US directly gets involved in the spat. For now, it seems safe to assume that INR does not have much potential for appreciation and the Rupee remains vulnerable to global developments.

US yields rise again. Dollar storage. Rupee remains vulnerable to global dynamics.

(22nd September 2023, 7:00 AM)

INR likely to open around 83

The relentless rise in US yields, while propping up the Dollar, has now started to bring on strong risk aversion in risk assets such as equities. Dollar is strong as the post-Fed sentiment got bolstered further by strong jobless claims data which showed that the labor market in the US remains strong. BOE paused on further hikes after a long time as inflation there has cooled a bit. BOJ policy is due today.

Dollar Index is at 105.15, with EUR at 1.0650, GBP at 1.2280 and JPY at 147.75. The US 10y has reached 4.5%, highest since 2007. The sharp rise in long-term yields has led to historically high mortgage rates in the US. The short-term rates are also higher now after the FOMC hawkishness, potentially affecting consumer debt burden.  In all, the financial conditions in the US are now deteriorating quickly. The September 30^th funding deadline and discussions in the US Congress add another element of uncertainty for the markets to contend with. DOW was down1%+ yesterday and S&P 500 was down 1.5%. Indian indices also continued their muted performance, with Nifty giving up 1%+.

Rupee has managed to stay strong despite the Dollar and US yield onslaught. While the Rupee is favored to other risk currencies, it cannot withstand the unidirectional move in US benchmark rates for long. The magnitude of Rupee depreciation will be relatively lower than other currencies, given the positivity around India. But a meaningful depreciation is not ruled out, if the US yields continue their trajectory.

Hawkish FOMC pause. Yields higher and risk appetite waning. Rupee under pressure.

(21st September 2023, 7:00 AM)

INR likely to open around 83.20/25

US yields shot up, and Dollar followed suit after an unexpected hawkishness from FOMC regarding future evolution of US rates. While the FOMC paused as expected, their 2024 rate outlook surprised markets. Dollar index is at 105.40 now, with EUR at 1.0625, GBP at 1.2310 and JPY at 148.25. US stocks ended lower. The DOW fell 0.2% while the NASDAQ cracked 1.5%. Indian indices traded weak yesterday before FOMC due to waning risk appetite, and are set for more weakness today as a hawkish Fed is negative for risk appetite.  With BOJ and BOE decisions coming up, there could be some volatility in markets for the next couple of days.

The FOMC paused this meeting but indicated one more hike this year. The inflation projections were upped, implying higher-for-longer rates going into 2024. The ‘dot plot’ shifted the median rates in 2024 and 2025 50 bp higher.  The hawkish tone has led to a move in the 2y US yield to 5.2%. The 10y is now at 4.45%. The higher the 10y rises, the more the potential for a repricing event to trigger a wave of risk aversion. Higher 10y rates also mean more trouble for the US government in funding the massive borrowing program without large interest burden. While the Fed seem to solely focus on inflation, and seem to think that the economy will soft-land, they are ending up creating a situation for a large risk event in the coming months.

USDINR could now move up from here, tracking US yields. The FOMC has nullified any hopes of rate cuts in the medium-term, which also means an inverted yield curve over a longer horizon. The inversion in the yield curve does not bode well for the economy and keeps open the possibility of a sharp recession. Rupee remains vulnerable to global events and hence the need to exercise caution in hedging. Using option structures with sufficient protection/upside is the most ideal strategy in the current markets.

Dollar firm as US yields rise. FOMC today. Rupee vulnerable.

(20th September 2023, 7:00 AM)

INR likely to open around 83.25

Dollar has resumed its strength, buoyed by a relentless upswing in US yields. Dollar Index has in fact come off intra-day highs but remains firm and set to rise. Risk appetite is waning as rising yields remain a headwind for risk assets. Markets are focused on today’s important FOMC outcome, especially on clues about the future hikes.

Dollar Index is at 104.80, with EUR at 1.0680, GBP at 1.2390 and JPY at 147.80. US 10y is at 4.36%. The rise in 10y is the single most important variable for the Rupee and other risk assets now. A rise in 10y towards 4.5%+ has the potential to derail global markets, especially given the tentative position of the global economy.

FOMC is expected to pause today, but the language about the next rate move will be the focal point for the markets. Even as inflation has stabilized, there is a likelihood of one more hike in November/December, which the markets want to gauge.

USDINR is back above the crucial 83.25 zone. As the 10y US yield rises, Rupee has no other option but to weaken. Today’s FOMC is unlikely to have a major impact on the Rupee as the decision is more or less expected. The rise in long-term US yields has been more to do with the funding pressure from the US government, especially given the large amount of treasury expiries in the next 12m that need to be funded. As global growth weakens, and with 2024 being an election year in the US, it is unlikely that the government there might want to reduce fiscal deficit. The pressure on US treasuries is set to increase, unless a global panic event causes a safe-haven demand. Both these scenarios are Rupee negative, and hence the bias remains towards more INR depreciation. The question is whether the depreciation is gradual or quick.

Dollar and US yields firm. FOMC this week. Rupee remains under pressure.

(18th September 2023, 7:00 AM)

INR likely to open around 83.10

Dollar remains firm, as US 10y resumes its up move, pressuring risk assets. Dollar Index is at 104.95, with EUR at 1.0665, GBP at 1.2390 and JPY at 147.75. US 10y is above 4.35%. US equities were down on Friday as rising yields fuel risk-off sentiment. Indian indices remain bullish, with a positive close on Friday.

Rupee remains mildly pressured ahead of the FOMC meeting this week. While markets widely expect that the FOMC will deliver a pause, the focus will be on the statement and their language. Risk appetite is muted in global markets as rising 10y spells danger to flows into risk assets. Even as Indian equities managed to remain positive, the pressure on EM assets is set to only raise with the 10y. Chinese markets remain vulnerable as impatience about lack of aggressive Chinese measures keep markets disappointed. In all, the bias is slightly towards some more Rupee depreciation in the coming weeks, unless the US yield turn around. Long-term risks remain very much relevant but are still in the background.

Dollar strong after solid retail sales data. EUR weak after ECB dovish hike.

(15th September 2023, 7:00 AM)

INR likely to open around 83.05

Dollar has resumed its strength, aided by weakness in EUR and uptick in US yields due to solid retail sales data. Dollar Index is above 105. EUR is trading at 1.0645, GBP is at 1.2405, and JPY is at 147.40. US 10y is at 4.29%. ECB raised rates yesterday but signaled an end to the rate cycle. Markets cheered and stocks rose after the ECB decision. The hope is that a similar outcome will emerge out of the FOMC soon. US equities saw a handsome rally, and the DOW traded 0.95% higher. Indian indices traded flattish.

Asian markets are positive after China announced additional measures to stabilize the Yuan. US retail sales data showed that the economy is still resilient despite the rate hikes, averting fears of slowdown. Oil is higher on China measures, posing a challenge to the Rupee.

USDINR is still in its extended range, but the persistent Dollar strength has slightly tilted the balance towards INR depreciation. The US economy continues to surprise with its inherent strength despite the peak rates. The FOMC will be unwilling to talk too dovish about a pause, as this economic growth could push higher in the coming months. US yields will continue to put pressure on EM currencies, including the Rupee, until the US economy trips over.

US CPI broadly in line. Dollar firm and Rupee range intact.

(14th September 2023, 7:00 AM)

INR likely to open around 82.90/95

Dollar is firm, but mildly so, after the US CPI came in slightly higher than expected. The core CPI came in line, and markets did not think much of the data as this print does not tilt the balance on the Fed rate hike projections. Dollar Index is at 104.35, with EUR at 1.0735, GBP at 1.2490 and JPY at 147.15. US 10y yield is down 3 bp at 4.24%. DOW ended 0.2% down even while other frontline US indices traded well in the green. Indian equities managed a positive day, with the midcap and small cap indices managing a green close after the previous day’s fall.

US CPI came in at 3.7% against consensus estimate of 3.6%, and is more than the previous month’s headline CPI. The core CPI was at 4.3%, as expected, and is lower than the previous month. Even though the headline CPI is higher, the core CPI is reflecting the downward trend. The Fed will not be overly concerned with the higher CPI, as the core is down. The odds of a rate hike have not changed much after the data, and the markets continue to expect a pause in the coming meeting.

With the CPI come and gone, INR remains tethered to a range. We consider the broad range of the past few months still intact. The range is now between 82 and 83.25. The next event is the FOMC next week, which is also expected to keep markets calm as the Fed rarely wants to surprise or shock the markets with an unexpected decision. The base case scenario is that of range-bound trading in Rupee for some more days.

Dollar stable and INR range-y ahead of CPI today. Risk appetite neutral.

(13th September 2023, 7:00 AM)

INR likely to open around 82.85/90

Dollar is firm ahead of the crucial US CPI data today. US yields are holding as well. Dollar Index is at 104.30, with EUR at 1.0750, GBP at 1.2485, and JPY at 147.40. The 10y is at 4.3%. DOW ended flat yesterday, but tech index continues to be under pressure – down 0.6%. Indian indices ended flattish.

US CPI is expected to show an uptick towards 3.6% as against 3.2% last month. The core CPI, though, is expected to fall compared to the previous month. Any stickiness in core CPI could make markets react in a negative fashion. As long as the data is broadly in line, this inflation release might not have a meaningful impact. The next week’s FOMC is not expected to be swayed by this CPI print unless it surprises drastically.

INR remains stable and is expected to be so in the next few days. CNH weakness remains one of the factors preventing any material appreciation of the Rupee. RBI’s recent action indicates that they want to contain a sharp Rupee depreciation move. Hence, a range bound INR is the best guess over the next few days, at least until the FOMC.

Dollar mildly weak. INR back in a range. Tomorrow’s CPI the next trigger.

(12th September 2023, 7:00 AM)

INR likely to open around 82.90

Dollar is trading slightly weak and US yields are steady, waiting for the US CPI to provide an indication of the inflation trajectory in the US. Risk appetite remains comfortable in markets, and equities continue to move higher, albeit at a gradual pace. Dollar Index is at 104.20, with EUR at 1.0745, GBP at 1.2515 and JPY at 146.70. US 10y is at 4.3%. DOW is up 0.25%. Nifty has breached the 20k leveland is at all-time highs, riding on high Indian growth expectations.

Rupee is back below 83 again as the short-term risks are balanced out by strong risk appetite. Tomorrow’s CPI is expected to show an uptick in inflation due to the base effect of the higher CPI index of last year. Given that inflation is not a big concern for the markets, recession risk remains the primary focus for us as we continue to believe that the risk is underpriced currently. USDINR could trade in a range for a few more days until any of the long-term risk factors starts to play out. Tail risk hedging using options remains critical in the current environment.

Rupee manages to hold against strong Dollar. US CPI this week.

(11th September 2023, 7:00 AM)

INR likely to open around 82.95

Even as Dollar strength persists and US yields continue to firm up, the Rupee has managed to hold its ground, supported by flows and potential RBI action. The global picture is of calm with equities flat to green, and markets are waiting for the latest US CPI data this week. The ongoing narrative seems to be that inflation is under control, and global economy is at a risk of slowdown, but manageable at this time.

Dollar Index is at 104.35, with EUR at 1.0720, GBP at 1.2505 and JPY at 146.60. US 10y is at 4.3%. DOW ended up 0.2% on Friday, and Nifty closed 0.5% higher.

Rupee remains vulnerable to long term trends as the impact of higher US long term yields seeps into global markets in coming months. In the immediate term, as long as the Rupee remains within 82.80 and 83.30, the long term up move in USDINR remains in abeyance. How long will the Rupee be able to hold against rising US 10y is the key question now. With Oil also firm, the pressure on the Rupee could remain for the foreseeable future.

Dollar steady and CNH in focus. US long-term yields remain a headwind for the Rupee.

(8th September 2023, 7:00 AM)

INR likely to open around 83.10

Dollar traded firm yesterday even as US yields dipped slightly after a relentless rally of the past few days. EUR is jittery after weak German data revealed the slowdown issues in the EU area, especially in comparison to the US. CNH is trading weak after the China trade data showed a slowing economy there. Weak CNH is a direct headwind for the Rupee. US equities remain tentative. Indian indices traded in the green as optimism about Indian growth continues to keep Indian equities buoyant.

Dollar Index is at 104.83 now, with EUR at 1.0720, GBP at 1.25 and JPY at 147.20.  US 10y is at 4.25%. DOW ended in the green, while S&P 500 and NASDAQ traded well in the red. Sensex was up 0.6% yesterday.

Rupee traded in a range, as the impact of weak CNH was balanced by the mild dip in US 10y. US yields remain elevated and reflect the fiscal concerns in the US. Another key reason for continuing upward pressure on US yields is the weakness in CNH. Chinese FX reserves have started to dip in line with the PBOC efforts to support volatile CNY. EM and Asia central banks are one of the important buyer group of US treasuries. In a doom loop, rising US yields make EM currencies vulnerable, which leads to a drain on the EM FX reserves, which cause supply-demand mismatch and rise in US yields. Rupee remains vulnerable to this phenomenon in the short-term. Rising US yields could be self-limiting after a point, in that, sharp rise in 10y and beyond would directly raise the borrowing costs in the economy leading to a recession. This scenario is also a problem for the Rupee. All in all, we are heading into a period where cautious hedging is critical.

Dollar firm and yields higher after better ISM. Rupee under pressure. Next stop CPI.

(7th September 2023, 7:00 AM)

INR likely to open around 83.15

Dollar is higher, as are US yields, after the ISM services data out of the US surprised to the upside. Even as the broad economy is showing signs of slowing growth, the ISM data revealed a robust services sector in the US, especially in comparison with other major economies. Rising US yields continue to pressure JPY, inviting comments from Japanese officials that they could intervene to thwart the speculative move in the Yen. USDINR traded with an upward bias, correlating with the rising US 10y yield. US equities traded in the red as good economic data means higher rates will persist longer. Indian indices were flattish on lack of any fresh trigger.

Dollar Index is now at 104.85, with EUR at1.0725, GBP at 1.25 and JPY at 147.70. US 10y is at 4.3%. DOW traded 0.6% lower and the NASDAQ ended 1%+ lower. Brent remains firm at 90 – an additional risk factor for the Rupee.

As markets wait for the next CPI data and then the FOMC meeting, Rupee remains vulnerable to higher US yields. Even though expectations are tending towards a dovish stance and a pause in the coming FOMC meeting, the long-term yield move is a serious headwind for the Rupee. In the scenario where the US economy somehow manages to avoid a slowdown/recession, the long-term yields will go higher as fiscal expansion is set to continue, and lead to a gradual Rupee weakening. Another scenario where US economy slows down will see long-term yields come off due to safe-haven buying, which implies more Rupee weakening. The one scenario where Rupee will end in a positive zone will be where the US economy achieves a soft landing and the Fed starts a rate cut cycle and inject liquidity to fund the government borrowing. The last scenario has lower probability as of now and our view on the Rupee is based on higher weightage to the first two scenarios. Our recommendation continues to lean towards caution about the Rupee over the long-term.

Dollar resumes strength as US yields rise. Rupee breaks 83, biased towards weakness.

(6th September 2023, 7:00 AM)

INR likely to open around 83.05

Dollar has regained its momentum back, as US long-term yields resumed their surge. USDINR has broken above 83 again, helped by the Dollar strength and higher oil prices which would put the spotlight back on the trade deficit. Dollar Index is at 104.70, with EUR at 1.0730, GBP at 1.2570 and JPY at 147.50. JPY is taking the brunt of the up move in US yields. The 10y is back above 4.25%. US equities were down 0.5%+ yesterday, as risk appetite remained weak. Nifty managed a positive close and is expected to trade cautiously today. Brent has crossed 90 USD per barrel, and a move towards 100 is not ruled out.

Most risk assets have run out of steam and are searching for the next trigger. The hope was that the Fed will signal a cut sometime this year, which can provide the momentum for the next leg. But, the timeline for a cut is now postponed to mid-2024 and markets have to now search for a fresh bullish trigger. US economy is showing signs of weakness but is still in a goldilocks zone where the Fed will be kept quiet, and a recession is avoided. The longer this period continues, the higher the chances of a slowdown hitting the markets, probably towards the end of this year or next year. USDINR still is in a relatively better position as the current account for India is very manageable. Oil prices can become a new factor to watch out in this context.

The primary factor that correlates with the USDINR behavior in the current period is the US 10y yield. If the 10y were to move beyond the recent highs, USDINR could break the all-time highs towards 84+. Global yields are structurally set to be pressured higher as the large fiscal deficits of the developed world, including the US, have to be funded without the help of central banks. The coming period is unique in the market history. A global recession can trigger a safe haven move down in US yields, but a recession also can increase the pressure on fiscal borrowing leading to higher bond supply and upward pressure on yields, unless central banks again embark on a money printing spree. Whether the Fed and others can really be ready for a massive splurge will be the defining question of the next crisis. For now, USDINR can still be expected to be stable with an upward bias, tracking the US yields.

Quiet markets and risk appetite holding. Dollar and US yields firm.

(5th September 2023, 7:00 AM)

INR likely to open around 82.70

Dollar is flat and traded in a tight zone yesterday, being a US holiday. Dollar Index is at 104.20, with EUR at 1.0785, GBP at 1.2615 and JPY at 146.70. US 10y is stable at 4.21%. Risk appetite is decent in the markets, after China’s measures to boost liquidity and backstop their economy.   Indian indices closed in the green, with Sensex ending 0.35% higher.

With the recent macro data out of the US indicating a falling inflation and a creeping slowdown, market is sustained on the hope that the Fed will manage a soft landing and move to the next business cycle in a smooth fashion. This aspect remains the biggest risk factor for the Rupee in the coming months. For now, USDINR remains in a tight range and the next trigger is the US CPI due on the 13^th of this month. Rising US yields will keep the bias towards mild Rupee depreciation. Further, the short-term factor to watch out is the potential upward momentum in US long-term yields, which can again bring back the risk aversion and a break above 83.

Dollar strong after mixed US jobs report. Rupee in range but biased towards weakness.

(4th September 2023, 7:00 AM)

INR likely to open around 82.65/70

Dollar rose after markets interpreted the US jobs report on Friday as indicating a resilient jobs market. The report showed that the US economy added 187k jobs as against 170k expected. The wage growth was in line with expectations, but the unemployment rate rose. Dollar Index is at 104.10 now, with EUR at 1.0785, GBP at 1.2605, and JPY at 146.10. US 10y is again on the up move and is now at 4.2%. US equities ended positive after the jobs report allayed inflation fears. Nifty traded 0.95% higher on Friday and is expected to open in the green today.

USDINR could react to strong Dollar and move higher today, but the range below 83 is yet again solidifying into a difficult zone to crack. US jobs report, while on the surface, shows that the labor market remains stable, the frequent downward revisions of previous months’ data indicate an underlying weakness. The July numbers were revised downwards, and the June jobs figure is half of the initial data release. One can expect more downward revisions when the BLS does the statistical corrections as per their schedule. While the market is not fully focused on these revisions, we see them as indicative of a problem in the labor market, which will be apparent in the coming months. The JOLTS data is also suggesting a dip in job openings, and it could be a matter of time before the openings turn to layoffs.

The Covid related accommodations such as the citizen allowances, PPP loans for small businesses etc. are set to expire in a month or so. With the credit card debt at an all-time high, troubled real estate sector and high living costs staring at the US economy, it faces significant challenges in the coming months. Most equities have priced in reasonable global growth and might react violently in the scenario of a recession.

For the Rupee, the flow situation is now favorable given the high ‘invisibles’ component, which is highly sensitive to global growth dynamics. While the short-term threat to the flows is still minimal, recession risk remains a tangible risk to be monitored. The rise in the US 10y indicates that markets are not that worried about a recession scenario, but the rising yields will put slight pressure on the Rupee within the current range. The real risk of recession will be accompanied by falling yields, which is more dangerous for the Rupee. Long-term hedging may take this risk into consideration. Short-term movement in the Rupee might still be restrained– until the CPI data and the FOMC meeting.

Dollar stable after PCE meets consensus. USDINR range in tact. Tomorrow’s payroll data next potential trigger.

(1st September 2023, 7:00 AM)

INR likely to open around 82.60

Dollar is steady after the US PCE deflator came in as per consensus and confirmed a trend of moderating inflation. US yields continued their decline from the recent peak, helping put pressure on the Dollar. Risk appetite is steady in global markets for now, and hence the stability in the Rupee. PCE deflator came in at 0.2% over the previous month, as expected.

Dollar Index is at 103.55, with EUR at 1.0845, GBP at 1.2675 and JPY at 145.30. US 10y is lower at 4.1%. The fall in yields is the critical factor keeping risk assets from cracking. DOW ended 0.45% lower, but futures are steady. With EUR inflation coming in line, and CNY calm post PBOC measures to save their real estate sector, markets and INR seem to be in a stable zone for now. Friday’s jobs data is in focus now, especially after the JOLTS data showed significantly lower job openings. While markets might rejoice a lower than expected jobs numbers are a knee-jerk reaction, weakening jobs market might be a harbinger of a deeper recession in the future. If jobs surprise on the higher side, markets could take it to mean more hikes leading to some risk aversion. USIDNR could remain in the current range as long as the NFP data remains within tolerable divergence.

Is US slowing down? USDINR daily update.

(31st August 2023, 7:00 AM)

INR likely to open around 82.60

Dollar traded weak yesterday as US yields continued to give up some of the recent gains, as US macro data revealed a potential slowing down of the economy. US GDP was revised downwards, implying the high rates have started to make their impact felt on the economy. Dollar Index is at 103.05, with EUR at 1.0925, GBP at 1.2725 and JPY at 145.85. US 10y traded lower, and is now at 4.1%. US equities traded in the green again as lower yields help stabilizing the risk appetite. Indian equities also were flattish.

USDINR is slowly getting settled in its range, and the fall in US yields is helping the Rupee towards neutral outlook. While weak economic data could help in tempering down the yields, a slowdown could put pressure on fiscal borrowing requirements of the US government and generate an upward pressure on the yield curve. Unless the Fed steps in to monetize the deficit yet again, there is a natural tendency for the yields to move higher. The next 2-3 months are going to be critical for the medium-term outlook for USDINR, as signs of slowdown might pick up pace, and lead to withdrawal of risk appetite, putting pressure on EM assets including the Rupee. Friday’s US jobs data is going to be critical now, given the weak JOLTS data. We can expect a range-y Rupee over the next couple of days.

Dollar muted on weak JOLTS data. Rupee range-bound.

(30th August 2023, 7:00 AM)

INR likely to open around 82.60

Dollar trading muted as global markets wait for the next trigger most probably in the form of U.S. jobs data next month. Dollar index is trading at 103.55, with EUR at 1.0865, GBP at 1.2630, and JPY at 146.20. US 10 year continues to give up its recent gains and is now trading at 4.15%. Equities gained yet another day reflecting the fall in the 10-year yield. Dow handed 0.8% in the green. Indian frontline indices traded flattish.

USD INR is biding time before the next move and the previous range below 83 is again solidifying for now. The China-related concerns have not created any flutters in global markets as yet. Yesterday’s US JOLTS data showed decreasing job openings, in a first sign that labor market in the US might have started to roll over. The next month’s non-farm payroll data will be in focus, given the weak JOLTS data. While global inflation seems to be in check, the major challenge for central banks is managing global growth to achieve a soft landing. As such, the major risk for the rupee remains the possibility of global growth collapse, leading to a panic event in markets.

The current interest rate trajectory in USD and EUR shows an expectation of moderate rate cuts in the coming year. In our view, a scenario where central banks are forced to cut is also a scenario where global growth is plummeting, which itself is a risk event for EM currencies and the rupee. In the short-term USD INR will remain biased neutral to upwards until such time when risk appetite is consistent and US yields fall back to the pre-ratings downgrade levels.

Dollar steady amidst Chinese events. Risk appetite unaffected, but markets and Rupee vulnerable.

(29th August 2023, 7:00 AM)

INR likely to open around 82.60

Dollar and US 10y are slightly lower as markets remain steady after a range-bound trading yesterday. While equities are positive, China-related factors could pose a problem in the coming days depending on how the Chinese government handles the situation.

Dollar index is at 103.90, with EUR at 1.0830, GBP at 1.2625 and JPY at 146.40. The 10y is at 4.2%. Equities had a positive day yesterday, and Dow ended 0.6% higher. Nifty closed 0.2% in the green.

Rupee is again settling into the previous range, but the possibility of sharp INR appreciation is minimal now, given the higher US yields and China issues. Evergrande, one of the largest real estate companies in China had filed for bankruptcy earlier and its share price plunged yesterday after the resumption of trading. While some are looking at this event as China’s Lehman moment, it is unlikely for now, that it will create a global cascade of panic situations given the massive central bank liquidity floating around. That said, a problem with the Chinese economy can lead to a global slowdown and a wave of risk aversion.

While USDINR remains in the current range, long-term risks are piling up silently, as both the US and Chinese economies are reaching the precipice of deep slowdown. We continue to suggest planning for the tail risk event in designing hedge strategies.

USD firm and yields elevated. PCE in focus this week. Rupee set for more range-y trading.

(28th August 2023, 7:00 AM)

INR likely to open around 82.60

The dollar continues to be strong as yields trade firm in the US. Dollar index is at 104.05, with EUR trading at 1.0810, GBP at 1.26, and JPY weaker at 146.50. US 10-year yield remains elevated at 4.25%. Powell’s Jackson Hole speech went on expected lines. He reiterated the Fed’s commitment to keep rates high as long as inflation remains an issue and economy shows resilience. The speech did not have much impact on the general market sentiment.

US equities ended positive, in a sign that risk appetite has not yet completely disappeared. DOW rose 0.73%. Indian indices fell, though, as Asia continues to be influenced by China-related concerns. Sensex was down 0.55%.

This week’s PCE inflation is an important data point for the Fed. The expected scenario is that the PCE will reaffirm a declining inflation trend. USD INR is back in its previous range, but the bias remains towards rupee depreciation. The US economy seems to be resilient despite one of the sharpest rises in interest rates. One of the primary reasons for this resilience is that the corporate borrowing cost in the US still is at an all-time low despite the rate hike cycle, which implies that the pre- and post-COVID borrowings that the corporates indulged in, continue to buffer their interest cost. We envisage a sudden rise in borrowing cost in the coming months once the existing borrowings are used up, which then will translate into potentially a recessionary scenario in the coming months. Hence is our caution about projecting strong risk appetite and INR strength into the future. An optimal hedge strategy would be with options to manage sharp move in USDINR, rather than getting locked-in with forwards.

Dollar back to strength. Rupee in range but vulnerable. Powell speech today.

(25th August 2023, 7:00 AM)

INR likely to open around 82.60/65

Dollar is strong and yields higher, as Powell speech is in focus amidst resilient US economy and stubborn core inflation. US yields rose slightly yesterday, and Dollar resumed its momentum after Fed officials commented that strong US economy might force more hikes from the Fed. Risk aversion was dominant in yesterday’s markets and equities fell sharply in the US. Indian equities fared better but are set for a muted opening today.

Dollar Index is at 104.15, with EUR at 1.0785, GBP at 1.2575 and JPY at 146. US 10y is above 4.25%, but still below the recent highs. DOW cracked 1.05%, but S&P 500 fell by 1.35% as tech stocks fared worse. Indian frontline indices were 0.4% in the green, but futures are indicating a weak open.

USDINR has managed to revert to its previous range, but the bias has shifted towards Rupee depreciation, as higher long-term US yields pose a significant systemic risk to global flows and EM assets. The borrowing pressure from the US government could keep the yields up for more time, unless there is a safe-haven demand for treasuries triggered by a sharp panic event. A scenario of persistent rise in yields could lead to a gradual Rupee depreciation, while a scenario of falling yields triggered by risk aversion could spark a faster depreciation move in the coming months. We expect a fundamental bias towards INR depreciation in the medium to long-term. Today’s Powell speech and the PCE inflation in the month end might enable some two-way movement in USDINR. Any dip in USDINR remains a good opportunity to buy for longer term.

Rupee strength back even as global Dollar stable and yields softer. Long-term risks lurk

(24th August 2023, 7:00 AM)

INR likely to open around 82.60

Dollar is slightly weaker, but the Rupee managed a handsome gain yesterday supported by a purported RBI action and falling US yields. As global Dollar stopped its momentum and US 10y retreated to below 4.2%, the underlying pressure on the Rupee abated a bit.

Dollar Index is at 103.30, with EUR at 1.0865, GBP at 1.2715 and JPY at 145. US equities, especially tech stocks, had a solid day yesterday aided by quarterly earnings. Indian indices managed a 0.3%+ positive close.

USDINR has broken through the 83 support and the next important target remains the 82.20 level. As we have been mentioning in our previously, the short-term possibility for a Rupee strength move has always been there, provided the long-term yields settled down. The long-term prognosis for the Rupee is shaky, as global yields remain high. Yesterday’s PMI data also suggested a coming slowdown in the US and the revisions to jobs data indicated lower job additions than previously thought. The biggest risk to EM and the Rupee remains a sudden slowdown and a risk aversion move in markets before the Fed could step in convincingly. Now that the Rupee is back in its previous range, we believe this is a right opportunity to load up on import hedges and lighten up on export hedges is appropriate.

USD and yields stable. Risk appetite remains shaky. Long term risks building.

(23rd August 2023, 7:00 AM)

Dollar weak despite higher yields. Rupee remains vulnerable. Jackson Hole symposium in focus.

(22nd August 2023, 7:00 AM)

INR likely to open around 83.10

Dollar is mildly weak despite higher yields as the focus of markets shifts to Jackson Hole symposium this week. The long-term yield move in the US remains a big headwind to risk assets. USDJPY is reacting to the yield jump and is trading higher.

Dollar Index is at 103.20, with EUR at 1.0910, GBP at 1.2770 and JPY at 146. US 10y has reached a multi-year high at 4.34%. Equity markets remain jittery. DOW ended in the negative territory, while the other frontline indices traded firm. Nifty traded 0.3% up. The rising yields will keep equities vulnerable to a global risk event. Rising yields can trigger fiscal concerns and expose how leveraged nations are in the current environment and cause a re-evaluation of risk appetite. While the Rupee has stabilized in the current zone above 83, the long-term risks are piling up silently, waiting for a spark to ignite the panic. Options remain the best choices for hedging strategies to manage this potential tail risk while hedging the base case.

Dollar and US yields firm. China worries dent risk appetite. Rupee vulnerable.

(21st August 2023, 7:00 AM)

INR likely to open around 83.15/20

Dollar gave up some gains on Friday but is still going strong, as US yields continue to reflect the global debt glut and fiscal pressures. Dollar Index is at 103.25, with EUR at 1.0880, GBP at 1.2740 and JPY at 145.35. US 10y is at 4.26%. Equities continue to trade cautiously as China fears add to the global slowdown concerns and as the PBOC rate cut is seen to be not enough. DOW ended Friday flat. Indian equities also are jittery as Asian markets reacted to the lower than expected PBOC cut.

USDINR remains above 83 for yet another day. The longer it continues above the 83.15/20 zone, the stronger the support becomes for the subsequent move towards 84+. This week’s Jackson Hole symposium of central bankers will be in focus as markets try to gauge how the Fed would read the future inflation trends and if there would be more hikes than previously anticipated. INR is vulnerable to both US news and China concerns now. As long as CNY is depreciating, it is unlikely that the Rupee will see much positivity. Further, the RBI could be reluctant to let Rupee appreciate much, given the REER concerns on the back of weak CNY and JPY.  USDINR above 83 for some more time is the base case for now.

Dollar holds. Risk appetite remains weak.

(18th August 2023, 7:00 AM)

INR likely to open around 83.10

Dollar traded mildly lower from the previous day’s highs, on stable US yields. Dollar Index is at 103.15, with EUR at 1.0885, GBP at 1.2760 and JPY at 145.45. US 10y is at 4.26%. Equities remained jittery, and DOW closed 0.85% lower. Indian frontline indices also reflected the lack of risk appetite and were down 0.6% yesterday.

USDINR is holding just above the previous range, on lack of data triggers yesterday. The background risk aversion and high US yields will continue to put pressure on the Rupee, especially with Chinese yuan underperforming on China worries. The short-term might see some stability at these levels, especially if the US yield surge stops at these levels. We continue to believe that the Dollar strength could reignite in the coming months, irrespective of the yields, as recession takes hold in the global economy.

Dollar surge continues as yields firm. Rupee range broken.

(17th August 2023, 7:00 AM)

INR likely to open around 83.20/25

Dollar remains in charge as US long-term yields continue their unrelenting surge. The incoming macro data out of the US continue to indicate a strong economy, while Chinese data concerns are generating a sense of caution in risk markets. Rupee has broken through the current range, but a sustained period above 83.20/25 level is needed to confirm the break, after which 83.20 zone could become a strong support for USDINR.

Dollar Index is at 103.43, with EUR at 1.0865, GBP at 1.2720 and JPY at 146.40. US 10y is at 4.3%. JPY is bearing the brunt of the US yield surge as the BOJ is not yet committing to strong intervention. EUR is reflecting the ongoing Dollar strength, but GBP is holding well after strong UK inflation data. US equities remain vulnerable, since rising 10y increases the cost of capital/hurdle rate for risk assets. DOW ended 0.5% down yesterday. Banking stocks are also pressured by the news that most of these stocks could see a downgrade following the US credit downgrade.

USDINR has finally broken through the previous range. But we will take some more time to assess if the range is sustainably broken. The global environment is not conducive to risk appetite. China data is clearly indicating a slowdown and the surprise rate cut from the PBOC revealed that the Chinese authorities are concerned. EU growth indicators show a potential slowdown in that area. The resilience of the US economy, vindicated yet again by the latest retail sales data, is adding to market concerns that inflation could raise its head again if the Fed removes the foot of the pedal. In all, Rupee remains vulnerable to a further depreciation move, if any further risk events surface in the coming days.

Dollar strong as US yields firm up. Rupee vulnerable.

(14th August 2023, 7:00 AM)

INR likely to open around 82.90

Dollar is gaining strength gradually but surely, as US yields continue to move higher with each day. Concerns that the resilient US economy will force the Fed to be aggressive for longer, and the incoming wave of large fiscal borrowing from the US government have kept US yields higher across the curve. JPY has been the primary victim of rising yields. To top it all, fears about Chinese economic crash and stress in their real estate sector are adding additional stress to markets, keeping Dollar high and Asian markets jittery. Rupee remains pressured, but not enough for the current range to be in danger yet.

Dollar Index is at 102.85, with EUR at 1.0935, GBP at 1.2672 and JPY at 144.90. US 10y is moving closer to 4.2% again. US equities ended last week mixed, and today’s futures indicate a muted start. Indian indices are also set for a red start to the week as Chinese concerns weigh on markets. Chinese data is in focus this week, as is US retail sales and Fed minutes. Given that inflation is behaving as expected, markets are now focusing on the US government borrowing pressure, after Fitch highlighted the problem through their downgrade of the US credit rating. A rise in US yields, especially the longer end, is detrimental to real estate sector, which is already in stress.

USDINR is moving towards the higher end of the current range and might breach 83 temporarily. Unless there is a blow-up in any of the potential landmines in the current market, it is unlikely that USDINR could sustain above 83 for long. The underlying pressure on CNH is also contributing to the weakness in the Rupee and could prevent any meaningful appreciation of INR against the Dollar. We will continue to incorporate the risk of incoming risk aversion/panic events in hedging strategies and remain steadfastly in favor of using options rather than simple forwards.

US CPI in line. INR range intact. RBI maintains status quo.

(11th August 2023, 7:00 AM)

INR likely to open around 82.80

Dollar is trading firm and has recovered from the mild loss it sustained post the CPI numbers yesterday. The US CPI came in line with expectations, at 3.2%. Core CPI rose 0.2% month on month or 4.7% over the previous year. The inflation data confirmed a downward trend, but still reiterated the stickiness of pricing pressures. Dollar traded strong, especially against the Yen, supported by rising US yields, as markets realize that the Fed has more to do to bring inflation closer to its target 2%. Dollar Index is at 102.40, with EUR at 1.0990, GBP at 1.2680 and JPY at 144.75. US 10y rose 7 bp and is now at 4.1%. US equities ended mildly in the green.

USDINR range is still unchallenged. In one of the longest streaks of range-bound trading, Rupee has been exceptionally docile in terms of volatility for the past few months. The longer this period lasts, the higher the chance of a more volatile break from the range. With the CPI out of the picture without disturbing the status quo, markets and USDINR will now be reacting to minor data points and Fed narratives. The RBI policy yesterday went as per expectations, with a status quo on rates continuing. The policy did not have much impact on the Rupee as predicted. Given that the FOMC is scheduled in September, we are heading towards a period of potential calm in markets. But we remain sensitive towards the possibility of an unexpected banking/credit/liquidity event suddenly occurring and generating a risk aversion wave and pressuring Rupee. The base case, though, is that of a range-bound Rupee for a few more weeks.

US CPI today. Dollar firm, risk appetite shaky. Rupee remains vulnerable.

(10th August 2023, 7:00 AM)

INR likely to open around 82.85

Dollar is firm ahead of the US CPI data today. Dollar Index is at 102.30. EUR is at 1.0980, GBP is at 1.2715 and JPY is at 143.80. US yields are stable for now but can react to the CPI data today depending on the divergence from consensus. US equities traded negative again yesterday and gave up Monday’s gains.  Indian equities are biding time with flat to moderate moves, awaiting the next break.

US CPI is expected to increase to 3.3% from 3% last month. The Core CPI is expected to be slightly lower than the previous month’s. If the inflation data shows an increasing trend, the US yields could shift into a new breakout, which could be detrimental to markets and the Rupee. Going by the previous few releases though, CPI has been behaving fairly as per consensus and it is unlikely that this print would be very different. The odds are in favor of a continuing Rupee range with a slight weakening bias for the Rupee.

Today also has the RBI policy decision slated. The MPC is expected to hold in this meeting, and given the inflation situation in the country, the RBI might remain on hold in the coming months, unless there is a shift in Fed rate expectations. The RBI monetary policy is unlikely to have a lasting impact on the Rupee.

Dollar remains strong. Rupee in a tight range, but shaky. CPI tom.

(9th August 2023, 7:00 AM)

INR likely to open around 82.80/85

Dollar firmed up yesterday even as US yields traded down. US equities were jittery after US small banks were back in focus due to a credit downgrade news about a few of them. Dollar Index is at 102.30, with EUR at 1.0965, GBP at 1.2750 and JPY at 143.30. US 10y is lower – at 4.02% – and is on a path to correction after a scare that the yield will run away higher towards 4.25%+ a few days ago. DOW fell 0.45%, but still in the green for the week so far. Indian equities were also cautious yesterday – Sensex fell 0.16%.

Rupee continues to be under pressure as the Dollar remains strong, supported by yields and mild risk aversion. The post-CPI euphoria of the last month is tempered down now, as worries about continuing Fed hawkishness have replaced hopes of a dovish pause soon. But, unless the CPI data tomorrow surprises significantly on the upside, macro factors are unlikely to move the needle on the Rupee range. The risk for the Rupee continues to be an unforeseen event emerging out of either asset markets (housing etc) or a bank/credit/liquidity event, the timing of which is unpredictable. We continue to reiterate that a prudential risk management approach would be to use strategies which allow for a tail risk event, while appropriately protecting the base case scenario of a range bound USDINR.

Rupee vulnerable on firm US yields. US CPI is the next trigger.

(8th August 2023, 7:00 AM)

INR likely to open around 82.80

Dollar traded firm after Fed officials supported the narrative that more hikes are needed to keep inflation down. Dollar Index is at 102.10, with EUR at 1.0990, GBP at 1.2760 and JPY is at 143.30. US yields remain elevated, supporting the Dollar as markets await the CPI on the 10^th. US equities bucked the risk aversion trend yesterday with the DOW ending 1.1%+ higher. Indian indices managed a 0.3%+ close.

The credit downgrade fears effect seems to have abated a bit and risk appetite is stable for now and we are back to inflation and macros. Rupee remains vulnerable to higher US yields but hope that inflation will temper down further is keeping Rupee in the range. Unless the upcoming CPI is way different from consensus, USDINR could continue to stick to the current range for some more time.

US jobs data mixed. Dollar slightly weak. Rupee range remains.

(7th August 2023, 7:00 AM)

INR likely to open around 82.70

Dollar was pulled back slightly on Friday after a mixed jobs data implied slowing growth but continuing inflationary pressures. US yields dipped a bit and US equities traded lower yet again to close the week on a negative note. Dollar Index is now at 101.90. EUR is trading at 1.10, GBP is at 1.2745 and JPY is at 142. US 10y is slightly lower, at 4.05%. DOW traded 0.45% lower, but future are now green. Indian indices managed a positive close on Friday, and Sensex rose 0.75%.

USDINR continues to stick to its range and the US non-farm payroll data is unlikely to tilt the cart. The jobs report showed a fall in jobs-added to 187k against 200k expected. But the unemployment rate was lower and more importantly, the wage growth was higher at 0.4% against a consensus expectation of 0.3%. Higher wage growth had the markets worrying that the inflationary pressures in the job market remain relevant and the Fed might not turn dovish anytime soon, with these wage growth numbers.

With the jobs data out of the picture, the next data trigger with a potential to take the Rupee out of the current range is the CPI due on the 10^th. But the odds are in favor of the range continuing for some more time as the CPI is likely to come in line.  As we keep reiterating, the long-term risks for the markets are building up slowly and can pop up in unforeseen places. The US economy is stable for now, but once the covid related government spending runs its course, there could emerge pockets of risks in retail/housing and real estate. In the least, one has to keep in mind the tail risks before designing the hedge strategies, and options are the best bet in current market conditions.

Rupee under pressure as US yields rise. US payroll data in focus.

(4th August 2023, 7:00 AM)

INR likely to open around 82.75

Dollar remained firm yesterday, supported by rising US yields. The Fitch downgrade continues to generate mild tremors in markets in the form of higher yields, but US equities seems to have settled down for now. Dollar Index is at 102.20. EUR is trading at 1.0960, GBP is at 1.2735 and JPY is at 142.55. US 10y is now at 4.15% and went up to 4.2% earlier. As of now, the rise in the 10y is accepted by equity markets, but a large move from hereon could induce market correction soon. DOW ended down 0.2% and futures indicate a flat trading today. Indian indices fell almost 1% again and are set for muted trading today.

With all eyes on the payroll data, USDINR is pushing towards the upper end of the current range. Unless the jobs data is extremely positive, the current range is likely to continue. The risk remains that the jobs print shows much better job addition, pushing the US yields higher, causing a bout of risk aversion in the markets. The base case expectation is that the data will be more or less as per expectations, and INR could remain inside 83 for now. The longer term picture is starting to take shape, in that markets are realizing the fiscal issues with the US and the potential for the government borrowing to rise further in case of slow down, especially in the coming election year. Rupee remains vulnerable to a paradigm shift towards Dollar strength in the coming months.

Downgrade jitters continue. Dollar strong, INR under pressure.

(3rd August 2023, 7:00 AM)

INR likely to open around 82.70

Dollar firmed up further yesterday, driven by rise in yields on the back of US credit downgrade and solid ADP payroll data. The downgrade triggered mild risk aversion, but not enough to cause a credit event cascade for now. Dollar Index is at 102.40, with EUR at 1.0940, GBP at 1.2720 and JPY at 143.25. US 10y is at 4.1%,  on concerns that the credit downgrade of the US reflects their borrowing pressure. Equities markets fell sharply yesterday. DOW was down 1%. Indian indices also saw a 1%+ drawdown.

INR is moving towards the upper end of the current range as rising US yields create a headwind for EM currencies. The ADP payroll again beat expectations, indicating a robust labor market. But, given that the ADP data has been very divergent from the official non-farm payroll data, we must wait until Friday for confirming the trend in jobs. For now, INR is under pressure, but the broad USDINR range is still intact. We will take a few more days to assess if the rating downgrade is significant enough to trigger a series of unforeseen credit issues, or whether it will wither away soon. But, it seems that markets are taking the downgrade in their stride and jobs/inflation data will be back in focus quickly. As of now, the default scenario remains that the current range will be unchallenged for some more time.

Dollar firm after moderate macro data. Fitch downgrades US. INR outlook remains benign.

(2nd August 2023, 7:00 AM)

INR likely to open around 82.30

Dollar gained strength as markets interpreted incoming US macro data as indicative of reasonably stable economy. US yields continue to firm up, as BOJ tweak to its yield curve control program could mean higher bond yields across the globe. Dollar Index is at 101.98, with EUR at 1.0985, GBP at 1.2775 and JPY at 143.25. JPY is trading vulnerable despite the change in BOJ strategy as the yield differential between Japan and the US remains at historically high levels. US equities were mixed. DOW ended in the positive territory while S&P 500 traded in the red. Indian indices were flattish.

US ISM manufacturing indicated softening manufacturing activity, but other measures such as construction spending remain resilient. JOLTS jobs survey revealed slight softening of the labor market, though not enough to cause flutters. Fitch downgraded US from AAA to AA+ citing deteriorating fiscal situation. The move is unlikely to have large impact as the previous downgrade around 2011 had. US yields remain elevated as the borrowing pressure from the US government is likely to result in large supply of bonds.

USDINR is set for yet another day of range-y trading. There is a slight upwards bias for the pair, but not enough to effect a meaningful move. The global situation remains vulnerable to a sudden recession as central bank rates percolate into rate sensitive sectors. US recession is still a while away, but the signs are apparent. BOJ policy tweak could result in lower liquidity into the system which will take a few months to show its effect. In the short-term, USDINR range could be unchallenged, and data-dependent incremental moves towards the top or bottom end of the range remain the most probable scenarios.

Dollar holding even as risk appetite is strong. Rupee range in tact.

(1st August 2023, 7:00 AM)

INR likely to open around 82.25/30

Dollar traded slightly strong yesterday. Dollar Index is at 101.80, with EUR at 1.0985, GBP at 1.2820 and JPY at 142.60. EUR traded weak on lower inflation. JPY is weak after the BOJ bought bonds to contain their yield spike. Equities continue to be resilient. DOW closed 0.3% higher. Indian equities remain buoyant, with yet another 0.5%+ close.

USDINR is tethered to its range, as incoming data is not surprising enough to trigger a significant move. The new month will bring more macro data out of the US, the important one being the Friday’s payroll data. In addition, the CPI will be watched before the Jackson Hole summit from 24^th to 26^th of this month. With inflation dipping in most economies, there could a period of strong risk appetite and vulnerable Dollar in the coming days unless the inflation out of the US surprises again. USDINR range is getting solidified by the day, with no possible break-out apparent.

Dollar shaky despite rise in yields on BOJ tweak. JPY remains unmoved. Rupee comfortable in its zone.

(31st July 2023, 7:00 AM)

INR likely to open around 82.25

Dollar ended last week on shaky ground, after US core PCE data confirmed the downward trend of core inflation, triggering hopes of an end to the inflation fight. The BOJ shocked the markets with a tweak to their zero interest rate policy, by raising the cap on the 10y yield to 1%. Markets are yet to come to terms with the implications of this policy change, as the BOJ has been a constant source of liquidity for the markets.

Dollar Index is at 101.55, with EUR at 1.1010, GBP at 1.2845, and JPY at 141.55. US 10y is again inching towards 4%, and the 2y is at 4.9%. Equities continued to be buoyant. DOW closed 0.5% higher, while S&P 500 ended 1% higher on Friday. Indian indices traded mildly in the red.

On one hand, inflation fears are ebbing, putting downward pressure on US yields. But on the other hand, the BOJ tweak could cause a sympathetic rise in global bond yields across major markets. The two opposing forces are tugging at each other at the moment. The BOJ has printed more than a trillion Dollars over the past year or so, to keep the 10y Japanese yield capped to zero. The tweak to the policy means that additional liquidity might not be forthcoming from the BOJ. If the bond yields do rise a bit more, the Dollar would be supported well against EM currencies such as the Rupee.  JPY failed to strengthen meaningfully after the change in the BOJ policy, suggesting more is needed for the Yen given the interest rate differential.

For now, USDINR remains in an unchallenged range. This week is loaded with data such as US ISM and non-farm payroll. The data points might not be enough to get Rupee to break the range on either side. As things stand, only an unforeseen liquidity/credit event could break the current range given the comfort USDINR has found within the zone.

Dollar recovers on strong US data. INR weak, but range intact.

(28th July 2023, 7:00 AM)

INR likely to open around 82.20

Dollar recovered yesterday after jobless claims data and better than expected US GDP releases reasserted the strength of the US labor market and economy. Dollar Index is at 101.50, with EUR at 1.0980, GBP at 1.2795 and JPY at 139.35. Even as markets hope that there is a moderate slowdown in the economy to force the Fed’s hand, the macro data out of the US continue to show extraordinary resilience of the economy despite the one of the fastest rate hike cycles in recent times. Markets could again start to worry that more rate hikes are possible I this resilience persists. US 2y yield again moved to 4.9% indicating expectation of more rate hikes.

US equity markets fell yesterday, with DOW registering a 0.67% decline.  Indian indices also fell by a similar amount yesterday. Equity markets are showing tiredness after the blistering rally of the past couple of months.

Rupee remains ensconced in a range, with the bias shifting from positive to negative depending on the incoming data and narratives. Given that the FOMC is out the way, markets will be sensitive to the upcoming macro data. The stronger the US economy appears, the higher than possibility of USDINR moving towards the upper end of the current range. But, the current environment does not have enough triggers to take USDINR out of the current range on either side. We seem to be set for more days of range-y trading in Rupee.

FOMC hikes as expected. Markets snooze. INR remains stuck to a range.

(27th July 2023, 7:00 AM)

INR likely to open around 81.90

Dollar is down marginally and markets traded with calm after FOMC outcome went as widely expected. FOMC raised rates by 25 bp and indicated that their data-dependent stance will continue. Dollar Index is at 100.57, with EUR at 1.1105, GBP at 1.2965, and JPY at 139.65. US yields moved in a tight range and DOW ended higher by 0.27%.

The FOMC statement was more or less same as the June one. Powell, in his press conference, reiterated that core inflation still remains elevated and we are a long way away from the 2% target. He said that the Fed no longer expects a recession in the US, which implies that the Fed will not hesitate to hike more, if inflation remains sticky. Markets did not react much to this FOMC outcome as the rate hike was fully priced in. The September meeting is still open to a rate hike, according to Powell, and markets expect no hike. If macro data remains in a no-surprise zone, September meeting could create flutters in the market, if the Fed hikes.

USDINR range has solidified further, with the Fed sticking to the script. The incoming jobs and inflation data would be the next triggers. Until then, on to more days of sideways movement in USDINR.

FOMC today. Markets sideways waiting for the outcome. INR with a positive bias.

(26th July 2023, 7:00 AM)

INR likely to open around 81.90

Dollar is trading relatively firm ahead of the FOMC decision today. Dollar Index is above 101, with EUR at 1.1045, GBP at 1.2885 and JPY at 141.05. US yields have been creeping up slowly after the post-CPI crash, as optimism about the rate cycle has tempered down. US 10y is at 3.9%. The uptick in yields has been supporting the Dollar from falling further. US equities remain stable and hopeful of a soft landing of the economy and the start of a rate cut cycle soon. DOW ended in the positive territory. Indian indices have been trading cautiously for the past 3 trading sessions, and yesterday ended in a flat close.

FOMC today is widely expected to raise rates by 25 bp. The focus will be on how they look at the current inflation picture and whether they would signal a rate hike again. This meeting would not be accompanied by economic projections for which we have to wait till September. We believe that this FOMC might not have a meaningful impact on markets as it could go on expected lines. USDINR remains in the current range with a pro-Rupee bias. The global euphoria after the last CPI has tapered off and USDINR has not been able to crack the current range open. For now, the base case scenario is of more days of the current range holding.

Rupee positive as FOMC meeting starts. Dollar remains stable, but vulnerable.

(25th July 2023, 7:00 AM)

INR likely to open around 81.80/85

Rupee has remained strong even as Dollar managed some stability against other global currencies on the eve of the FOMC meeting. Dollar Index is at 101.05, with EUR at 1.1075, GBP at 1.2835 and JPY trading a 141.30. US equities ended in positive zone – DOW ended 0.5% higher. Indian indices remained cautious yesterday after the sharp drawdown on Friday. Sensex was down 0.45%.

FOMC meeting will be underway today and the decision will be out tomorrow. Given that the expectation is for a 25 bp hike, the focus will be on the statement. Dollar could trade sideways today and tomorrow until the FOMC statement. Rupee remains at an advantage as the flow situation is very amenable in the short-term. Global risk appetite is strong enough for India to keep attracting inflows. But, the RBI has had the strategy of preventing excessive Rupee appreciation, and the same strategy is likely to continue now especially given that the Yuan remains weak. Rupee could continue to move inside the current range, but with positive bias for a few more days, unless the FOMC surprises markets in a big way.

Dollar steady ahead of the FOMC week. Markets remain cautious on inflation/growth concerns.

(24th July 2023, 7:00 AM)

INR likely to open around 82

Dollar remains stable and has reversed part of the post-CPI losses ahead of the important FOMC meeting week. Dollar Index is at 100.75, with EUR at 1.1130, GBP at 1.2870 and JPY at 141.40. US 10y remains firm at 3.85%, and the 2y is at 4.85% – higher than the last week’s lows as the excessive optimism post the last CPI has turned into mild caution about rate hikes. In addition to the Fed, ECB and BOJ policies are also scheduled for this week, and EUR and JPY hence will be in focus. Equity markets ended on a negative note on Friday, on rising apprehension that the economy is not slowing down enough to force central banks to pause. DOW ended Friday flat, but Senses fell by 1.3%.

FOMC statement is scheduled for Wednesday and ECB policy is due Thursday. A rate hike is fully priced-in in this meeting. The focus will be on their outlook on stickiness of inflation and the need for more hikes. USDINR remains in a tight range, and as historical behavior suggests, INR could face a volatile break-out from the range in the coming months, following a long period of calm. This FOMC might not disturb the current range, as a rate hike is fully factored in. We expect stress from unexpected quarters to precipitate the next move in currencies, and we are watching the real estate and small-bank sectors of the US economy. Unless the macro environment changes decisively, in the form of a sharp deviation in inflation or a significant slowdown, macro data points could have just incremental impact on currencies including the Rupee.

Dollar halts the weakness momentum. Next week’s Fed awaited.

(21st July 2023, 7:00 AM)

INR likely to open around 82.10

Dollar reversed course from its losing momentum yesterday, supported by strong jobless claims data. Markets are fearful of any data which supports a strong economy on concerns that the rate hike cycle will drag on further. Dollar Index is at 100.50, with EUR at 1.1140, GBP at 1.2875, and JPY at 140.10. US 2y yield went up by 8 bp and the 10y moved higher by 10 bp, indicating shifting expectations about rates. US equities were mixed yesterday, as DOW managed a 0.47% rise, despite a sharp fall in the NASDAQ of 2%+ on tech earnings. Indian indices remained buoyant yesterday, and Sensex jumped 0.7%.

Markets are now keenly awaiting next week’s Fed meeting, especially to gauge the Fed’s take on the tight labor market. In addition to the FOMC meeting, next week has the ECB and BOJ policies scheduled, and EUR and JPY will react to their respective central banks’ stance. For the Rupee, the base case scenario remains that of a stable range-bound behavior. Given that the Dollar has recouped some of its losses, INR could be slightly pressured, but within the range until the next week’s FOMC.

Dollar calm in listless trading. Rupee sideways.

(20th July 2023, 7:00 AM)

INR likely to open around 82

Dollar traded slightly stronger in an uneventful day of trading yesterday. Dollar Index is at 99.75, with EUR at 1.1225, GBP at 1.2960, and JPY at 139.20. Pound fell as UK inflation surprised to the downside, pulling yields down. Rupee remains firmly tethered to a range, following the global calm global Dollar. Equities remain bullish on signs of falling inflation. DOW rose 0.3% and Sensex traded 0.4% higher.

Since no significant triggers are expected until the 26^th, we can expect a few more days of calm. FOMC is expected to raise rates in the coming meeting, but the key focus will be on the statement and the Powell press conference. Markets would be interested in knowing if the Fed signals a pause or continues to keep it data-dependent. For the Rupee, the current range is proving to be difficult to cross. Even the FOMC is not likely to tilt the cart for the Rupee if the meeting goes on expected lines. But the longer the calm, the higher the chance of a spurt in volatility which needs to be considered in hedging decisions.

USD stable. US retail sales mixed. Rupee range unchallenged.

(19th July 2023, 7:00 AM)

INR likely to open around 82.10

Dollar remained steady but vulnerable, as US retail sales data failed to trigger meaningful market reaction. Dollar Index is slightly higher at 99.75, with EUR at 1.1220, GBP at 1.3020 and JPY at 139.30.   US yields continue to indicate soft Fed after the one hike on the 26^th. US retail sales release showed an increase of 0.2% against expectation of 0.6%. But the previous month’s data was revised up. In all, the data indicated that the consumption segment of the economy remains healthy still, but not too strong for the Fed to be concerned. US equities (DOW) ended 1%+ higher yesterday. Indian equities also remain bullish, making fresh all-time highs each day.

USDINR traded in a tight range yet again, on lack of market moving triggers. The next stop is the FOMC on the 26^th. On the macro front, the big picture is that the US economy remains heathy still and recession is some distance away while inflation is also benign enough for the Fed. This situation could continue for some more time until the pockets of slowdown rear their head and cause a mini panic. For now, the broad range of 81.50-83 could go unchallenged in the short-term.

USDINR in a tight range in sideways trading. Next week’s FOMC awaited.

(18th July 2023, 7:00 AM)

INR likely to open around 82.05

Markets are biding time, waiting for the FOMC on the 26^th. There are not many significant triggers in the next few days until the FOMC, and one might see drifting Dollar against most currencies. Dollar traded in a tight range yesterday. Dollar Index is now at 99.50, with EUR at 1.1245, GBP at 1.3085 and JPY 138.75. US yields remain depressed as the last inflation print led to hopes of a permanent dip in inflationary pressures for this cycle. US equities ended higher (DOW 0.2%), as did Indian equities (Nifty +0.8%). China concerns are continuing to keep Asian markets tentative. Chinese growth stagnation remains a risk factor for global markets in the coming months.

INR traded in a narrow band yesterday, unable to break out of the current range. The extraordinary calm in the Rupee over the past few months could mean a breakout volatility in the coming future, as volatility tends to mean-revert sooner or later. We look at potential future Rupee scenarios under a framework consisting of couple of themes. The first is a soft-landing/benign inflation scenario wherein the Fed is close to the end of the cycle. In this scenario, INR could move towards 80 or below, as recession does not trigger default-driven credit/liquidity events. The second scenario is of a recession triggered by high consumer and real estate borrowing costs, leading to safe-haven Dollar demand as credit/liquidity panic events surface from unexpected corners. In this scenario, one can expect lower rates and lower inflation, but a strong risk-aversion led Dollar strength, taking USDINR to 85 or more.

The hedge strategy could depend on how much probability one ascribes to each of the above two scenarios. Our view is that, while hedging for a calm market, the strategies for USDINR should also keep open the possibility of a sharp depreciation and in that respect, options remain a potentially beneficial alternative to forwards.

Dollar stable but vulnerable. Rupee positively biased.

(17th July 2023, 7:00 AM)

INR likely to open around 82.10

Dollar traded subdued on Friday and continues to be under pressure, as yield/inflation differential between EU/UK and the US is reflected in Dollar weakness. Dollar Index is now trading at 99.65, with EUR at 1.1220, GBP at 1.3085 and JPY at 138.55. Equity markets remain slightly tentative as earnings season kicks off in most markets. DOW ended Friday in positive territory while other US indices traded negative. Indian indices made yet another all-time highs with a 0.75% rise for Nifty on Friday.

Markets now await the FOMC decision and their commentary on the 26^th, especially in the wake of expectations of a permanent downward movement in inflation. Whether the Fed sees the inflation problem as having resolved or not is the primary focus for markets now.

INR remains tethered to a range and is not able to enjoy the full benefit of the current Dollar weakness trend. India trade deficit for June came in at 22.6 billion, which is significantly lower than the last June’s 30+ billion. At this rate, the annual Current Account Deficit will be a manageable 50 billion, which can be easily funded by a FII flow of 15 billion. The major headwind for the CAD is the large contribution of 16+ billion a month by invisibles (IT/ITES and Remittances), which are very sensitive to global slowdown/recession. Such scenario could disrupt the Current Account and affect flows in capital account – a double impact for the Rupee.

For now, the global situation continues to be neutral, but the possibility of a US/global slowdown is to be kept in mind while considering hedging decisions. INR range could be intact for longer time now, unless the Fed’s narrative comes out very different from expectations.

Dollar on backfoot as yields dip. Risk appetite strong on weak CPI. Rupee enjoys positive bias.

(14th July 2023, 7:00 AM)

INR likely to open around 82

Dollar continues to be pressured by resetting rate expectations triggered by the low CPI. Dollar Index fell below 100 yesterday, as EUR and other majors reflected the interest rate policy divergence with respect to the Fed. Dollar Index is at 99.35, with EUR at 1.1232, GBP at 1.3130 and JPY at 137.60. US 2y yield continued its decline for yet another day, as the narrative shifts to a potential dovish tilt by the Fed by the year end. This narrative has been repeating itself for the past year or so as each underwhelming inflation print leads to a expectations of a dovish Fed, only to be reversed subsequently.

Equity markets remain bullish and US indices are close to all-time highs, despite potential recessionary scenario building in the economy due to high rates. DOW rose 0.15%, but S&P was up 0.85%, driven by tech stock surge. Indian indices are also making fresh all-time highs as risk appetite and flows into India remain upbeat. How long will the positivity continue in the face of high rates and emerging pockets of slowdown, is the question which is now more relevant that even the inflation dynamics.

With Dollar on the backfoot, INR remains on a firm footing, but given the relative weakness in CNY, Rupee might not see a proportional appreciation benefit due to the current Dollar move. Unless the Fed explicitly acknowledges the end of the rate cycle and signals recession concerns, it is likely that the current Rupee range might hold for more time to come.

US CPI falls. Dollar crashes. Rupee at an advantage. On to FOMC next.

(13th July 2023, 7:00 AM)

INR likely to open around 82

Dollar fell sharply yesterday after the US CPI came in lower than expected, triggering hopes that the rate cycle is at its end. Dollar Index is at 100.18 now, with EUR at 1.1142, GBP at 1.30 and JPY at 138.55. There is a clear divergence in inflation between EU/UK and the US and the same is reflected in EUR and GBP rise. US 2y is down to 4.7% after being above 5% last week. Rate expectations have turned around completely as both the jobs data and the inflation underwhelmed.

US CPI came in at 3% against consensus of 3.1%. More importantly, the core CPI came in at 4.9% (5% expected). Further, core CPI minus the shelter costs was significantly lower, triggering hopes that the inflation is in the US is now under control.  While the CPI data did not change the rate expectations for the upcoming FOMC meeting,   markets now expect this hike to be the last in this cycle.

Dollar has reversed its strength momentum and given that there are no immediate triggers which can help it,  one can expect a few more positive days for the Rupee. Oil is slowly creeping higher – which is a negative headwind for the Rupee, though not enough to disrupt the current stability. It is unlikely though that the Rupee would break the current range, as markets could await the FOMC statement on the 26^th to gauge whether the Fed is also tilting towards subsequent pause. Until the FOMC, USDINR could trade with a downward bias within the current range.

Dollar weak and yields slip ahead of the CPI today. Rupee positive, but in range.

(12th July 2023, 7:00 AM)

INR likely to open around 82.30

Dollar traded weak yet again, after Fed officials commented that while interest rates need to rise more to combat inflation, they are close to the end of the rate hike cycle. Ahead of the CPI data today, US short-term yields have fallen from the ADP highs of last week, as expectations are for the data to confirm the downward inflation trend.

Dollar Index trading at 101.05. EUR is at 1.1035, GBP has moved sharply up to 1.2970 and JPY is at 139.60. GBP was driven higher after UK wage growth came in much higher than expected – showing the inflation pressures in the economy and forcing the BOE to act aggressively. JPY has been strong on falling US yields and expectation of BOJ action. But the JPY does have the risk of a reversal once the BOJ reiterates their stance of zero rate policy in the coming meeting.

INR continues to be range-bound but has positive bias with the range. The recent USDINR move towards the higher end of the range is cut short by reversal in rate expectations and the Dollar trend. Today’s CPI is expected at 3.1% – closer to the 2% target. But the core inflation is expected at 5%. There could be some volatility in markets if the core CPI surprises on the upside. An inline print could keep markets calm and Dollar subdued – helping INR to further strengthen within the range. But longer the period of calm for markets and the Rupee, higher the chances of an underlying credit/liquidity problem to suddenly surface and create risk aversion. We continue to reiterate to keep the tail risk of a sharp INR depreciation in mind while designing hedge strategies.

Dollar subdued on falling US yields. CPI due tomorrow. Rupee range continues.

(11th July 2023, 7:00 AM)

INR likely to open around 82.50

Dollar weakened yesterday after the tepid payroll data and helped by expectations that the incoming inflation data would show a downward trend. Dollar Index is at 101.50, with EUR at 1.1010, GBP at 1.2865 and JPY at 141.05. The short-end US yields fell after the NFP data on Friday and continued the decline yesterday. 2y is at 4.85% after being above 5% before the jobs data. 10y yields is at 3.99%. Falling yields are Dollar-negative as can be seen in the large move in currencies, especially USDJPY. US equities rose yesterday – DOW jumped 0.6%. Indian indices had a flattish day.

With inflation due tomorrow, markets are confident of a dovish print, which coupled with the moderate jobs data, could help risk appetite and keep Dollar muted. More than the headline inflation, we will focus on the core inflation to judge the future Fed policy and Dollar outlook. INR continues in its range with a positive bias, which can push USDINR down towards the middle of the current range.

US jobs data calms markets.USDINR in range.US CPI this week.

(10th July 2023, 7:00 AM)

INR likely to open around 82.60

Dollar did a mild retreat on Friday, after the US non-farm payroll data came in below expectations and calmed concerns which rose after the blockbuster ADP private payroll data. The 2y US yield fell back below 5%. The probability of a second hike in November fell after the jobs data, but the July rate hike continues to be priced in fully. Dollar Index is at 102.08, with EUR at 1.0960, GBP at 1.2820 and JPY at 142.80. US 10y is holding above 4%. DOW fell 0.55% on Friday, despite the non-farm payroll data nullifying the ADP shock. Indian indices were also sharply lower on Friday, with Sensex dipping 0.77%.

US non-farm payrolls came in at 209k against 225k expected. The previous months’ data was also revised 11k down. Other aspects of the data release – the unemployment rate and wage growth – came in line with expectations. While the headline number shows the lowest job additions since 2020, the wage growth figure at 4.4% is too high for Fed’s comfort. Though the jobs data points to a sliver of weakening in the labor market, it still does not portray enough stress for the Fed to consider a dovish stance.

This week has the US CPI data slated and eight Fed speakers are scheduled to talk. The CPI is the last critical data point before the FOMC meets on the 25-26^th of this month. While the market expects a rate hike this month, the ensuing commentary and the prognosis for future rate hikes could solidify post the CPI data due Wednesday this week.

USDINR range is intact, and the Rupee could try and recoup some losses as the non-farm payroll did not shock markets as was feared. Unless the inflation data also shows a major deviation from expectations, USDINR could continue in this range for a few more days to go. For now, the bias is neutral within this range.

Rupee on the backfoot on rising US yields and good ADP. Tomorrow’s US payroll data keenly awaited.

(7th July 2023, 7:00 AM)

INR likely to open around 82.70

While the Dollar is trading stable overall, Rupee weakened yesterday on rising US yields. The ADP payroll data came in much higher than expected, leading to the 2y US yield breaking 5%. The 10y is also above 4% now. Higher yields put pressure on the Rupee which has moved to higher end of the current range. US equities fell on concerns of overheating labor market, tracking the fall in bond prices. Dollar Index is at 102.81, with EUR at 1.0888, GBP at 1.2730 and JPY is at 144.10. US 10y is at 4.05%. DOW fell 1.05%. Indian indices had a 0.5%+ day yesterday but are set for a lower open today.

The ADP private payroll data again showed a strong US labor market and raised the expectations of a solid non-farm payroll print tomorrow. Markets are worried that continuing resilience of the labor market will give the Fed the confidence to keep raising rates further. While a rate hike in the next FOMC meeting is already priced in, strong labor market data might induce the Fed towards more hikes than just the one.

INR is moving towards the top end of the range tracking the rise in yields. But, unless there is a paradigm shift in the expectations of the subsequent rate hikes, it is unlikely that the current range will be broken. As we keep reiterating, there are some landmines simmering underneath, which can create a credit/liquidity crisis anytime in an unexpected fashion. Most of the developed economies have been kept running by the cheap money strategy for more than a decade, and the repercussions of the sharp rise in rates are yet to be felt fully due to the large liquidity printed thus far. We continue to believe that the tail risk of a sharp INR depreciation should be taken into account in the hedge strategies. We will be watching the bank balance sheets in the US and the commercial real estate issues in the next few months.

Dollar rises on hawkish Fed expectations. US yields supportive. Rupee in range but vulnerable.

(6th July 2023, 7:00 AM)

INR likely to open around 82.30

Dollar strengthened yesterday aided by hawkish Fed minutes which suggested more hikes in the future. Dollar was on the charge throughout the day and picked up steam in the US session after the Fed minutes almost sealed the deal on July hike with the Fed members seeing unacceptable inflation.

Dollar Index is at 103.10, with EUR at 1.0850, GBP at 1.2695, and JPY at 144.40. DOW was down 0.4% on hawkish FOMC minutes. US 10y has been inching up recently and yesterday saw a 10 bp rise to 3.95%. The rise in the US long-term yields is also indicative of potential tightness in liquidity and rising US borrowing appetite. Dollar is tracking the yields up. JPY is holding on despite the rise in US yields, due to expectations of intervention from BOJ. With EU data also showing signs of recession, Dollar remains a relatively safe bet among the majors and hence the persisting USD stability.

Rupee remains in a range, and might likely continue to be so, until a major event causes panic like situation. FOMC rate hikes are broadly expected and unless the incoming data disrupts the hike expectations significantly, range-bound behavior of USDINR will be the default scenario. Friday’s payroll release is expected to show the resilience of the US labor market, and is unlikely to move currencies in a significant way. For now, Rupee could move inside the range towards the top of the range if the Dollar momentum continues.

Dollar quiet on US holiday. Rupee range persists

(5th July 2023, 7:00 AM)

INR likely to open around 82

Dollar is trading stable amidst subdued trading on account of yesterday being US holiday. JPY is in focus after expectations of intervention have gained traction after the central bank indicated that the Yen is excessively weak. Dollar Index is at 102.75, with EUR at 1.0885, GBP is at 1.2715, and JPY at 144.60. Indian indices continue to march ahead posting fresh highs. Nifty ended 0.35% higher.

INR continues to trade in a range as there are no fresh day-to-day triggers which can move the needle on the Rupee range. Friday’s NFP and then the CPI on the 12^th have some potential to give Rupee a momentum on either side. But, given the expectations are set for the next Fed hike, it is unlikely that the data will have a significant effect on the Rupee. It looks like, an unforeseen event such as a crisis in some pocket of the economy or the banking system or escalation of geopolitical crisis is needed to set the next leg for currencies including the Rupee. For now, a few more days of quiet can be expected.

Dollar range-y after soft ISM data. More data ahead in this week.

(4th July 2023, 7:00 AM)

INR likely to open around 81.95

Dollar traded in a tight range yesterday after the ISM manufacturing PMI indicated continuing slowdown in the US economy. While the Dollar dipped after the data, it reversed the losses to trade in a range. The prices paid indicator in the data suggested a fall implying lower inflation in the coming months. Dollar Index is at 102.65, with EUR at 1.0910, GBP at 1.2690 and JPY at 144.50. EUR is slightly pressured on concerns of global recession after Chinese data indicated a slowdown there. JPY remains under pressure as the BOJ stance of yield curve control is taking a toll on the currency. US equities traded muted in a holiday-shortened day. Indian indices remain buoyant after reaching all-time highs and yesterday day saw another 0.7% odd rise.

INR continues to trade in a zone, waiting for triggers to break the range on either side. While risk appetite is strong, the same is not reflected in Dollar weakness yet as concerns of global recession continue to lurk in the background. USDINR could remain stuck until a decisive direction for inflation is visible. The coming inflation print might show a dip, but expectations are for sticky core inflation for some more time and hence the resilience of the Dollar.

Dollar muted ahead of a data heavy week. Risk appetite strong and Rupee stable.

(3rd July 2023, 7:00 AM)

INR likely to open around 82.05

Dollar ended Friday’s session mildly weak. Dollar Index is now at 102.65, with EUR at 1.0908, GBP at 1.2692,and JPY at 144.50. US equities closed Friday well in the green, with the DOW registering 0.85% jump. US equities are in the midst of a rally triggered by hope of an approaching peak to the rate cycle, supported by a resilient economy. Indian indices also had a sharp 1.2% jump on Friday, with both Sense and Nifty hitting all-time highs.

INR continues to be in a range and this week might prove important for the subsequent direction of the Rupee. The week begins with ISM data culminating with the US jobs report on Friday. US markets will be closed from mid-Monday till Wednesday. As risk appetite comes back to markets, driven by a strong hope that the Fed is in control of inflation, Rupee might enjoy few more days of calm. Given that the underlying structural issues are pushed down the road for the moment, there are no immediate threats to the Rupee stability. The coming inflation number has the potential to disrupt markets, but unlikely to do so. The bank crisis, falling consumer discretionary spending power in the wake of student loan issues in the US, commercial real estate slump etc. are some of the issues to watched for in the coming month or two.   For now, the base case continues to be that Rupee would be in a range.

Dollar strong after positive data. Rupee range remains unchallenged.

(30th June 2023, 7:00 AM)

INR likely to open around 82.05

Dollar is stronger after US jobless claims indicated a resilient labor market and as Powell reiterated the need for more rate hikes in the coming meetings. Further, US GDP for Q1 was revised higher -suggesting that the economy is yet to see the full impact of the past rate hikes. Powell commented that inflation continues to be sticky and that they are ready for a hike in the coming July meeting, which the market expects with around 85% probability. Dollar Index is at 103 now, with EUR down to1.0870, GBP at 1.2615 and JPY at 144.95. DOW traded higher as recession concerns receded – ended 0.8% higher.

Rupee might open a bit weaker, given the overnight Dollar strength, but the environment is still conducive for a few more days of stability in a range. The next major data point is the US jobs number due in the first week of July. Given that the July rate hike probability is now pegged high, unless there is a large deviation in the incoming data, the base case expectation of a range bound Dollar and range bound Rupee. The underlying issues in the global economy are yet to surface for markets to bother. USDINR range could be intact for more time to come.

Dollar mildly down. US data indicates resilience of the economy.

(28th June 2023, 7:00 AM)

INR likely to open around 82

In yet another day of range-bound trading yesterday, Dollar is slightly weaker against most currencies, and the Rupee traded in a tight range. US equities were higher aided by a good durable goods data. Indian indices also managed a better day after a streak of meek performances over the past few days. Dollar Index is at 102.25, with EUR at 1.0950, GBP at 1.2730 and JPY at 143.80. DOW is up 0.65%.  Nifty rose 0.7%.

US data continues to indicate that the economy remains resilient, and a recession is not yet apparent. Markets are now a bit confused since resilient economy means more rate hikes, but a better economy averts a recession scenario. The expectation is now for a rate hike in the coming meeting. Inflation remains sticky across the world, and most central banks are keeping the rate hike cycle alive to fight inflation. ECB’s Lagarde again reiterated yesterday the need to keep a hawkish stance going. The longer this scenario plays out, higher are the chances of a panic/crash landing through credit/liquidity events which cannot be foreseen now.

USDINR remains in a tight range on lack of any trigger. Rate hike expectations are keeping the Dollar steady, and preventing any sharp appreciation in Rupee. The underlying fault lines in the form of bank balance sheets, real estate stressors are yet to show up in market behavior and hence long-term risks to the Rupee remain significant. The short-term calm in Rupee might continue for a few more days until the next set of data come through.

INR – waiting for direction

(27th June 2023, 7:00 AM)

INR likely to open around 82

Yesterday was an uneventful day and currencies traded in tight ranges. Dollar Index is at 102.25. EUR is at 1.0920, GBP is at 1.2725 and JPY is at 143.40.  US equities closed in the red. Dow ended flat while S&P 500 was down 0.45%. Indian indices also traded flattish.

With no real trigger forthcoming, markets could continue to meander along for a few more days at least. As the Russia coup situation has ended with no significant outcome, markets are back to focusing on inflation and recession dynamics. Fed member speeches this week include one from Powell, though it is unlikely that he will divulge much on the rate strategy. The next key event is the US jobs data next month, unless PCE throws a meaningful surprise. We can expect USDINR to continue to trade in its current range.

Dollar stable amid slowdown worries. Fed member speeches and PCE data next.

(26th June 2023, 7:00 AM)

INR likely to open around 82

Dollar remains steady as markets continue to fuss over inflation concerns and recession fears. The weekend events in Russia, of an attempted coup and subsequent de-escalation, have also added caution and have kept Dollar stable. This week’s Fed member speeches, including Powell’s will be monitored along with PCE inflation data.

Dollar Index is at 102.40, with EUR at 1.0905, GBP at 1.2735 and JPY at 143.55. Equity markets ended last week on a negative note. Markets are now slowly realizing that inflation fight is still very much alive, and the ongoing rate hikes can lead to a global recession in the near future. DOW was down 0.65%. Nifty ended 0.55% lower. Oil is higher on Russia situation, but it is unlikely that the price rise is durable given the de-escalation.

USDINR remains range bound with a neutral bias. On one hand, markets want a mild recession to force a stop to the rate cycle. But worries about a deep slowdown are keeping risk appetite at bay. The Euro area PMI data last week revealed an advancing slowdown in their economies. While these are long-term concerns, the Rupee might remain stable in the immediate term, until the next month’s US data. Given the data-dependent Fed, the upcoming US macro releases have assumed more importance. The current range for the Rupee might remain unbroken unless there are new developments in the geopolitical arena.

Markets muted on lack of triggers. Next month’s data critical.

(23rd June 2023, 7:00 AM)

INR likely to open around 81.95/82

Dollar is range bound as markets now look to next month’s data to form a view on the outlook for currencies. With Powell’s speech providing minimal input on possible Fed action, next month’s job report and inflation are now critical given the data-dependent Fed. BOE raised rates by 50 bp, as the core inflation continues to bother the economy. Japan inflation also came in higher than the BOJ target, but JPY is weaker since the BOJ reasserted their zero interest rate policy yet again.

Dollar Index is around 102, with EUR around 1.0955, GBP at 1.2745 and JPY at 142.95. DOW ended the day flat. Nifty traded 0.45% down. US yields have been range bound for the past few days. Under the surface, the Fed has been sucking up liquidity at a pace of 100 billion a month, but their emergency window remains active as banks continue to borrow more, given the deposit outflows. The Fed balance sheet has not been shrinking enough, which is one of the reasons for the resilience of equity markets.

USDINR has not much to look forward to in the coming few days and is set to remain in a range. While the Rupee is stable due to continuing flows, the risk for INR continues to be a risk aversion possibility due to either a recession or an unforeseen event such as another bank or liquidity crisis. For the next few days though, a range bound USDINR remains the high-possibility scenario.

Dollar muted as Powell sticks to script. USDINR range in tact.

(22nd June 2023, 7:00 AM)

INR likely to open around 81.95

Dollar is trading subdued after the Powell testimony failed to excite the hawks as he stuck to similar lines as the FOMC meeting press conference. Dollar Index is down at 101.65. EUR is at 1.0990, GBP is at 1.2770 and JPY is at 141.75. DOW ended 0.3% down and tech stock index cracked 1.2%. Indian indices rose around 0.3%.

Powell acknowledged the inflation problem and said that they are far from winning the inflation fight. Markets were looking for a ratification from him that the FOMC dot plot which mentioned two rate hikes is a certainty. But since he broadly went in the same tune as the FOMC press conference, maintaining a data-dependent stance, markets expect just one more hike now instead of two.

UK inflation came in higher than expected, at 8.7%, suggesting the long fight ahead for the BOE. While markets continue to hope that inflation battle will be over soon, the incoming data across the globe seem to project a very sticky and broad based inflationary dynamics.

USDINR continues in its range as the Dollar failed to chalk up any momentum post the speech. Today’s Powell testimony is unlikely to be any different from yesterday’s and hence the base case is of a stable INR for the next few days. The next month’s jobs and inflation data points are very important for the Rupee in the light of the data-dependent stance of the Fed. Until that time, one can assume a meandering Rupee in a range.

Dollar steady ahead of Powell speech. USDINR remains range-y.

(21st June 2023, 7:00 AM)

INR likely to open around 82

Dollar is steady ahead of Powell’s testimony today. US equities closed in the red, as the focus shifts to what Powell will indicate regarding inflation and rate path. Asian markets were also tentative yesterday on China slowdown concerns, but Indian indices managed a positive close. Dollar Index is at 102.20, with EUR at 1.0915, GBP at 1.2760 and JPY at 141.70. DOW is down 0.7%. Nifty closed 0.3% higher.

The momentum of Dollar weakness has stalled as markets now expect Powell and the other Fed members to reiterate the need for tight monetary policy and point to sticky inflation. Powell is not expected to divulge much on policy decision, and it is unlikely that the Fed member comments will have significant impact on USDINR in this week. One can expect a range-bound Rupee for a few more days.

Rupee at an advantage as Dollar weakness persists.

(20th June 2023, 7:00 AM)

INR likely to open around 81.95

Dollar is trading slightly stronger, with the Dollar Index at 102.15. Yesterday was a US holiday and hence the lack of any large move in currencies. EUR is at 1.0915, GBP is at 1.2790 and JPY is at 142.10. Nifty ended down 0.3%.

USDINR remains in its current range and is expected to be so for the next couple of weeks until the payroll data. Despite the lurking recession possibility and historically high rates, US markets continue to be resilient. But the longer the high rate environment continues, higher the chance of a snap-back, especially if sectors such as commercial real estate in the US reach a breaking point. For now, the Rupee is riding the Dollar weakness momentum and the short-term outlook remains positive for the Rupee.

Rupee at an advantage as Dollar weakness persists.

(19th June 2023, 7:00 AM)

INR likely to open around 81.90/95

Dollar remained subdued on Friday, as the risk appetite triggered by the Fed pause continued to pressure the Dollar. Even as US equities fell, Dollar could not see much benefit and ended the week lower. Dollar Index is now at 101.95, with EUR at 1.0935, GBP at 1.2815 and JPY at 141.90. DOW traded down 0.3% on Friday.

This week has a fed Fed speakers scheduled to speak. While the Fed is clear that they will look to data and act, markets continue to hope that the peak of the rate cycle is here. Dollar remains vulnerable in the short-term due to this expectation. While there are no risk events yet in the horizon, there are signs of continuing deposit outflows from the US banking system towards funds, which in a few weeks to months, show up as reduced lending/slowdown and problems with bank balance sheets. Further, the commercial real estate risks remain pertinent to bank health.

INR remains at an advantage, aided by the ongoing Dollar weakness and lack of market-moving data/events. The next critical data is the month-end PCE and then the next month’s jobs data. Until then the bias remains towards INR stability/appreciation.

Dollar Index is sharply lower at 101.65, with EUR at 1.0945, GBP at 1.2785 and JPY at 139.90. US yields slipped yesterday. DOW rose 1.3%. While Indian indices were down yesterday, they are likely to see a positive open today following overnight US performance.

INR is set to move towards the lower end of the current range, driven by expectations of peaking global interest rate cycle. Markets seem to hope for the sweet spot scenario of moderate recession and a smooth transition into the next cycle. The FOMC messaging remains that of sticky inflation and more rate hikes – a scenario which would again revive Dollar strength. Given the lack of significant events in the coming couple of weeks, INR is at an advantage in the short-term and any dip in USDINR remains a good opportunity.

Dollar weakness picks up steam. INR at an advantage in the short-term

(16th June 2023, 7:00 AM)

INR likely to open around 81.95

Dollar weakness picked up steam yesterday, aided by ECB hike, and higher jobless claims in the US. The Fed pause seems to have raised hopes of a peak in the rate cycle and any data point which shows a weakening economy/labor market is welcome by the markets. Retail sales came in stronger than expected, but was ignored. ECB hiked rates and projected higher inflation – implying more hikes.

Dollar Index is sharply lower at 101.65, with EUR at 1.0945, GBP at 1.2785 and JPY at 139.90. US yields slipped yesterday. DOW rose 1.3%. While Indian indices were down yesterday, they are likely to see a positive open today following overnight US performance.

INR is set to move towards the lower end of the current range, driven by expectations of peaking global interest rate cycle. Markets seem to hope for the sweet spot scenario of moderate recession and a smooth transition into the next cycle. The FOMC messaging remains that of sticky inflation and more rate hikes – a scenario which would again revive Dollar strength. Given the lack of significant events in the coming couple of weeks, INR is at an advantage in the short-term and any dip in USDINR remains a good opportunity.

Hawkish pause by FOMC. Dollar remains supported.

(15th June 2023, 7:00 AM)

INR likely to open around 82.10/15

Dollar is stable after a hawkish pause by the FOMC left markets confused about the future rate path. On one hand, the FOMC paused as expected, but raised their rate expectations in the dot plot to indicate two more hikes. The FOMC forecasts higher growth, lower unemployment rate and higher core inflation compared to their March projections. Powell, in the press conference, pointed out that inflation still remains high and rate cuts are at least two years out. PPI inflation came in lower than expected and continues to point to a lower retail inflation in the future. But the FOMC estimates higher core PCE suggesting that inflation is getting broad based and sticky.

Dollar rose a bit after the FOMC statement but gave back some of those gains after the Powell press conference. Dollar Index is at 102.75, with EUR at 1.0825, GBP at 1.2645 and JPY at 140.65. US equities ended mixed, with DOW falling 0.7% while S&P 500 ended flat.

In our view, the FOMC has been Dollar-positive overall. By keeping more rate hikes on the anvil, the FOMC has thwarted any rate cut hopes, helping the Dollar as a result. Further, absence of rate cuts also exposes US banks to continued deposit outflow, and to a potential re-run of the previous crisis. Commercial real estate exposure of banks is also an issue which can present problems in the coming months and Powell also acknowledged the stress in the sector in the press conference.

While the Rupee could manage gains based on the reversal in the Dollar post CPI, the FOMC outcome might put a cap on further Rupee strength in the medium-term. Given that the FOMC plans to keep rates high for a long time to come, the tail risk of a panic credit/liquidity event in the light of creeping economic slowdown is a factor to watch out for. In the short-term, USDINR might continue in a range now, as important events have now passed. The long-term risk for the Rupee has increased post the FOMC, in our view.

Dollar weak on CPI miss. Fed decision today.

(14th June 2023, 7:00 AM)

INR likely to open around 82.25/30

Dollar is weak ahead of an expected Fed pause in today’s meeting. After the US CPI came in slightly below consensus (at 4%), markets have taken note of the sharp decline in the headline inflation from the previous month’s number (4.9%) and now attribute virtually no chance of a rate hike in the today’s FOMC decision. Dollar Index is lower at 102.85. EUR is at 1.0795, GBP is at 1.2615 and JPY is at 140.05. US equities are higher post the CPI. DOW is up 0.45%. Indian indices also had a positive day and saw 0.65% jump.

While the CPI is clearly on a downward trend, the core CPI remains sticky at 5.3%. Core CPI is more important for Fed decisions and given that it is significantly higher than the 2% target, it is unlikely that the FOMC will turn dovish anytime soon. While today’s decision might be a pause, FOMC might continue to keep a neutral stance and not go for rate cuts this year, as expected by markets.

Though USDINR is down from yesterday, it will wait for today’s FOMC to make a further move. Given the lack of risk events (such as bank crisis), and lack of data surprises, we can expect more days of range-bound behavior of USDINR. For today, Rupee will trade stable, waiting for the FOMC decision.

Markets seeking direction ahead of CPI and FOMC.

(13th June 2023, 7:00 AM)

INR likely to open around 82.40

Dollar is muted ahead of the CPI data and the start of the Fed meeting. Dollar Index is at 103.15. EUR is at 1.0770, GBP is at 1.2525 and JPY is at 139.55. US markets traded in the green, with the DOW rising 0.6% and the tech index by a handsome 1.5%. Indian indices traded mildly up. India CPI came in at 4.25% – better than expected.

US CPI, due today, is expected to come in much lower than the previous month’s -at 4.1%. The core CPI is expected at 5.3%. Any significant deviation from consensus can trigger some outsized moves in the market. This CPI release will also be considered in the FOMC meeting starting today. The FOMC statement will be released tomorrow.

If the CPI prints in line, markets will be relieved, and INR could see mild appreciation in expectation of a pause by the FOMC. Whether the FOMC would pause and risk a higher rate increase in future (if inflation remains sticky) or would they persist with a hike tomorrow is the moot question. Given that systemic risks such as the bank crisis is relegated to the background for now, USDINR could keep trading in the current range with a downward bias if the two events pass as expected.

Markets sideways and Rupee muted. CPI and FOMC this week.

(12th June 2023, 7:00 AM)

INR likely to open around 82.45/50

Dollar has opened steady ahead of an important week with US CPI and FOMC slated. CPI is due tomorrow followed by FOMC outcome day after. Dollar Index is at 103.25, with EUR at 1.0735, GBP at 1.2570 and JPY at 139.55. Markets ended Friday flattish, and Indian indices were down 0.4%.

FOMC will provide economic projections along with the rate decision this time. Markets estimate a rate hike chance of around 30% and hence a hike is set to surprise and cause a Dollar surge.  Given the recent expectations of creeping slowdown in economic activity, a rate hike could cause some market panic. Tomorrow’s CPI is important in this regard.

USDINR could take a decisive turn if either of these events surprise. It would need a meaningful divergence from expectations for a sustained move in USDINR out of the current range. We can only predict the next move post these important data points.

Dollar weak on higher jobless claims. RBI policy on expected lines.

(9th June 2023, 7:00 AM)

(8th June 2023, 7:00 AM)

INR likely to open around 82.55/60

Currencies traded in a very narrow range on lack of market moving news/events. Dollar Index is stuck around 104, with EUR at 1.0705, GBP at 1.2445 and JPY at 140.10. US 10y was higher at 3.78%. US equities ended mixed. DOW rose 0.27% while NASDAQ fell 1.3%. Nifty rose 0.7%.

INR continues to trade in a very narrow range. Today’s RBI policy might not lead to a meaningful move in the Rupee. Markets are torn between a strong labor market in the US and indications of slowdown from other data such as ISM. As of now, the chances of a rate hike in the coming meeting are pegged at 35-40%. The risk now for the Rupee is that the CPI comes in higher than expectations, forcing the FOMC to raise rates with hawkish stance in the statement. Until the data next week, a default scenario would be of a docile USDINR, trading in a range.

Markets quiet and INR stable on an uneventful day.

(7th June 2023, 7:00 AM)

INR likely to open around 82.50/55

Yesterday saw muted trading on all fronts. Dollar remains in a tight range, with the Dollar Index hovering around 104. EUR is at 1.0695, GBP is at 1.2425 and JPY at 139.35. US equities ended flattish, as did Indian indices.

Markets continue to wait for next week’s data and FOMC meeting. One can expect USDINR to continue in the current range for a few more days. RBI policy outcome is due tomorrow, and the expectation is for a pause. Unless the RBI moves significantly away from expectations, the policy is unlikely to have much impact on the Rupee.

Currencies muted in trading. CPI/FOMC next triggers.

(6th June 2023, 7:00 AM)

INR likely to open around 82.50/55

Dollar pared some gains yesterday, after the ISM services data came in lower than expected, and indicated that the US economy is running out of steam. Dollar Index is at 103.95, with EUR at 1.0715, GBP at 1.2435, and JPY at 139.65. US equities were lower after the positive day the previous day. DOW traded down 0.6%. Nifty ended 0.4% higher.

The next event is the US CPI, followed by the FOMC. There is still uncertainty about the rate trajectory in the US, and markets continue to hope for dovish stance from the FOMC soon. But the Fed speakers,  while indicating a pause the coming meeting, remain sceptical about cutting rates anytime soon. Dollar is firm, as the rate cut expectations are being tempered down. As for the Rupee, USDINR is set to meander along in the current range for a few more days, until the CPI/FOMC events next week.

US jobs data surprises on the upside, but USD moderately up. Rupee range intact.

(5th June 2023, 7:00 AM)

INR likely to open around 82.45

Dollar traded firm on Friday after a better-than-expected payroll print. The release showed 339k jobs were added against an expectation of 190k. The unemployment rate though rose higher. Wage growth was in line with expectations. Even as the jobs number indicated a very strong labor market, the Dollar could not rip too high, probably because of expectations that the Fed could pause in the coming meeting despite the strong labor data.

Dollar Index is at 104.10, with EUR at 1.07, GBP at 1.2435 and JPY at 140.10. US 10y is higher, at 3.7%. US equities traded sharply higher, as fears of recession were put to temporary rest by the payroll data. DOW ended Friday up 2.1%. Nifty ended 0.2% higher on Friday and is expected to see a positive open today.

USDINR might not be affected much by the payroll data as fears of Fed hike are tempered down by comments from Fed speakers. While the labor market continues to do well in the US, other economic parameters continue to indicate slowdown. Given the calm moves in global currencies, INR might not see any significant depreciation move. Hence, the base case is that the current range will continue to hold for more days. The next big event is the US CPI release on the 13^th, followed by the FOMC on the 14^th.

Dollar weak as risk sentiment improves. Jobs data now critical.

(2nd June 2023, 7:00 AM)

INR likely to open around 82.35

Dollar broke the momentum and ended in losses yesterday as the safe-haven demand holding the Dollar disappeared post the debt-ceiling vote. Further, expectations of a Fed pause in the next meeting were compounded by weak manufacturing ISM data, bringing the Dollar down. EUR was up on ECB president’s comments that inflation is yet to peak in the EU.

Dollar Index is at 103.50, with EUR at 1.0760, GBP at 1.2520 and JPY at 138.90. US equities posted gains yesterday on easing fears about the debt ceiling issue and hopes of Fed pause/cuts in the coming meetings. DOW traded higher by 0.5% while S&P 500 rose 1% aided by tech stocks. Nifty ended 0.3% lower following the previous day’s US equity performance.

INR has broken out of the recent 82.55-83 range, but the broader range is still intact. The risk aversion led weakness is now over after the debt ceiling impasse is resolved, and the Rupee now will react to economic events and data. The incoming ISM data points to weakening economy which, in the short term, implies dovish Fed and hence INR strength. Tomorrow’s jobs data has the potential to move the Rupee again beyond its short term range. ADP data points to strong job growth and if the official jobs data indicates strong labor market, INR could again come under mild pressure. For today, Rupee could be in a stable zone, following the overnight global Dollar weakness.

Debt ceiling vote closer to conclusion. Dollar firm on Fed hike concerns. INR stable.

(1st June 2023, 7:00 AM)

(31st May 2023, 7:00 AM)

INR likely to open around 82.70

Currencies traded sideways yet again, and Dollar saw minor losses as the hope of debt ceiling deal closure and fears of continuing inflation and rate hike possibility keep USD momentum intact. Dollar Index is at 104.15, with EUR at 1.0710, GBP at 1.2395 and JPY at 139.85.

With the debt ceiling deal moving to full vote tomorrow, markets would come back to inflation and macro focus soon. Further, markets might realize that the debt ceiling deal keeps the fiscal pressure on yields and also is heavy on liquidity, and the optimism might fade in the coming days. Friday’s jobs data is the next event to watch out.

USDINR range is very much intact and unless the jobs data is way away from expectations, it is unlikely that the current range will be broken. More than the jobs-added number, the wage growth and any revisions to the previous month’s numbers will play a role in the assessment.

Calm markets. Debt ceiling deal closure awaited.

(30th May 2023, 7:00 AM)

INR likely to open around 82.60

Yesterday was a US holiday. Dollar is trading in a range with the Dollar Index hovering unchanged from yesterday, around 104.10. EUR is at 1.0720, GBP is at 1.2370 and JPY is trading at 140.10. The debt ceiling raise, while agreed between the speaker of the congress and the US president, might still face issues when the members vote. Until the resolution passes through the US Congress, Dollar will be supported by safe-haven demand. Also critical would be the Friday’s US jobs data, which if strong, can add further fillip to USD.

USDINR is now in a new range between 83 and 82.50. The bias is neutral as the debt ceiling optimism is balanced by fears of continued rate hikes. At least until Friday, one can expect USDINR to traded muted and remain range-bound.

Debt ceiling deal imminent. Dollar stable and INR in range.

(29th May 2023, 7:00 AM)

INR likely to open around 82.60

Dollar is firm even as a tentative debt ceiling deal has been agreed upon between the two US parties. Even though the deal is agreed at the level of the speaker and the President, there are enough noices within the parties which oppose the form of the bill, and hence the tentativeness. Markets have opened stable, with not much movement in currencies. Friday’s PCE inflation showed that inflation remains high and sticky, causing yields to firm up, lending support to the Dollar. US equities traded higher on Friday and Asia has opened on a positive note following the Friday US close.

Dollar index is at 104.10, with EUR at 1.0730, GBP at 1.2355, and JPY at 140.55. US 10y yield is at 3.81% DOW ended 1%+ higher. Nifty ended 1%+ and is set to open higher today. INR has managed to stem the momentum of Dollar strength and the bias has again turned neutral. Friday’s US jobs data is the next trigger to watch out. With inflation remaining sticky, good jobs data can lead to some more Dollar strength and cause a USDINR move towards 83. But, the debt ceiling increase, once finalized, can lead to some Dollar weakness as risk aversion recedes. Net net, the Rupee is poised in the middle and USDINR could slowly drift directionless for the next few days.

Rupee quiet as debt ceiling talks remain in focus. Dollar strength in tact.

(26th May 2023, 7:00 AM)

INR likely to open around 82.70

After yet another day of range-bound trading, markets remain jittery around the debt ceiling talks, though there seemed to progress. Dollar is strong, with the Dollar Index at 104.10. EUR is at 1.0730, GBP is at 1.2330 and JPY is at 139.85. US yields rose yesterday as rate hike expectations continue to assert despite the hope of rate cuts during the year end. US 10y is at 3.8%. Equities were mixed, with DOW falling 0.1% and other indices trading in the green, driven by tech. Indian frontline indices remain listless – nifty ended yesterday flat.

USDINR traded in a tight range, waiting for direction. Debt ceiling talks are reportedly progressing, but until done, will be a source of uncertainty. US macro data continues to indicate a resilient economy for now, but with pockets of slowdown. The possibility of recession in the immediate term has decreased a bit given the stress around the small banking sector is not apparent on the surface. The next month’s data is important if there has been a impact of the bank crisis on lending and the economy. USDINR might continue to meander along for a few more days.

Rupee gets a breather despite Dollar strength. FOMC minutes shows uncertainty.

(25th May 2023, 7:00 AM)

INR likely to open around 82.70

INR managed stability yesterday even as Dollar remains strong amidst uncertainty around the debt ceiling negotiations. Dollar Index is at 103.90, with EUR at 1.0745, GBP at 1.2345 and JPY at 139.65. US yields are mildly higher and US equities are down. DOW fell by 0.77%.  Indian equities remain subdued – down 0.3%.

Fitch has put US under negative watchlist implying a credit rating downgrade if the debt ceiling talks fail. Markets, while being hopeful of an eventual solution, are a bit jittery until there is a closure on the negotiations. On top of this uncertainty, there is no clarity yet on the interest cycle in the US. Latest Fed minutes show members are split on rate hike path. If recessionary conditions do not deepen, inflation and rate hike expectations cannot be wished away anytime soon. Dollar remains supported by stable rates and safe-haven buying.

USDINR range-y behavior is set to continue for few more days at least. Next month’s data might create conditions for an eventual breakout move, but not with any degree of certainty. Completion of debt ceiling negotiations – whenever they are done – could provide some upside to the Rupee as risk aversion recedes. But macro environment remains difficult for INR in the coming months.

Rupee vulnerable on ongoing debt ceiling standoff.

(24th May 2023, 7:00 AM)

INR likely to open around 82.90

Dollar traded strong, and US equities ended negative as debt ceiling standoff left markets jittery. Dollar Index is at 103.40 now, with EUR at 1.0770, GBP at 1.2430 and JPY at 138.45. US yields traded in a range, but US equities saw a moderate fall. DOW ended 0.7% lower, and S&P 500 1.1% down. Indian indices closed flat, and are expected to open lower today.

Debt ceiling negotiations are in a stalemate and markets are worried about the June 1^st deadline mentioned by the US treasury secretary as the date when they run out of cash. The mild risk aversion emanating from these negotiations coupled with worry that the Fed will be forced to be hawkish, is keeping the Dollar supported. A break of 83 is possible for USDINR, but the momentum is not strong enough to take it much higher. For the next few days, the bias is towards weaker Rupee until the debt ceiling impasse ends.

Rupee muted. Debt ceiling remains primary focus.

(23rd May 2023, 7:00 AM)

INR likely to open around 82.80

Currencies were range bound and US equities ended mixed yesterday as uncertainty about debt ceiling talks lingered on. Dollar index is slightly higher – at 103.15, with EUR at 1.0810, GBP at 1.2435 and JPY at 138.60. US 10y rose yet again yesterday, now at 3.71%. The rise in the 10y is indicative of a reset of rate hike expectations along with the hope that the risk event which is the debt ceiling raise, will be accomplished sooner or later. US equities ended mixed, with the DOW in the red and the other indices in green. DOW was down 0.4%. Nifty rose 0.4%.

INR took a breather yesterday, as markets patiently waited for progress on the debt ceiling talks. Fed speakers yet again asserted that more hikes are needed before they can pause for this cycle. USDINR remains biased upwards, but still range bound. The expectation is that the current negotiations will bear some result soon as the US cannot really afford a default given the debt size and the geopolitical scene. The next week’s US PCE might add some impetus to the INR move, but the expectation is of range-bound behavior for now.

Debt ceiling uncertainty persists. INR vulnerable amid risk aversion.

(22nd May 2023, 7:00 AM)

INR likely to open around 82.80

Dollar traded mildly weak on Friday on expectations that the bebt ceiling discussions will bear fruit, though the weekend saw the negotiations between the two parties in the US fall apart. Dollar remains firm due to the combination of ongoing risk aversion and the expectation of hawkish Fed. Dollar Index is at 102.90, with EUR at 1.0825, GBP at 1.2465 and JPY at 137.60. US 10y remains firm at 3.65%. US equities were down after the previous day’s rally – DOW ended 0.3% down. Nifty traded higher by 0.5% but can be expected to open cautiously today due to the uncertainty around debt ceiling negotiations.

While there is optimism that the US debt ceiling will be increased eventually and a default will be prevented, the standoff over the weekend can lead to a risk aversion led move in markets and lead to a safe-haven demand for Dollars, especially against EM. For the next few days, given the lack of a market moving macro data/event, the news around these negotiations will be the primary driver for the markets. INR remains vulnerable and a break of 83 is a possibility if the uncertainty persists. The base case scenario remains that the debt ceiling increase is eventually passed, and the risk aversion led Dollar move will subside and USDINR will remain range bound. The longer-term inflation/recession move is still a while away and the risk for the Rupee towards the year end remains high.

Dollar strength persists. Rupee in a dicey spot.

(19th May 2023, 7:00 AM)

INR likely to open around 82.65/70

Dollar strength continued yesterday on the back of a combination of risk aversion and inflation worries. On the one hand, inflation and Fed rate expectations have been resetting due to the latest macro data. Other the other, risk aversion due to the US debt ceiling negotiations, bank crisis etc. are helping safe-haven demand for the Dollar. US yields have been moving higher, and rate hike probability in the June meeting has been surging, driven by Fed member comments and sticky economic and inflation data. If the debt ceiling negotiations succeed in the next few days,  there could be a temporary boost to US yields, but the impact on the Dollar is not straightforward as the resultant risk appetite can lead to lower Dollar.

Dollar Index is at 103.45, with EUR at 1.0775, GBP at 1.24 and JPY at 138.55.  US 10y is at 3.65%. US equities ended higher on optimism about progress on the debt ceiling negotiations. DOW rose 0.35%. Indian equities remain muted and traded in the red despite the previous day’s positive US equity performance. Nifty traded down 0.25%.

USDINR is on the up move, in line with the global Dollar strength. USD strength is also due to a technical reversal after a long period of weakness, which is also reflected in the reversal in USDINR coming from a period of INR strength. For now, the bias remains towards more Rupee weakness, but the Dollar strength momentum is not yet enough to break the current Rupee range below 83. The next big events are the month-end PCE followed by the next month’s jobs and inflation data.

Dollar firm on global cues. Rupee vulnerable.

(18th May 2023, 7:00 AM)

INR likely to open around 82.40

Dollar remained strong, and US yields firm, on optimism about the debt ceiling negotiations. Dollar Index is at 102.65, with EUR at 1.0845, GBP at 1.2490 and JPY at 137.40. US 10y is at 3.55%. US stock indices rose sharply after hopes that the debt ceiling stalemate will be resolved soon. DOW rose 1.24%. While Indian indices fell yesterday by 0.6%, they are expected to open on a positive note today following the overnight US performance.

Dollar is in a stable position now. Risk aversion can lead to Dollar strength due to safe-haven demand while a strong US economic data can lead to higher yields, lending the Dollar more attractive. USDINR is slowly inching higher with each day in line with the Dollar strength, but not enough to move out of the current range. The Rupee is fundamentally weak, as the flows are not completely able to bridge the CAD gap and the RBI seems to be willing to let INR depreciate, if in line with global peers. USDINR could drift, but range-bound for the next few days, until the debt ceiling discussions end or the next set of data points come through.

USDINR remains stuck to a range on stable Dollar. Debt ceiling negotiations in focus.

(17th May 2023, 7:00 AM)

INR likely to open around 82.25/30

Dollar drifted higher yesterday, but with no firm direction as markets continue to wait for substantive data/events to decide on the future trajectory. The US retail sales data, while lower than expected, indicated a reasonably strong consumption and hence the slight drift higher in the Dollar. Debt ceiling discussions in US congress remain a focal point for markets as the scenario of US default could be catastrophic.  Asia FX was on the backfoot yesterday, on weak Chinese data. DOW was down sharply on the combination of a lower headline retail sales number and a dented sentiment around debt ceiling uncertainty. Indian indices were also down on general sense of lack of risk appetite.

Dollar Index is at 102.45, with EUR at 1.0860, GBP at 1.2480 and JPY at 136.45. US 10y is slightly higher -at 3.53%. DOW fell 1%, while the tech index did better with a 0.2% fall. Nifty fell 0.6%.

Rupee traded in a tight range yet again yesterday. With many uncertainties to tackle, USDINR remains directionless and relatively calm. Fed members continue to comment on the need for higher rates, while markets expect rate cuts by year-end. The bank crisis is also simmering in the background, though it has not been in focus for the last few days. US seems to be heading to a slowdown, and the fear is that a recession will take shape soon. For now, there are no triggers which can start a directional move, and the expected scenario is that the range-bound move will remain.

Dollar stable on recession concerns. INR in range, but vulnerable.

(16th May 2023, 7:00 AM)

INR likely to open around 82.25

Dollar is steady after the move higher last week, as markets weigh in inflation concerns with recession possibility. Dollar Index is at 102.25, with EUR at 1.0880, GBP at 1.2525 and JPY at 135.95. US 10y yield is at 3.5%. DOW ended mildly in the green, by 0.15%. Nifty closed 0.5% higher.

The Empire State manufacturing survey pointed to a deep slowdown, and triggered fears of recession. With regional banks still under stress, and inflation sticky, the biggest fear for the market is that the Fed, while wanting to cut rates, cannot proceed far due to inflation.  For now, the Dollar is tied between the two scenarios – strength due to sticky inflation/rate hikes and weakness due to recession/banking crisis/rate cuts. The second scenario can also quickly turn into a panic situation, inducing Dollar strength due to safe-haven flows.

USDINR range is intact, on lack of any significant triggers in the next few days. The INR strength of the past month or so was due to the global Dollar weakness on the back of rate cut hope. While markets continue to price two cuts by year end, a risk aversion led move can easily lead to Dollar strength despite low rate expectations. The balance now is slightly tilted towards mild weakness in the Rupee, given the environment of waning risk appetite.

Dollar strong on recession and inflation fears. Rupee range holds for now.

(15th May 2023, 7:00 AM)

Dollar strong and yields stable. Inflation concerns and bank crisis fears remain relevant.

(12th May 2023, 7:00 AM)

INR likely to open around 82.10

Dollar traded strong and US yields ended higher on a combination of post-CPI recalibration of Fed rate outlook and risk aversion due to fears of the banking crisis. The 2y traded higher as realization set in that the inflation dynamics across the globe remain a concern, but the long-term yields remained anchored as safe-haven buying compensated. Markets were jittery after Pacific Western Bank announced a fall in deposits last week and its stock plunged 20%+.

Dollar Index is at 101.85, with EUR at 1.0920, GBP at 1.2515 and JPY at 134.50. The 10y yield is at 3.34%. DOW fell 0.65% despite strong tech performance. Indian indices ended flattish. USDINR moved higher in line with the global Dollar move.

Inflation across the world remains sticky. The BOE raised rates citing inflationary pressures. Even though the PPI numbers in the US came in lower than expected, markets are not convinced that the CPI is at a level which would allow the Fed to cut rates. For the Rupee, the short-term movement has been very narrow despite the larger appreciation in crosses, and one might surmise that the RBI played a role in keeping the Rupee from appreciation (as can be seen from the FX reserves). If a Dollar strength cycle starts either due to risk aversion or sticky inflation, the RBI might be in favor of letting the Rupee depreciate and just smoothen the move rather than prevent the depreciation.

INR stands at a fork in the road. One direction leads to a scenario of moderate recession, with the Fed managing a soft landing and the banking crisis contained , and a rate cut cycle starting. The other scenario is of the banking crisis ballooning into a panic, the Fed being forced to cut rates to fight the crisis even as inflation remains high and ending in a deep recession. In scenario 1, INR could move towards 80 or lower whereas in Scenario 2, USDINR could top 84-85. In our view, the second scenario is of higher probability in the coming months and hence the hedging strategy is recommended such that the move higher in USDINR is taken into account at least for a part of the portfolio.

Markets sideways. Rupee range intact.

(11th May 2023, 7:00 AM)

INR likely to open around 81.90

Dollar is trading sideways after a mixed US CPI report failed to generate a trigger for markets in either direction. CPI came in at 4.9% Y-o-Y, which was a clear positive for the market. But the month-on-month number came in at 0.4%, indicating that the inflation continues to be sticky. The core inflation, which is more important for the Fed, also remained elevated at 5.5%, though lower than last month’s 5.6%. The CPI release has done enough to provide comfort to the Fed for a pause, but the sticky month-on-month rise and the elevated core inflation mean that a rate cut might not be possible.

Dollar Index is at 101.15, with EUR at 1.0995, GBP at 1.2635, and JPY at 134.15. US 10y is lower at 3.43%. DOW ended mildly in the red, indicating that the CPI print did not generate risk appetite despite a good headline number.

Given the mixed CPI, one can expect more days of range-bound trading for the Rupee. The US debt ceiling negotiations remain strained and if they pull on longer, there could be some volatility and risk aversion building in the coming weeks. But, from a macro perspective, there are not many triggers left to dictate the short-term direction of the Rupee and currencies in general. The base case scenario is that of muted Rupee for a few more days.

Markets sideways ahead of the CPI. Rupee slightly weak but within the range.

(10th May 2023, 7:00 AM)

INR likely to open around 82.10

USDINR traded 82 yesterday ostensibly driven by ad hoc flow demand. Dollar is stable ahead of the important CPI data today. Dollar Index is at 101.40, with EUR at 1.0970, GBP at 1.2630, and JPY at 135.15. US yields are steady, and US equity indices traded down overnight. DOW is down 0.17%. Indian indices ended flat yesterday.

Today’s CPI is an important event for markets against the backdrop of a data-dependent Fed. The consensus expectation is of 5.5% Y-o-Y rise. Any number which suggests a rising trend in inflation will be detrimental to market expectations of a dovish Fed. Since the banking crisis is on the back burner, persistent inflation will force the Fed to hike more, hurting bank balance sheets further and increasing the chances of a deep recession. But a sharply lower CPI print of 5% or lower could trigger another bout of Dollar weakness and yield correction. There is uncertainty also about the debt ceiling negotiations in the US Congress, but the default expectation is that the stalemate will be resolved eventually.

USDINR remains in the tight range but is now neutral in its bias. If today’s inflation is broadly in line with expectations, we can expect more days of muted trading, until some major event on the bank crisis theme or macro data suggestive of a crash in the economy appears.

Quiet markets. CPI tomorrow. Rupee in a tight range.

(9th May 2023, 7:00 AM)

INR likely to open around 81.80

Dollar is stable, and markets are range-bound, awaiting the inflation report tomorrow. Dollar Index is at 101.25, with EUR at 1.0995, GBP at 1.2615, and JPY at 135.15. US 10y is slightly higher at 3.5%. DOW fell marginally – by 0.17%. Indian indices closed 1.15% higher on the back of Friday’s US equity performance.

The loan manager survey in the US (SLOOS) confirmed expectations that the bank lending standards have tightened in the US, and lending business is expected to be slower in 2023. Tomorrow’s CPI report is expected to show that inflation remains sticky and ticking higher. Markets still hope that somehow the Fed will be convinced to cut rates from the September meeting. The fact is that any event/data which forces the Fed to abandon its current stance would also create a market panic. The Fed would require a systemic crisis, in our view, to start rate cuts and a mere recession is not going to be enough to tilt the scale. The bank crisis is still simmering in the background, and currencies could remain range-bound until there is a resolution to the crisis either way.

INR continues to move in a very tight range, mirroring the global currency trends. We continue to reiterate that the short-term remains favorable to the Rupee and one might see some INR appreciation. But we are currently in a period of calm before a potential storm as the Fed would face significant difficulties in engineering a coordinated soft landing of the economy along with inflation control and a healthy banking system.

US jobs data strong. Currencies range-bound. US CPI this week.

(8th May 2023, 7:00 AM)

INR likely to open around 81.70

Dollar traded stable on Friday after the non-farm payroll data yet again indicated a resilient labor market in the US. US yields were higher as rate cut expectations had to be tempered after the data release. Dollar Index is at 101.02, with EUR at 1.1025, GBP at 1.2345, and JPY at 135. US 10y is at 3.43%. US indices had a good Friday session and closed 1.6%+ on relief that another bank is not collapsing over the weekend and is also buoyed by some corporate results. Indian indices closed 1% down on Friday but are expected to open in the positive territory today.

The US non-farm payroll release smashed expectations with a 253k number against the 150k expected. Earnings growth also beat expectations. The solid release could have disrupted markets further but for the downward revisions to the previous month’s job gains by 150k. In all, the data did show that the labor market continues to be resilient despite the rate hike cycle. Even as markets expect a rate cut as soon as September, this data does throw a spanner in the works on rate cut expectations. Today’s loan officer survey is now being watched to sense if the bank crisis has had a large impact on lending.

USDINR remains stuck to its range, as global currencies are also directionless. On one hand, there are rate cut expectations and a hope that the Fed will again move to a path towards loose monetary policy. On the other hand, fears that the bank crisis could ultimately lead to a sharp recession keep risk appetite at bay. USDINR might continue to be range bound for the next couple of days until the CPI release on the 10th. Against the backdrop of strong payroll data, a strong CPI would be disruptive to the risk appetite and rate expectations. If CPI is broadly in line, one might expect a longer period of meandering currencies and the Rupee. The long-term risk factors of sagging growth coupled with sticky inflation remain very relevant though.

FOMC on expected lines. Dollar weak and US yields lower. US Bank crisis alive.

(4th May 2023, 7:00 AM)

INR likely to open around 81.70

Dollar ended lower and US yields are down after the Fed indicated a pause in future rate hikes while raising rates by 25 bp yesterday. The language present in the previous statement around anticipating more hikes was removed. The statement talked about a data-dependent approach going forward. Powell, in his press conference, reiterated the data-dependent stance and said that a mild recession is possible. Even as he communicated confidence about the US banking system, Pacific Banking Corp fell 50% on rumors of problems there.  FOMC was more or less on expected lines. While the Fed mentioned that incoming data will guide the policy from hereon, markets read the statement to mean a pause. If the labor market continues its strength and the CPI remains sticky, the data-dependency might mean another hike, a possibility which market disregards for now.

Dollar Index is at 100.90, with EUR at 1.1085, GBP at 1.2590 and JPY at 134.55. US yields are lower on expectations that a rate cut regime is starting soon. The 10y is at 3.3%. DOW fell 0.8% as the bank stocks remained under pressure. The situation with the US bank stocks is such that we can expect a bankruptcy again over this weekend. Markets are calm, even as 500 billion worth of bank balance sheets have failed, and the major difference this time compared to 2008, is the sheer size of the Fed liquidity injections.

The ADP payroll data suggested a sharp rise in job additions and the jobs data this Friday is now all the more important. While the problems with regional banks seem to resolve with each takeover, the damage being done to the economy is still not visible at the surface. When a set of banks which contribute to half of the overall lending are desperate about liquidity and capital, the velocity of money in the economy takes a sharp hit, potentially leading to a deep recession.  The borrowings from the Fed emergency window continue to suggest significant stress in the banking system. The possibility of a deep recession in the US should be kept in mind while assessing the outlook for risk assets and currencies.

USDINR has not been impacted materially by the FOMC policy. While the Dollar is weak, the underlying risk aversion might keep Rupee from a sharp appreciation. Low US yields, while suggestive of the end of rate hike cycle, are also indicative of a risk aversion led safe-haven buying. The short-term might see a stable to appreciating Rupee, but we continue to reiterate the potential for a sharp reversal in the longer term as risk appetite unravels.

FOMC today. Currencies calm despite rumblings around bank crisis.

(3rd May 2023, 7:00 AM)

INR likely to open around 81.75/80

Dollar is a tad weak and US yields subdued, ahead of the Fed decision today. Markets are focused on the US bank stocks, looking for the next bank in crisis. Even as the FOMC gears towards another hike, there are in a dilemma as to how long can they project hawkishness amidst a deterioration in US regional banks. USDINR remains in range, and Rupee is unable to move past the 81.75 range as the global environment continues to signal potential landmines in the coming months. Markets are calm now, but a sense of discomfort simmers under the muted moves and lack of reaction to significant events and data.

Dollar Index is at 101.55, with EUR at 1.1020, GBP at 1.2485, and JPY at 136.25. US 10y is at 3.43%. DOW ended 1%+ lower, as bank stocks traded weak. Indian indices ended around 0.4% in the green but are set for a weak open.

The Fed’s rate hikes have had a perverse effect on US bank deposits. The money market fund yields are much higher than the deposit rates, making the US banks (especially the smaller ones) less competitive. Markets expect one more hike today, and this competitiveness gap is set to be increase further as a result. The Fed’s emergency window usage remains high, contributing to liquidity and nullifying the Fed’s intention of reducing liquidity and its balance sheet. Inflation remains sticky globally, as evidenced by yesterday EUR CPI. The current situation is such that, despite the fact that the cumulative balance sheet size of the US banks which collapsed until now has equalled the size of the banks which collapsed during the 2008 crisis, the markets are drugged with liquidity and hope that the Fed will save the day. It all depends on the inflation evolution in the next few months now, as higher remains will keep the Fed realistic about what it can do to save the markets. The probability of a large risk event(s) in the coming months is no longer insignificant in our view.

While USDINR remains range-bound with little volatility, historical pattern indicates that longer the quiet period, higher is the subsequent volatility and potential Rupee weakness. Our view might be contrary to the prevalent view that Rupee is structurally stronger than its last year’s position. While the domestic factors such as trade deficit and RBI reserve position have improved from last year, the global environment has deteriorated from an inflation-themed one, to one of unknown risk events. Hedging strategy going forward should consider the asymmetric nature of the current market – an appreciation in the Rupee may be limited to around 80, but a depreciation can lead to a 85+ easily if unmanageable events were to fructify.

Markets take First Republic Bank collapse in their stride. INR remains range bound. Data heavy week ahead.

(2nd May 2023, 7:00 AM)

INR likely to open around 81.80

Dollar is trading stable, and markets are in a state of eerie calm, as the FOMC meeting gets underway from today. While the macro data is pointing to a slowing growth and sticky inflation, the collapse of the First Republic Bank and its takeover by JPMorgan, underscores the difficulty for the Fed in its rate policy. Dollar Index is at 101.75, with EUR below 1.0990, GBP at 1.2510 and JPY at 137.30. While EUR and GBP are holding well, JPY fell after the BOJ continued its zero rate stance again in their policy. US equities closed in slight red and have taken the First Republic collapse in their stride.

The Fed has two issues to contend with in its policy. While the labor market remains strong, it is apparent that the US growth is starting to sag, even as inflation remains firm. The ISM data showed contraction and rising inflationary pressures. The core PCE showed sticky inflation. The Fed might be forced to hike more to bring down inflation, even in a recessionary environment. On the other hand, the collapse of First Republic Bank reveals that the US small bank crisis is far from over. The borrowings from the emergency Fed window remain high, but the continuing deposit outflows will hurt bank margins more and more. While recessionary conditions have taken hold now, collapse in US small banks can significantly dent the economy significantly in the coming days.

INR is calm, as are global markets, despite the First Republic takeover. Markets still hope that the FOMC will swoop in to buffer any risk event and cut rates sharply. The US small bank sector supports around half of their economy and a simmering problem there could mean a deep recession, if not handled correctly. USDINR remains in a range reflecting the calm in global markets, but the Rupee does not have enough appreciation momentum yet since there are enough landmine situations any one of which can blow up in the coming months. With FOMC decision coming up tomorrow and then the US jobs data slated for Friday, INR will be event-driven during this week. Dark clouds are gathering on markets and unless FOMC manages to be nimble enough to act at the appropriate time,   a storm is due in the coming months, and INR remains vulnerable.

Dollar steady and Rupee mildly strong on healthy risk appetite. Bank Liquidity risks remain relevant.

(28th April 2023, 7:00 AM)

INR likely to open around 81.75

Dollar is subdued as risk appetite returned to markets yesterday resulting in a 1%+ jump in US equity indices. US yields are mildly higher, and markets remain expectant of a moderate recession and dovish Fed which would cut rates in the latter part of this year. Dollar Index is at 101.20, with EUR trading at 1.1035, GBP at 1.25, and JPY at 133.95. US 10y is at 3.53%. DOW closed higher by 1.6%, and tech index shot up 2.4%. Nifty also ended 0.5%+ higher on good risk appetite, which also helped the Rupee appreciate a bit yesterday.

Even as markets focus on inflation, the Fed balance sheet trends show that US banks continue to borrow at the Fed emergency window at an increasing pace. The rise in borrowings indicate that the health of small US banks is gradually deteriorating again. The fundamental issue with US small banks is that the deposit outflow into other avenues is denting their funding cost, and interest margins significantly. The banking business will become unviable even if a small percentage of their loans (assets) start turning bankrupt. Their ability to withstand even a mild slowdown is in question in the current environment. We will watch this aspect carefully in the next couple of months.

Rupee remains range bound and biased towards mild appreciation for now. The technical picture in the USDINR chart is favorable to the Rupee, but the fundamental picture continues to be shaky. The FOMC might continue to raise rates unless inflation shows a clear dip soon. Markets hope that recession will make the Fed pivot to lower rates but ignore the possibility that a recession in the US can devastate the banks and lead to a panic rise in the Dollar. In the current scenario, importers are better served by hedging with reasonable protection ranges and some INR appreciation upside open for short term INR strength. Exporters can explore options which provide an outlet for sharp Rupee depreciation, but hedge at a reasonable rate if the depreciation does not happen.

Dollar gives back gains. INR back to appreciation bias.

(27th April 2023, 7:00 AM)

INR likely to open around 81.75/80

The Dollar reversed some of the gains and yields traded sideways with mixed equity market performance, after the jitters around First Republic bank subsided and the focus came back to macro events. Further, there was progress on the US debt ceiling talks in the US congress, which helped the risk aversion sentiment.

Dollar Index is at 101.15, with EUR at 1.1045, GBP at 1.2470 and JPY at 133.50. US 10y is at 3.43%. DOW ended down by 0.7%, but the tech index was helped by some tech earnings and ended 0.4% up. Indian indices managed a 0.3% odd rise despite the previous day’s US equity fall.

USDINR is biased downwards, but still range bound and waiting for the PCE inflation and the Fed to decide the next move, if any. The negative reaction to the First Republic results has dissipated for now, and the Fed might be encouraged to keep its hawkish stance in the coming meeting. We continue to believe that INR might appreciate mildly in the short-term but the long-term risks have to be kept in mind in taking hedging decisions.

Dollar strong on as bank crisis worries resurface. Rupee remains range bound.

(26th April 2023, 7:00 AM)

INR likely to open around 82

Dollar showed mettle yesterday and reversed some of the previous day’s losses, after concerns around the US Bank crisis resurfaced yet again. The Dollar strength happened despite a sharp fall in the US yields indicating a risk aversion move, as global growth concerns are exacerbated by the re-emergence of worries about the health of US small banks.

Dollar index is at 101.85, with EUR at 1.0975, GBP at 1.2415 and JPY at 133.60. US equities ended sharply down – DOW fell 1% and NASDAQ by 2%. Indian equities ended slightly in the green but are se for a weak open.

First Republic Bank reported significant deposit outflows in its quarterly earnings release and the stock crashed as a result. The relentless outflows from US small banks towards large banks and money market funds will significantly dent their margins and weaken their balance sheets. The small bank crisis can create a doom loop, where increasing borrowing costs lead to slowing lending and recession and the recession dents the already fragile balance sheets. The Fed continues to be hawkish and wants to raise rates while the liquidity position of banks continues to be shaky.

Rupee has managed to stick to a narrow range, despite larger moves in the Dollar. Yesterday’s Dollar behaviour indicates that if markets panic around the global bank health, USD can strengthen despite lower Fed expectations. Such a risk aversion move could dent crosses more than the Rupee as they have run up sharply purely on monetary policy considerations. INR remains vulnerable to a panic move in markers, but it’s still early days on the risk aversion theme.

Dollar weak overnight. USDINR still range-bound.

(25th April 2023, 7:00 AM)

INR likely to open around 81.85/90

Dollar retreated yesterday and Dollar Index fell below 101, driven by a sharp move higher in EUR. Dollar Index is at 100.95, with EUR at 1.1065, GBP at 1.25 and JPY at 134.25. US yields are down, and the 10y is at 3.48%. US equities were mixed and the DOW managed a 0.2% positive close. Indian indices bucked the recent trend of flat closes, and ended 0.65% higher.

On days when there are no Fed speakers to bring focus back to inflation, markets seem to reaffirm Dollar weakness, especially against EUR. But, given the recent stance from the Fed, it is unlikely that they will buckle and start with rate cuts this year, as long as the inflation is sticky. While the Dollar may be down in the short-term, rate environment could remain supportive of the Dollar in the medium to long-term. Further, markets seem to have faith in the ECB’s ability to hike as being proposed, but the EU economy is not in a position to take too much hawkishness from the ECB. The shot-term Dollar weakness might provide an opportunity to exporters in EUR and other crosses to increase hedges.

INR remains range-bound and is not reacting much to the Dollar movements against other majors. While the short-term bias is towards Rupee appreciation, the magnitude of the potential appreciation could be limited. The current range above 81.50 could hold for now, as the Rupee fundamentally remains vulnerable, given the flow situation into India. The US PCE inflation can provide some impetus to USDINR on either direction, but the major event will be the FOMC on the 3^rd. Until then, Rupee might retain an appreciation bias, given the global Dollar weakness.

Quiet markets. Rupee range in tact. PCE inflation next event this week.

(24th April 2023, 7:00 AM)

INR is likely to open around 82

Dollar is trading muted, and US yields are steady ahead of a relatively quiet week on the data front. The core PCE inflation at the end of the week is important for the Dollar, but the critical events/data releases such as the FOMC meeting, and Jobs data are slated for the next week. The default expectation is that there might not be significant movements in currencies this week. Dollar Index is at 101.45, with EUR at 1.0990, GBP at 1.2440 and JPY at 134. US 10y is at 3.55%. US equites ended last week flat, and futures are mildly in the red on today’s open. Indian indices continued their lackluster performance and ended flat yet again Friday.

USDINR remains range bound and tends to dip on uneventful days, only to go higher again on days when Fed speakers remind markets of sticky inflation. Until the PCE inflation data on Thu/Friday, one can expect docile moves in currencies including the Rupee, especially given that the FOMC is scheduled on the 3^rd of May.

Range still holding.Range bound markets. Fed members remain hawkish. INR range holding.

(21st April 2023, 7:00 AM)

INR likely to open around 82.20

Dollar is trading slightly weak, but slowdown fears, along with Fed rate jitters keep risk aversion in markets alive. Dollar Index is at 101.50, with EUR at 1.0970, GBP at 1.2445, and JPY at 134.10. US 10y is slightly lower at 3.53%. US equities ended in the red (the DOW down 0.3%) yet another day yesterday. Indian indices traded flat.

Yesterday was an uneventful day for currencies including the Rupee. The month-end PCE data might trigger some movement in the Rupee, if the data comes out different from expectations. Until then USDINR could trade in a range, reacting to news headlines of the day including any comments from central bank members.  Couple of Fed members yesterday reiterated their hawkishness and indicated more rate hikes are needed to control inflation.

Meanwhile, bank borrowing from the Fed’s emergency window has ticked up after a while, suggesting that smaller US banks continue to rely on the Fed for funding their business – which is not healthy for their sustainability. If recessionary conditions deepen in the coming months, the smaller banks might again see another stress scenario and liquidity crisis. We continue to stick to our stance that the banking crisis is still simmering under the surface and yet another bout of market panic could occur in the next few months. INR remains vulnerable to such eventuality in the coming months.

INR slightly weak on hawkish Fed messaging. Range still holding.

(20th April 2023, 7:00 AM)

INR likely to open around 82.25

INR traded weaker yesterday on the back of hawkish comments from the Fed members and ECB president. Markets were reminded that the inflation threat remains relevant still and hence the need for more hikes. Dollar remains range-bound as markets evaluate the central bank rate dynamics vis-à-vis the recession possibility. Dollar Index is at 101.65, with EUR at 1.0690, GBP at 1.2340, and JPY at 134.85. US 10y is at 3.6% . DOW ended 0.2% in the red. Indian indices continue to bleed slowly, and yesterday saw yet another 0.3% fall.

INR is firmly back in the range, as the global environment remains indecisive regarding the rate trajectory. While on one hand, there are expectations of rate cuts in the later half, on hopes of recessionary conditions, the Fed and other central banks remain cautious of the stickiness of inflation. For now, the short-term range of the Rupee seems to have no real threat, at least until the next Fed meeting.

USDINR sideways on lack of apparent trigger. Dollar trading muted.

(19th April 2023, 7:00 AM)

INR likely to open around 82

Dollar remains subdued and is trading sideways as markets await the next trigger. Rupee remains firmly stuck to its range and yesterday was yet another day of muted trading. Dollar Index is at 101.50, with EUR at 1.0970, GBP at 1.2410 and JPY at 134.35. US equities traded flat on lack of any event/data. Indian indices again traded in the red, consistent with the fact that Indian equity markets are going through a time correction.

The next big event remains the FOMC. INR fundamentally remains vulnerable but is currently buoyed by the ongoing Dollar weakness. The longer the current calm lasts, the higher the potential move in the Rupee as the volatility of currencies tends to mean-revert. As we move into the second half of the year, factors and issues such as bank quality, increasing defaults/bankruptcies, recession trends could again come to the forefront and hence the need to be watchful in taking aggressive long-term hedges.

Dollar higher on higher US yields. INR range-bound with no apparent triggers.

(18th April 2023, 7:00 AM)

Dollar stable on Fed expectations. Retail sales indicates slowdown. Next event is FOMC.

(17th April 2023, 7:00 AM)

INR likely to open around 81.85/90

Dollar is stable, and US yields are higher, despite the negative retail sales data on Friday. Dollar Index is at 101.50, with EUR at 1.0970, GBP at 1.2390, and JPY at 133.95. US 10y is higher, at 3.5%. Even as retail sales came in lower than expected, the core retail sales print was in line and signaled mild weakness in the economy, but not material enough to keep markets concerned. US equity indices ended Friday lower by 0.4%.  A Fed official remarked on Friday that the FOMC needs to do more to tame inflation, sparking a rise in yields and some reversal in Dollar losses.

INR remains stuck to a range as markets are evaluating two opposing themes – a. recession implies lower future inflation and potential rate cuts b. recession will hit bank quality and lead to more losses and systemic issues. US PPI data now indicates lower inflation in the coming months, which is a positive development for the markets, provided the reduction in inflation is not driven by economic contraction leading to a recession. For now, as long as the macro data is not too weak, markets are hopeful of rate cuts and docile fed and hence the Rupee stability. The short-term Rupee stability has not been disturbed even after CPI and retail sales data. The next critical event is the FOMC meeting outcome on the 28th.

US banks remain dependent on the Fed emergency window, as small banks continue to see a shift of deposits to large banks and money markets. The banks are not in a position to withstand a sharp recession and ensuing defaults. We are probably a month or so away from another stressful situation for US banks in terms of their liquidity position.

To conclude, the base case scenario remains that of stable to appreciating Rupee in the coming few days until FOMC. But the longer the Fed holds higher rates, the higher the chances of a panic move in markets and a spurt in USDINR. We remain skeptical of long-term prospects for the Rupee.

US CPI down but sticky. Dollar weak. Rupee stable for now.

(13th April 2023, 7:00 AM)

INR likely to open around 81.95

Dollar is weak after lower-than-expected US CPI data yesterday, and after the minutes of last FOMC meeting suggested recession risk for the US economy. The CPI came in at 5% against expectations of 5.2%. The core CPI though remained sticky, which is a concern for the Fed. The FOMC minutes discussed the potential for recession in the later part of the year due to the impact of the bank crisis. Dollar Index is at 101.15, with EUR at 1.10, GBP at 1.2495, and JPY at 133.15. US 10y remains around 3.4%. US equities were down on recession fears since even the FOMC acknowledged it. While Indian indices rose 0.4% odd, today’s trading might be cautious.

US CPI, though on downward trend, remains sticky and markets expect a 25 bp hike in the next meeting, followed by pause and then cuts. FOMC minutes, even while acknowledge mild recession, chose to raise 25 bp in the last meeting, implying that as long as inflation remains high, rate cut possibility remains low. The CPI release did not cause too many flutters in the market but it does highlight the difficulty that the Fed is going to encounter in initiating rate cuts to satisfy markets.

INR remains in the range for now, but the bias will continue towards INR appreciation as the CPI did not cause jitters. We continue to reiterate that the sticky inflation might prevent the Fed from cutting rates later this year, and any FOMC attempts to moderate liquidity could lead to issues again with banking system. While the global economy is still stable, recession risk is around the corner and hence we have to watch out for potential liquidity/credit issues in the later part of this year. For now, a range-bound Rupee remains the base case scenario.

Rupee stable ahead of the US CPI. Markets trading sideways

(12th April 2023, 7:00 AM)

INR likely to open around 82

USD traded subdued yesterday and US yields remain steady ahead of the CPI data today. DOW ended 0.3% higher, but the other indices ended flat to negative. Dollar Index is at 101.75 now, with EUR at 1.0925, GBP at 1.2440, and JPY at 133.60. US 10y is at 3.42%. Indian equity indices ended around 0.5% higher.

US CPI data is due today. Markets could trade sideways until then, waiting for the inflation release. USDINR is not able to break the 82 barrier convincingly, as the underlying macro picture still does not support persistent weakness in USD. Markets now price 60%+ chance of a hike in the next FOMC meeting and hope that the coming recessionary conditions deepen fast enough to force the Fed to start cutting in the later half of this year. Even if today’s CPI shows a downward trend from previous months, as long as the inflation is sticky and well above the Fed target, it is unlikely that the Fed will move on rate cuts. Further, the liquidity measures they adopted to rein in inflation are being nullified now due to increasing liquidity post the bank crisis.

Rupee remains in a tight range now, and unless the CPI is way off expectations, it is unlikely that USDINR will see outsized moves in the coming couple of weeks.

Rupee stable for now. CPI awaited. Dollar range bound.

(11th April 2023, 7:00 AM)

INR likely to open around 81.95

Dollar is slightly stronger, and markets are trading sideways awaiting the crucial CPI data. Dollar Index is at 102.15, with EUR at 1.0875, GBP at 1.2390, and JPY at 133.70. US 10y is at 3.4%. DOW ended 0.3% higher while other indices were muted. Indian indices ended flat.

USDINR, along with other currencies, is waiting for the CPI data to potentially set the direction. While the Dollar has taken a beating in the past month owing to the lower rate expectations on the back of the bank crisis, macro data continues to remain supportive of the Dollar. The US jobs market remains stable despite the rate hikes, and the CPI is still in a sticky path, much above the 2% Fed target. While US yields have fallen sharply after the bank crisis, the next couple of months might see some reversal of this fall, if CPI remains sticky. For the Rupee, while the RBI’s pause signals the end of the rate hike cycle for now, the US rate cycle is still undecided and hence the uncertainty. We continue to believe that the Rupee will be stable with mild bias towards appreciation in the short-term if the inflation data comes in as per expectations. The long-term evolution of the Fed strategy and the underlying credit/liquidity problems in the global banking system would determine the fate of the Rupee over the next 6-12 months.

Rupee stable ahead of the inflation week. US jobs data indicates healthy labor market still.

(10th April 2023, 7:00 AM)

INR likely to open around 81.80

Dollar is steady after Friday’s US jobs data showed healthy job additions and a fall in unemployment rate. Wage growth was slightly lower than expected, but still showed solid jump year on year. Consensus now is that the Fed will raise rates one more time. Dollar Index is at 101.80 now, with EUR at 1.09, GBP at 1.2415 and JPY at 132.60. US 10y is at 3.37%. DOW traded flat on Friday.

While the jobs data continues to indicate healthy economy, markets expect a sharp downturn in the labor market in coming months, forcing the Fed to cut. The question now is whether the inflation data would help support the Fed or whether a sticky inflation makes rate cut strategy difficult. While the bank crisis is over for now, the usage of the Fed’s emergency window is still indicative of liquidity needs for small banks. If the Fed balance sheet size grow from here, the FOMC’s balance sheet reduction strategy would be futile, and an inflation spike in the later months becomes a possibility.

Rupee is in a sweet spot now as the banking crisis has reduced the chances of an immediate aggressive action from the Fed. Falling US yields have helped USDINR break 82, but the momentum downwards is a bit stalled as markets wait for the US CPI on the 12^th. The base case remains that the inflation would be sticky, but in line with expectations and hence the short-term INR stability might continue. The long-term risks in the form of recession driven credit and liquidity problems remain very relevant still for the Rupee.

Rupee benefiting from USD weakness. Signs of weak US economy keep yields low.

(6th April 2023, 7:00 AM)

INR likely to open around 82

USDINR finally broke the 82 barrier yesterday, as Dollar continued to be weakened by the falling yields and slowing Fed rate hike expectations. Overnight trading saw some revival in the Dollar, though temporary, as markets wait for the all-important jobs data due tomorrow. Dollar Index is at 101.70, with EUR at 1.0890, GBP at 1.2445, and JPY at 131.25. US 10y remains stable around 3.31%. US equities had a mixed day, with DOW managing a 0.25% rise, while the NASDAQ fell 1%+. Indian indices rose 1%.

Yesterday’s ADP private payroll data showed less than expected job additions and the ISM services index came in lower than expected. The ISM sub-indices also point to a potentially disinflationary scenario and weakening job environment. Markets are expecting that the Fed will pause in the next meeting and cut at least 75 bp this year. Unless the Friday jobs data wields a surprise, Dollar might tend to be weak going in the short-term. The Rupee has managed to benefit somewhat from the Dollar weakness trend, but the weakness in the Dollar might be gradual from here, as there are still resilient features about the US economy which will worry the Fed.

For now, the Rupee remains at an advantage as the macro environment seems supportive of pause in rates. We remain cautious of the Rupee in the long-term, as recessionary environment could bring back the problems in the banking system to the fore again. Banks are yet to see large defaults in sectors such as US housing and auto loans and if the jobs scenario there worsens, the capital and liquidity positions of banks might again come back to focus. The ECB continues to be hawkish, but the EU economy is not in the pink of health for the ECB to keep hiking. EU banks are, for now, out of the radar. But the risk of events there remains high. In all, it is prudent to keep the hidden risks in mind while hedging, even though the short-term outlook is benign and favorable to the Rupee.

Dollar weak on recession signs. INR range still intact. US jobs data ahead.

(5th April 2023, 7:00 AM)

INR likely to open around 82.10

Dollar is weak and US yields are down after JOLTS data showed a sharp fall in job openings in the US, signaling a coming contraction. The ISM manufacturing index came in much lower than 50, indicating a recessionary environment. Markets have now recalibrated rate hike expectations again, and now expect the Fed to pause. Dollar Index is sharply lower, at 101.25. EUR is at 1.0960, GBP is at 1.2495, and JPY is at 131.75. US 10y has crashed to 3.35%. Stocks fell yesterday, though were up the previous day. DOW is down 0.6%.

With the banking crisis on the backburner, markets are now focused fully on macro risks – inflation and recession. Recessionary signs are very apparent in the US now, but the wait will remain for the US jobs data on Friday. If the next week’s CPI comes in strong, the Fed will be in a tight spot as to how to tackle the potential stagflation scenario building up. While the small US banks have managed to stabilize, the banking system there is not prepared for a deep recession and hence the worry about the current jobs data. Markets now expect a 75 bp cut from the Fed this calendar year and it would be interesting to watch whether the Fed will heed to market expectations.

USDINR is now close to 82 due to the Dollar weakness. Even if the Dollar were to weaken against EUR and the majors due to shifting Fed rate expectations, INR might not benefit much from such Dollar weakness as it is caused by a potential global recessionary possibility. Our thesis remains that while the Dollar is weak in the short-term, a recession in the US will quickly spread to EU and other nations, especially if their central banks remain hawkish, and hence the next six months might see a resurgence in the Dollar again. The short-term though remains Dollar negative and hence pro-Rupee.

Dollar stable as inflation back in focus. Rupee range remains intact. US jobs data this week.

(3rd April 2023, 7:00 AM)

INR likely to open around 82.35

Dollar bounced back on Friday, supported by stable US yields as markets focused on inflation again after the banking crisis moved into the background. US 10y remains steady around 3.5%. US equities rallied smartly on Friday, with DOW registering a 1%+ rise. Dollar Index is at 102.55, with EUR at 1.0805, GBP at 1.2295 and JPY at 133.05. The core PCE inflation data showed that while inflation is slightly down, it remains sticky.

Now that markets are trading on macros, this week’s US jobs data and the next week’s CPI are important events to gauge whether the Fed would keep up with the rate hikes. As of now markets expect another 25-50 bp in hikes and cuts later. While the banking crisis seems to have been managed, the problem remains that of tightening liquidity. The recent emergency measures have brought back most of the liquidity that the Fed sucked out from last year. Now that the crisis perception is over, liquidity might again start to recede, especially if the inflation turns out too sticky. The coming months might see yet another flare-up if inflation continues to be high. The domestic picture for the Rupee is balanced. The trade deficit has fallen, but the flow situation is not yet amenable to handle a negative current account fully. We have to wait for couple of months more to see if the trade deficit would revert towards 20+ billion, to judge the long-term CAD.

INR has been range bound and has not managed to break 82 despite falling Dollar. The base case remains that the Rupee will trade in the current range in the short-term. If the US jobs data and the inflation surprise on either side, there could be some move for the Rupee out of the range, but the probability that USDINR will remain between 81.75 and 83 is high for the next couple of weeks.

Markets stable as banking crisis moves out of focus. Focus back to macro data. INR range bound but stable.

(31st March 2023, 7:00 AM)

INR likely to open around 82.10

Dollar is trading weak, risk appetite is strong, and US yields firm, as markets slowly are moving the banking crisis to the backburner. Dollar Index is below 102, with EUR at 1.0915, GBP at 1.24, and JPY at 133.25. US 10y is at 3.55%. DOW ended 0.4% higher.

Markets are awaiting the Core PCE inflation data today, as slowly the focus shifts back to inflation and rate hike cycle. One of the primary drivers of equity stability during the banking crisis is the sharp rise in liquidity, as evidenced by quick rise in the Fed balance sheet. Even as the Fed proposed to cut its balance sheet by 100 billion a month, a significant portion of the contraction of the balance sheet has been reversed in the past few weeks. The problem for the Fed and other central banks would if the continuing liquidity creates inflation in the later months.

INR has been range bound during the banking crisis episode, and now the focus shifts to the inflation data. Markets slowly are recalibrating their expectations of rate cuts by the Fed, but still the hope is that the Fed would start the rate cut cycle soon. Next week’s jobs and then the inflation data would be watched by markets to see if the rate cut expectations are well placed or not. The Rupee could remain in its range for now, as the liquidity crisis is now relegated to the background. The incoming data would now determine the Rupee behavior, but the base case remains that a reasonable range will hold. The trade deficit has been on the lower side in the past few months, but the flow situation is not conducive enough to support even a moderate CAD without Rupee weakness. Our primary thesis remains that the current crisis will be kicked down the road again by central banks with money printing, but the coming months might again see a resurgence of issues as liquidity becomes tight again, inflation flares up again,  and hence the long-term prognosis for the Rupee is one of caution.

INR stable as global markets calm after the storm. Macro data next month back to focus.

(29th March 2023, 7:00 AM)

INR likely to open around 82.15/20

Dollar traded subdued even as US yields jumped higher yesterday. Dollar Index is at 102.15 now, with EUR at 1.0845, GBP at 1.2335 and JPY at 131.65. US 10y is at 3.58%. Equities ended lower, with DOW seeing a 0.2% cut. Indian indices traded with mild losses.

For now, the banking crisis seems to have been managed in the US, but the underlying stressors remain very much relevant. The big risk for markets is now whether the Fed would cut rates as expected or continue to talk hawkish on inflation. Next month’s jobs data and then the inflation print would be the key data points for markets. Now that banking crisis is on the backburner, fears remain that sticky inflation might again force the central banks to keep rates elevated, resulting in lower bond prices and continuing losses to banks. The 10-2 yield curve remains inverted, signaling recession in coming months. In our view, the banking system is not prepared for a deep recession, especially as bond losses remain high.

INR is in a range for now, but the risk of a panic move and broad Dollar strength will be relevant in coming months. Any short-term dip in USDINR remains a buying opportunity from a long-term perspective, as the coming months of 2023 and then 2024 might see unravelling of excesses of the past 10-12 years. How long would the central banks be able to kick the can down the road with money-printing strategy is the question now. Hedging strategies should keep in mind the tail risk of sharp moves in markets and keep an allowance to gain if such moves do occur.

INR stable as US bank crisis gets temporary reprieve. Underlying vulnerabilities remain.

(28th March 2023, 7:00 AM)

INR likely to open around 82.15/20

Dollar is weak on stable risk appetite, and US yields recovered 15-20 bp yesterday after the SVB bank deal went through, comforting markets for now. Dollar Index is at 102.30, EUR is at 1.0815, GBP is at 1.2310 and JPY is at 130.70. US 10y is at 3.53%. DOW ended 0.6% higher after banking stocks staged a rally. Nifty managed a 0.2% jump, despite opening higher. USDINR traded in a range, but with a downward bias as the Dollar retreated on improving risk appetite.

Even as the SVB deal cleared yesterday, giving markets some hope of resolution of the ongoing small-bank crisis in the US, the fact remains that the underlying funding/liquidity pressures remain tight, as evidenced by falling corporate bond issuance in the US, high CDS spreads of EU banks, and deposit flight out of small banks in the US. While equity markets continue to behave as if the worst is over for markets, credit markets are signaling caution.

As for the Rupee, while the range remains intact, systemic risks with a potential for large credit crisis are simmering under the surface. Small banks account for significant loan issuance in the US and with sectors such as real estate, auto and credit card showing signs of fatigue, the small-bank crisis remains unresolved still. Further, credit issuances have slowed down, indicating growing tightness in liquidity. EU banks also remain vulnerable to sudden liquidity event.

We continue to reiterate that even though the Rupee might move in a range in the shot-term, the vulnerability towards a sharp depreciation move remains high, until the current liquidity crisis resolves. Inflation also remains high enough to keep central banks worried about too much accommodation this time, unlike the previous crises when inflation was not at all a concern. Our belief remains firm that long-term risks can move USDINR higher in the coming months, even though the short-term presents a safe space for the Rupee.

Rupee range holds. Banking crisis still in focus. DB under the scanner.

(27th March 2023, 7:00 AM)

Rupee range holds. Banking crisis still in focus. DB under the scanner.

(27th March 2023, 7:00 AM)

INR likely to open around 82.30

Markets are calm and Dollar steady, as hopes that central banks will be able to ringfence the banking crisis and prevent large contagion dominate worries about rising banking system vulnerabilities. EU banks remain the focus as DB shares fell 9% on Friday and the CDS spreads shot up higher on concerns that there are problems there. Most EU banks are under the scanner, as can be seen in elevated default spreads. Dollar could recover some lost ground on Friday, but US yields remain muted, signaling rate cuts as early as July.

Dollar Index is at 102.75, with EUR at 1.0765, GBP at 1.2235, and JPY at 130.90. US 10y is at 3.36%, and the entire US yield curve is below the current Fed funds rate, indicating that markets expect a rate cut soon from the Fed. US equities ended Friday in a positive zone, and Asia has opened in the positive territory as a result. Indian indices continue to bleed slowly, and Friday saw another 0.75%+ cut for Nifty.

INR remains range bound and has managed to move towards the lower end of the range in line with the crash in the Dollar. But, Dollar has since recovered some lost ground, even as yields remain suppressed. Markets are worried about both EU banks and the US banking system concerning the small regional banks. The movement in currencies, including the Rupee, is dependent now on day-to-day news headlines around the bank crisis. For now, the situation is under control but can blow up quickly if DB becomes a real concern to markets. The base case is that the Rupee would trade in the current range until the next payroll data next month, but would remain dependent on any developments in the US and EU.

Dollar weak on falling yields. Rupee well positioned but range bound.

(24th March 2023, 7:00 AM)

INR likely to open around 82.30

Dollar managed to recoup some of the post-Yellen speech losses yesterday but is still under pressure as markets expect a series of rate cuts to start soon. Even though US stock indices have managed a positive close, bank stocks remain vulnerable still, as markets are worried about deposit flight from the regional banks. US yields continue to be subdued, and the 10y is below 3.4%. Dollar Index is at 102.30, with EUR down to 1.0825 from the 1.09 level, GBP at 1.2265, and JPY at 130.60.  DOW is higher by 0.25% as the surge in tech stocks was completely offset by pressure on banking stocks. Indian indices remained vulnerable and closed down 0.4%+.

INR remains wedded to a range for now and is reacting to global biases with a moderate movement towards either end of the range. With the Fed out of the way, the Rupee will sway to global news and developments, specific to the banks. While the Fed and other central banks (yesterday BoE raised rates) continue to reiterate that rate hikes are still needed, markets are clearly expecting cuts to start soon. The very reason for the liquidity stress in the US banking system is the high yields/falling bond prices. The next few months are going to see a tussle between persistent inflation and the need for lower rates to stabilize the banking system. We are heading into a potential “blowup” situation if bond yields reverse their current fall and central banks continue to pursue rate hikes. In the short term, the Rupee range might hold well at least until the next inflation print, unless there is a sudden development regarding the banking system in the US and the EU.

FOMC hikes. Yellen reignites concerns on bank liquidity. Rupee range is intact for now.

(23rd March 2023, 7:00 AM)

INR likely to open around 82.50

Dollar is trading weak, US yields are down and US equities are jittery after a volatile session overnight. While after the FOMC raised rates and signaled one more rate hike and an end to the rate cycle soon markets reacted positively,  Yellen’s comments later that the government is not yet considering a universal deposit guarantee scheme led to a correction in equities and a fall in yields.

Dollar Index is at 102.20, with EUR at 1.0865, GBP at 1.2275, and JPY at 131.20. the 10y yield has fallen to 3.45% from the 3.6% level. DOW is down sharply – by 1.65%, especially after Yellen’s comments, which exacerbated the negative sentiment after Powell said that the FOMC is not considering rate cuts.

FOMC raised rates by 25 bp and continued with the balance sheet reduction program as it is. The statement acknowledged the ongoing banking crisis and signaled an end soon to the rate cycle though. The Fed expects rate cuts next year as indicated by the dot plot. Powell, in his press conference, said that the banking system is sound and that they don’t see the reason to deviate from the rate policy. The tight credit conditions are expected to help increase policy effectiveness according to him and the recent balance sheet increase would be temporary. He did not see any FOMC member in favor of rate cuts this year.

The FOMC went more or less on expected lines, but the tight financial conditions might make markets jittery in the coming days. While the Dollar is weak owing to lower yields, continuing stress can quickly reverse the weakness as risk aversion picks up. Rupee might continue to trade range-bound as the policy did not carry surprises enough to topple the current Rupee range. While Powell expressed confidence about the banking system, the uptake in the Fed’s lending window and its balance sheet increase shows ongoing stress. The potential for another regional bank failure still remains very much tangible and hence the Rupee is not yet out of the woods. The base case scenario, though, remains that of  81.50 to 83.50 range until the next inflation and/or a crisis event.

Markets stable but banking crisis still alive. INR range bound for now.

(21st March 2023, 7:00 AM)

INR likely to open around 82.50

Dollar remains subdued and risk appetite is steady, a day after the Credit Suisse bailout. Markets hope that the banking crisis settles down soon, but signs remain that there is ongoing stress in the global banking system, especially in the EU area. While the Credit Suisse bailout was welcomed by markets, the fact that the AT1 bonds were written off completely has triggered a new concern for investors of such bonds in other banks, potentially leading to falling in the capital position of other banks. In the US, First Republic bank remains under pressure with the share price hitting lower circuits again yesterday.

Dollar is weak and the Dollar index is below 103. EUR is at 1.0720, GBP is at 1.2275 and JPY is at 131.15. US 10y has retraced back to 3.49% after being close to 3.3% yesterday. US equity markets managed a solid performance, and the DOW jumped 1.2%. Indian indices traded down 0.6% on weak global cues, but are set for positive open today.

INR remains stuck in a range, waiting for the FOMC to provide direction. While the Credit Suisse bailout might have provided temporary relief to banking stress, the fact is that inflation still remains high and central banks have not yet come out with clarity that the rate hike cycle is over. As long as there is a prospect of rates going up from here, the pressure on bond prices and consequently, the liquidity stress could continue in the banking system. The FOMC has its task cut out in the coming meeting, and how strongly they acknowledge the ongoing crisis would determine the course for markets in the coming weeks.

We have been highlighting the liquidity landmines which can blow up when one is close to the peak of the rate hike cycle, and have been warning that one does not know when and where the next powder keg situation could arise from. The sudden banking/liquidity crisis is an example of what can happen when liquidity goes back after years of sloshing around, and rates jump significantly after being low for too long. The next 6m to 1y period carries a risk of a large crisis unless central banks are able to push the can down the road again.

Rupee remains vulnerable to a panic move, but the short-term outlook is stable for the Rupee, especially if the FOMC acknowledges the current situation and indicates a peak in rates. But long-term vulnerability should be taken into account to ensure appropriate hedging decisions for the long term.

Credit suisse bailed out. USD weaker as risk appetite stable. INR range bound. FOMC this week.

(20th March 2023, 7:00 AM)

INR likely to open around 82.50

Markets are digesting the news that Credit Suisse was bought by UBS for 2 billion over the weekend – a deal arranged by the government with a liquidity backstop of 100 billion from the Swiss Central Bank. The merger of Credit Suisse could provide temporary relief to markets – a relief that a major catastrophe in markets is prevented. US Fed announced that it has activated USD swap lines with various central banks to ensure liquidity in the global system. For now, markets might feel comforted that a disruptive collapse of a large bank like Credit Suisse is prevented.

The current set of events goes to show the vulnerability of the financial system due to rising yields and falling bond prices. It is now ironic that the Fed might try to raise rates on the 22nd, while simultaneously being worried about global liquidity. With what happened to the regional banks in the US and to Credit Suisse, markets are banking on hopes that the rate hike cycle will not proceed further. In this context, the coming FOMC meeting is crucial to gauge how they will respond to the ongoing crisis.

Dollar Index is at 103.45. EUR is higher, after the Credit Suisse bailout – at 1.0680. GBP is at 1.2180, and JPY is at 132.40. US 10y is at 3.45%. DOW fell sharply by 1.2% on Friday, but futures are up after the weekend bailout.  Indian indices ended 0.65% higher and are set for a positive open today. Rupee remained below 83, and the weekend developments would add some more positivity to the Rupee.

The sudden and unexpected developments over the past few weeks show the hidden risks in the financial systems brought out by falling bond prices – a result of sharp and sustained rate hikes and liquidity withdrawal. Central banks, including the Fed, are now caught between fighting inflation through tight financial conditions and managing bank stability through easy financial conditions. The Fed might still choose to hike rates at this meeting but indicate easy liquidity conditions to prevent further stress in the system. Rising bond yields have resulted in large unrealized losses in the financial system and a fall in collateral values in the shadow banking system. If rates continue to rise, even if liquidity is pumped, it is difficult for markets to absorb further fall in bond values.

We are set for a unique Fed meeting day after tomorrow and the Rupee could act sharply post that meeting. For now, the USDINR range between 82 and 83 might be intact. But long-term risks and vulnerabilities are piling up unless central banks completely fold on the rate hike cycle at the risk of an inflation spike later.

Markets recover and risk appetite stable. Rupee still in a range. Next stop FOMC.

(17th March 2023, 7:00 AM)

INR likely to open around 82.60/65

Dollar is weaker, US yields stable, and stock markets surge as risk appetite stabilizes in markets, aided by both the Fed action and support from big US banks. The First Republic Bank, another regional bank, has been bailed out by big banks such as JPM, and BOFA through unsecured deposits. The Fed’s emergency lending program has been seeing significant offtake from the small banks and as a result, the balance sheet size of the Fed has increased by 300 billion, wiping out months of the tightening program they have been undertaking. Equities surged yesterday by 1%+ as worries about First Republic Dissipated and the focus shifted back to the inflation fight. The emergency program announced by the Fed has shown the markets, that the balance sheet tightening can always be reversed in case of an emergency and the Fed is willing to put inflation fighting secondary to financial stability.

ECB hiked 50 bp and said they are ready to act to ensure financial stability also. The same playbook as the Fed is being played at the ECB – raise rates to fight inflation but be willing to keep liquidity going for financial stability. Continuing liquidity increase can again bring back inflation in the latter half of this year, making the rate cycle more protracted.

Dollar Index is at 103.95, with EUR at 1.0630, GBP at 1.2125, and JPY at 133.35. DOW jumped 1.2% higher, and S&P 500 even higher – by 1.75%. Rupee managed stability yesterday as risk aversion in markets receded. While the bank liquidity crisis seems to be waning for now after extraordinary liquidity measures, the next few months could again see some more stress, as rates are set to go up more. The short-term outlook for the Rupee remains benign as a low trade deficit and stabilizing risk appetite is set to help a range-bound behavior. But, the recent developments have provided a taste of how hidden risks have been accumulating in the past few years and how the rising rate environment can expose these fault lines. The EU area crisis is another point of focus, which can flare up in the coming months. Rupee is vulnerable in our view over the next few months, and any dip in USDINR remains a buying opportunity for the longer term.

INR remains under pressure as global markets face risk aversion. Banks continue to be in focus.

(16th March 2023, 7:00 AM)

INR likely to open around 82.70

Dollar gained some strength yesterday as the focus shifted back to inflation and Fed action. While the US yields continued to recalibrate to the post-SVB collapse scenario, equities continued to be jittery as concerns about the collapse of Credit Suisse’s stock price raised questions about its liquidity situation. After the largest investor in the bank refused further support, the Swiss Central Bank stepped into backstop liquidity for the bank. There is a mini panic in markets now, as the effects of withdrawing global liquidity and rapid rate hikes are beginning to expose cracks in global markets.

Dollar Index is at 104.30, with EUR at 1.0590, GBP at 1.2065, and JPY at 133.25. DOW ended 0.85% lower, as markets are rattled by the sudden developments of the past few days around bank survival. Indian indices also continue to trend lower, following global cues. Nifty traded 0.6% down.

The Rupee is now reacting to the prevailing situation, but not yet in a way that is disruptive. There is a hope that the Fed will go slow on rate hikes and there could be a flurry of rate cuts later this year to ensure stability in the banking system. With EU banks also in a spot of bother, the ECB might not have enough leeway to move rates much higher in the coming months. Hence, there is a tussle between hopes of easy central banks and the structural issues which are now surfacing at different places in the global financial system. We believe that the current mini panic will be quelled sooner rather than later, as central banks step in to backstop the banking system. But, it will dent the credibility of central banks if they stop hiking rates, as such an action would mean an acknowledgment of the stress in the system and such accommodation would send a wrong signal that the central banks are panicking.

For the Rupee, the times are uncertain, but not of enough concern that the move would be too much above 83. Today’s ECB meeting might set the stage for the central bank’s reaction to the ongoing crisis and the FOMC on the 22nd is the next critical event. USDINR is biased upwards still, but not yet threatened towards a large move yet.

USDINR trading sideways after US CPI in line. Next event is the FOMC.

(15th March 2023, 7:00 AM)

INR likely to open around 82.30

Dollar remains subdued even as US yields recover slightly after the US CPI data did not disrupt the status quo and conform to expectations. Dollar Index is at 103.25, with EUR at 1.0735, GBP at 1.2160, and JPY at 134.25. US 10y is higher at 3.67% after the knee-jerk fall post the SVB collapse. DOW ended higher by 1%+, as markets settled down from the fears of systemic collapse.

US CPI came in at 6% – while on expected lines, lower than the previous month. Core CPI remains elevated, but not enough to worry markets about a super-hawkish Fed. Expectations are now tilted towards a 25 bp hike in the coming meeting. With the SVB collapse impact slowly dissipating, for now, markets bring the focus back to inflation and Fed action on the 22nd. The inflation data has now come and gone without doing much damage. The next event is the FOMC on the 22nd.

USDINR remains in a tight range, and since inflation is more or less on expected lines, the Rupee could continue to meander along until the Fed meeting. The SVB collapse seems to have been pushed on the back burner, and the bank stock index has managed to stabilize. Unless there are fresh developments on that front, USDINR could trade sideways for the next few days. But, the SVB collapse has shown the hidden risks that can emergency when liquidity recedes fast. The Rupee stands exposed to such events in the future, as the Fed continues to hike more and keep liquidity withdrawn. The long-term prognosis for the Rupee remains uncertain in the coming months.

SVB collapse triggers yield crash. INR vulnerable to risk events. Today’s CPI now critical.

(14th March 2023, 7:00 AM)

INR likely to open around 82.25

As Fed rate expectations plummet in the aftermath of the SVB collapse, US yields saw one of the biggest moves in recent times yesterday. The US 2y has collapsed to 4% now and markets now expect rate cuts from the Fed to start soon. As a result, USD has fallen sharply to recent lows. Dollar Index is now at 103.45, with EUR at 1.0708, GBP at 1.2151, and JPY at 133.85. The US 10y has crashed to 3.55% now. DOW managed to close 0.3% lower, but the move belies the crash in bank stocks and the regional bank index. Many of the US small banks were halted in trading after crashing 50%+. Indian indices continued their fall, with yet another 1.5% cut yesterday.

The currencies do not yet reflect the signals of systemic crisis, showing up in different markets. Global bank stocks are being routed, and Banks like Credit Suisse and DB were down 10%+. The CDS spreads of these banks have risen sharply, implying reduced confidence in these banks. Junk bond spreads, and currency basis spreads (which indicate tight financial conditions) are all going up meaningfully. While the Fed has not officially commented yet, calls for a pause or even a rate cut in the next meeting are now picking up the chorus. Markets have now moved the terminal Fed funds rate to just 25 bp from the current level and expect rate cuts to begin by June. The view is that it would be difficult for the Fed to move on rate hikes any longer and also maintain an open-ended emergency bailout program, which in principle, nullifies the rate hike and quantitative tightening that the Fed has been engaging in.

In the midst of these uncertainties, today’s CPI data is very important. If the inflation comes in strong, the Fed would be in a squeeze, as a hawkish stance in these times can shake markets and lead to much tighter financial conditions, when they need to be loosened to deal with the fallout of the SVB collapse.

As for the Rupee, the Dollar weakness is not going to translate to Rupee strength now as the underlying environment is anti-risk assets. While we are not saying yet that the current event might be the beginning of a large crisis in the global financial system, we believe that the current happenings are an example of what we have always been pointing out – that receding liquidity and dramatic rate hikes bring up sudden unforeseen crises. Markets might forget the SVB collapse soon if the Fed becomes dovish, but if inflation remains high, the Fed might still be forced to be hawkish again, in such case, the next crisis is not too far away. The Rupee could remain in the range still for the short term, but the dangers are growing for EM currencies including the Rupee, and the long-term prognosis remains very uncertain.

Dollar weak after payroll data, SVB collapse complicates matters for the Fed rate decision. INR range-bound, but global environment uncertain.

(13th March 2023, 7:00 AM)

INR likely to open around 81.95/82.00

Dollar is weak post the US jobs data on Friday. US yields are sharply down after payrolls data, as the collapse of Silicon Valley Bank led to safe-haven buying of treasuries, contributing to further fall in the yields. Dollar Index is at 103.85 now, with EUR at 1.0685, GBP at 1.2075, and JPY at 134.40. US 10y is down to 3.72% now. US equities fell on Friday, on fears of the downstream consequences of the fall of the SVB bank. DOW was down 1.1%. But futures have since recovered after the US government stepped in again to contain the spread of any contagion after the SVB bank collapse. Indian indices traded negative for yet another day, seeing a 1%+ fall.

The US jobs release reported 300k jobs – higher than expected, but the wage growth printed at 0.2% as against 0.3% expected. The lower wage growth was enough for markets to reset the hawkish Fed expectations. Now, the Fed funds probability of a 50 bp hike is at around 40% – this was at 80% earlier. The collapse of the SVB bank has added a layer of uncertainty now to the Fed’s expectations. A reason for the collapse of the bank has been their reliance on treasury investments which took a massive beating due to rate hikes. While the SVB bank’s fall might be contained by the US government in some form, the question now arises as to how healthy are the various financial entities which are heavily invested in the US treasuries and other bonds.

The Fed has put emergency measures in place to ensure that funding is available to meet depositor commitments in the banking system. The irony is that on one hand the Fed wants to raise rates and on the other, they have a bank run to handle. Most small banks in the US will now be under the scanner as depositors might want to move deposits to bigger banks. The fallout of SVB collapse might still evolve in the coming days.

INR is steady around the 82 mark. While the Dollar is weak due to the fall in US yields and lowered Fed expectations, it is to be seen that weakness translates to Rupee strength as an element of risk aversion/safe-haven flows is also part of the mix now. If SVB collapse sets off alarm bells in the global markets, INR might see some reaction to that situation. Tomorrow’s CPI is a critical data point, now that the payroll data gave a mixed signal. The base case remains that of a range-bound Rupee – between around 81.50 to 82.50 unless unforeseen events happen in the US regarding the SVB collapse.

Dollar subdued ahead of US payroll data. BOJ in focus. Rupee range bound.

(10th March 2023, 7:00 AM)

INR likely to open around 82/82.05

Dollar paused its rally yesterday after jobless claims rose in the US. Dollar Index is down to 105.15, with EUR at 1.0595, GBP at 1.1925, and JPY at 135.95. US 10y is down to 3.85%. US equities fell sharply yesterday. DOW traded down 1.65% and S&P 500 fell by 1.85%. Indian indices also fell 0.9% apiece.

Today’s US non-farm payroll data is critical for markets as this release will directly influence the FOMC policy. The US payroll data has been surprising on the upside for the past few months, and despite a substantial rise in the rates, the economy is doing well still, to the frustration of the Fed. A 50 bp hike in the next meeting is already priced in.

Today’s BOJ policy is also keenly watched as it is the last under the current BOJ governor, Kuroda, before he retires. While expectations are that the policy is going to be a non-event, there could be changes to the yield-curve-control before a change of guard at the BOJ. JPY will be in focus today.

USDINR has managed to stay around 82 for 2-3 days now despite a good measure of Dollar strength. Today’s US jobs data can trigger either a sharp rally in the Rupee towards 81.50 or set off the Rupee depreciation trend towards 83+. It is going to be an event-driven trading today and for the next few days, as US CPI is due next week.

Dollar strong, US yields elevated on strong labor market indicators. Rupee vulnerable to strong payroll data on Friday.

(9th March 2023, 7:00 AM)

INR likely to open around 82

Dollar continued its strength yesterday and US short-term yields traded higher as more indicators of a tight labor market in the US emerged. The JOLTS job openings data and the ADP private payroll data came in higher than expected and have now set up the possibility of a solid US non-farm payroll release on Friday.

Dollar Index is trading at 105.65, with EUR at 1.0545, GBP at 1.1840, and JPY at 137.10. US 10y is around 4%. The 10-2 spread has widened to more than 1.1% now – an indicator that a deep recession remains a distinct possibility. DOW ended lower by 0.2%. Indian equities were up by around 0.25%.

INR remains vulnerable to the fast-changing global picture with regard to Fed rate hikes. Markets have now factored in 80% odds of a 50 bp hike in the next meeting. While the Rupee has benefited from a muted Dollar and ad hoc flows in the past few days, a resurgence in USD and a hawkish Fed remain the primary headwinds against any meaningful Rupee appreciation from here. The next major milestone is Friday’s jobs report.

Dollar higher after hawkish Powell speech. Rupee under pressure as US yields rise.

(8th March 2023, 7:00 AM)

INR likely to open around 82.05/10

Dollar surged higher after Powell reiterated the FOMC’s hawkish stand and indicated that more rate hikes are needed to tame inflation. Markets sensed that FOMC might even go with a 50 bp hike in the next meeting, though hopes are pinned on the coming CPI which will be considered in the meeting. Dollar Index is at 105.65, with EUR at 1.0545, GBP at 1.1830, and JPY at 137.35. US 10y is back to 4%. US equities fell sharply as a result of Powell’s hawkish stance. DOW is down 1.7%.

The Rupee managed solid appreciation on the back of flows, but now that the Dollar is again on the up move, INR might give up some of the previous gains. Friday’s US non-farm payroll data is important now for the Rupee, in light of Powell’s testimony. Any print which indicates good job gains and stable wage rates could add fuel to the fire and take Dollar higher. The next couple of weeks, with the CPI and then the FOMC to follow, are crucial for the Rupee, to determine if USDINR will move back towards 83 or if it would keep the recent gains. The base case scenario in our view remains that USDINR is bought on dips.

Rupee sees a surge in flows. Powell speech and US jobs ahead this week.

(6th March 2023, 7:00 AM)

INR likely to open around 81.75/80

Even as the Dollar traded range bound, INR has crashed through the 82-83 range, helped by ad hoc deal-specific flows into India last Thursday and Friday. Dollar traded mildly subdued on Friday after US yields trended lower from the recent peaks. Dollar Index is at 104.55 now, with EUR at 1.0630, GBP at 1.2030, and JPY at 135.85. US 10y has fallen to 3.95% after trading at almost 4.1% last week. US equities had a good Friday trading, with the DOW rising 1.2% and NASDAQ moving up by 2%. Indian indices also rose by 1.5%+ on Friday.

USDINR has now reached the lower end of the current range, helped by flows and general Dollar stability. This week is data and event heavy and would keep currencies on edge. Powell’s testimony to the US Congress will be watched for clues on whether the FOMC is thinking of large-sized hikes or would 25 bp be the default. As of now, futures indicate a 70% chance of a 25 bp hike. Friday’s jobs data is another critical number for currencies especially since the last report turned the yield and the Dollar cycle.

INR is a good place now, but the structural issues and the broad USD strength remain a challenge for the Rupee. A dip in USDINR remains a hedging opportunity for importers and an opportunity to lighten some of the export hedges. US yields remain elevated still and with US jobs this week and the CPI next week followed by the FOMC, the next couple of weeks are important for the Rupee. The next day or two will reveal whether the current move in the Rupee is closer to the end.

INR seeing the benefit of global Dollar stability. US yields remain a threat to the Rupee.

(3rd March 2023, 7:00 AM)

INR likely to open around 82.35/40

Despite rising yields, Dollar has been fairly muted and equity markets have managed to trade positively. Dollar Index is at 104.80 now, with EUR at 1.0610, GBP at 1.1970 and JPY at 136.60. US 10y has risen to 4.06%, and yields remain elevated owing to concerns about a renewal in hawkish Fed hike moves. A Fed member commented yesterday that the Fed might stick to 25 bp hikes rather than move to 50 bp increments and that there could be a pause in the coming months. The comments helped the equity markets. DOW ended 1%+ higher. Indian indices though, are not able to hold on to any sustained daily gains. They fell 0.85% yesterday, giving up most of the previous day’s gains.

INR has managed to capture some benefit from the stability of the global Dollar. Rising US yields and deep yield curve inversion are pointing out to the possibility of recession in the coming months. But, the current US jobs markets seems to be solid as indicated by labor costs, jobless claims and potentially the US non-farm payroll data to be released. Hence the short-term behavior of the Dollar could be in a range, being pushed and pulled by the data releases. But over the coming months, the strength of the labor market might work to the detriment of financial markets, as the Fed would be forced to keep rates higher for longer time. The resulting recession risk is what INR could be exposed to in the coming months. The incoming US jobs data and then the US CPI remain critical for determining the next leg of the Rupee move, both in terms of magnitude and the timing of the move.

Dollar subdued, but US yields continue to rise. INR stable for now.

(2nd March 2023, 7:00 AM)

INR likely to open around 82.45/50

Dollar traded broadly lower yesterday after positive news from China and higher EU inflation helped currencies stand firm against the USD. Further, the ISM manufacturing data at 47.7 showed ongoing contraction in the US economy. But, the pricing part of the data indicated that prices have begun to stabilize, and the disinflation trend is slowing, implying hawkish Fed for longer. US yields rose higher after the ISM data.

Dollar Index is at 104.55, with EUR at 1.0655, GBP at 1.20, and JPY flat at 136.40. US 10y has risen above 4% again. US equities were mixed, with DOW ending flat and S&P 500 falling 0.5%. Indian indices rose 0.85%. Rupee has managed a good couple of days of stability even as US yields continued to rise. While the Dollar strength has abated, rising US yields remain a threat to currencies, including the Rupee.

The short-term range remains intact for USDINR. On one hand, the Dollar has been held from further strength due to inflation in other regions of the world and such factors. On the other, the rising US yields remain a positive tailwind for the Dollar and a sustained rise in yields could influence the Rupee sooner than later. The next major event is the US jobs data on the 10^th.

Currencies stable in quiet trading. March eco data in focus.

(1st March 2023, 7:00 AM)

INR likely to open around 82.65

Dollar traded range-bound as did the Rupee, and US yields remained in a tight range in sideways trading yesterday. Dollar Index is at 104.95 now, with EUR at 1.0575, GBP at 1.2020 and JPY at 136.30. US 10y is stable at 3.94%. The DOW fell 0.7% yesterday, closing the month negative. Indian indices traded negative for yet another day – Nifty ended 0.5% down.

USDINR has managed to revert from the top end of the current range again, on lack of any significant triggers. The current Rupee behavior is expected to continue at least until the US non-farm payroll data on the 10^th. Today the data releases for March start with the US ISM which, if very different from expectations, might move the Rupee towards 83 again. But the range is unlikely to be broken though, until the jobs data.

INR manages stability in lukewarm markets. Next set of major data releases soon.

(28th February 2023, 7:00 AM)

INR likely to open around 82.65

Dollar retreated slightly yesterday, as did USDINR, on lack of any significant catalyst. US yields are mildly down, and US equities took the opportunity to trade higher. Indian equities though remained subdued for yet another day.

Dollar Index is at 104.60, with EUR back above 1.06, GBP at 1.2060, and JPY at 136.15. US 10y is at 3.92%. US indices are up 0.2%-0.3%. Nifty ended the day 0.4% down. USDINR traded 82.90+ intra-day yesterday but has since drifted down.

As for the data, the next important releases are the US payroll on March 10^th, the US CPI on March 14^th and the FOMC on March 2022. Until one of these data points provided a fillip to currency direction, one can expect fairly range bound trading. This week’s US ISM can lead to a short-term rise/fall, but durable direction might only be possible until at least the 10^th.  USDINR is fairly balanced within the range now and can be expected to trade sideways for a few days.

Dollar strength continues as yields firm up. Rupee remains vulnerable.

(27th February 2023, 7:00 AM)

INR likely to open around 82.90/95

Dollar remains solid as rate hike fears firmly grip markets and support rising US yields. Dollar Index has risen to 105.10, with EUR at 1.0555, GBP at 1.1950, and JPY at 136.25. US 10y is at 3.93%. DOW fell 1%+ again on Friday, indicating a growing unease about rate hikes and inflation. Indian indices traded subdued yet again on Friday and closed 0.25% lower.

USDINR has managed to stick to its range, even as the Dollar strength wave is solidifying firmly. Any further move in USD is likely to lead to a break of 83 in USDINR and cause a move toward the previous high. The macro data for next month will start this week, but the payroll data is due next Friday, which could prove to be an important day for medium-term inflation expectations. INR could remain under pressure as long as US yields continue their trend up. Dollar has recovered around 25% of the losses from its peak but is unlikely to move to its last peak in this move. While current inflation remains firm, the trend in the CPI is clearly towards lower numbers. The Fed might not hike more than 0.75% from here and might choose to keep rates higher for longer rather than go for more hikes. One can expect the ongoing Dollar strength to take a decisive turn after the next month’s CPI release.

The Rupee might settle down close to previous highs if incoming data remain broadly in line. The next leg of the Rupee move probably is likely in the latter half of the year, when recession and liquidity-driven issues have the potential to cause disruptions in the market.

Rupee manages stability despite Dollar strength. Core PCE inflation next.

(24th February 2023, 7:00 AM)

INR likely to open around 82.60/65

Rupee managed to hold its ground yesterday despite the global Dollar stability and rising US yields. Overnight, Dollar slightly firmed up and the US 10y fell marginally as markets bide time until the next set of important data. Today’s core PCE inflation could also show inflationary pressures and help Dollar strength.

Dollar Index is higher, at 104.50. EUR is below 1.06, GBP is at 1.2015 and JPY is at 134.75. US equities managed positive closing and Indian indices remain subdued with a 0.25% cut. US 10y is lower, at 3.86%, but yields continue to indicate rising expectations of higher-for-longer rates.

INR has settled into a narrow range now between 82.50 and 83 now. The Dollar has moved from an oversold region to a neutral region, and hence one can expect that USD strength from hereon will be gradual unless the incoming data suggests worse inflationary conditions ahead. The base case remains that the current range of USDINR will remain until the next payroll data.

USDINR biased towards higher end of the range. FOMC minutes reassert Fed hawkishness.

(23rd February 2023, 7:00 AM)

INR likely to open around 82.85/90

Dollar is strong, and US yields firm, after the FOMC minutes of the previous meeting reaffirmed market’s rate hike worries. The minutes mentioned that the Fed members expected ongoing increases in rates and a restrictive rate environment to tame inflation. Further, the macro data post that FOMC meeting would have only strengthened this view even further.

Dollar Index is trading at 104.35, with EUR at 1.0615, GBP at 1.2055, and JPY at 134.85. US 10y yield is back at 3.92% after being down before the release of the minutes. DOW ended 0.25% lower post the minutes. Indian indices saw a 1.5%+ cut yesterday, following the previous day’s US equity fall.

USDINR remains in the range but is constantly pushing to break 83. The minutes of the previous meeting show a determined Fed even before the solid macro data releases of the past few weeks. It is now likely that the Fed will move more aggressively than markets expected initially. INR would be under pressure and USDINR will try and push 83 in the coming days. The next US payroll data due in the first week of March is now as important as the US CPI. The bias until then is towards some INR depreciation, as long as US yields remain elevated and keep pushing higher.

USD supported by rising yields. INR range bound but under pressure.

(22nd February 2023, 7:00 AM)

INR likely to open around 82.85

Dollar traded strong, US yields rose sharply and US equities crashed yesterday as fears of sustained fed rate hikes caused yields to rise and brought about risk aversion in markets. Dollar Index is at 104.10, with EUR at 1.0650, GBP at 1.21 and JPY at 135. US 10y is higher, at 3.95%. DOW fell 2% yesterday. Indian indices traded flat, but are set to correct today given the overnight US equity fall.

INR remains in a range, but the sustained rise in US yields would keep the bias towards more INR depreciation. The FOMC minutes today is an important data for the markets given the reset of expectations on rate hikes post the previous payroll data. While US yields have shot up significantly from the recent lows, USD has not had a commensurate move, as currencies such as EUR are also buoyed by their respective central bank expectations.

USDINR is clearly biased towards more depreciation but the pressure might not be significant enough to make the pair break the previous highs. The structural recession/liquidity related risks could wait until the second half of this year before making a dent on markets and the Rupee.

INR range in tact in muted trading. FOMC minutes key.

(21st February 2023, 7:00 AM)

INR likely to open around 82.70

Dollar traded flat and range-bound yesterday, due to it being a US holiday. US yields are trading flat. USDINR is in a tight range, waiting for further direction. Indian equity indices fell around 0.5% as Indian markets continue to trade jittery given the global set-up and Fed expectations.

Dollar Index is at 103.75. EUR is at 1.0680, GBP is at 1.2035 and JPY is at 134.30. US 10y is stable at around 3.82%. The Dollar has been well supported by solid data out of the US and a hawkish Fed narrative. Given that markets expect the peak fed funds rate at around the 5.25% zone, USD might not have much to go from here, unless the data on inflation and the economy continues to surprise on the upside. Next month’s data might set the medium-term tone for the USD.

USDINR is in a tight range, and with no major economic releases in store for the next few days, the base case scenario is of a muted Rupee in a range. Of course, the FOMC minutes, due this week, can change the market’s perspective, if the minutes show a different Fed from what has been seen in the press conferences and speeches. Domestic demand/supply dynamics have been improving due to the falling trade deficit, but whether the trend is sustainable or not can be known only in another couple of months.  The long-term prognosis for the Rupee remains uncertain given that global recessionary signs are yet to fructify into a full-blown recession and the Rupee could be vulnerable to such a possibility. The second half of this calendar year would be interesting for the Rupee and global markets.

USD steady and INR in a range. FOMC minutes the key data this week.

(20th February 2023, 7:00 AM)

INR likely to open around 82.75

Dollar is strong, and US yields are well supported at Monday open. Today is a US holiday, and one can expect muted moves. Dollar Index is at close to 104, with EUR at 1.0675, GBP at 1.2020 and JPY at 134.50. US 10y is firm at 3.82%. Friday saw some recovery in US equities, but they traded down for the full week. Indian indices remain jittery with ups and downs depending on each day’s news/events.

Among other data, this week has FOMC minutes release. The next big event remains the US payroll in the first week of March, especially after the last data blew through expectations and has led to a complete reset of Fed hike estimates. As for the Rupee, more range bound behavior can be expected this week, as the 83 resistance zone could not be broken last week despite global Dollar revival. While the rise in US yields is expected to keep INR under pressure, the lack of strong data triggers could keep the pair from a large move.

USD strong after solid PPI data. Risk appetite weak as is INR.

(17th February 2023, 7:00 AM)

INR likely to open around 82.80

Dollar traded strong, US yields moved higher and US equities fell after the US PPI data highlighted the stickiness of the inflation yet again and after Fed members reiterated the possibility of larger hikes in the future. Dollar Index is at 103.97 now with EUR at 1.0655, GBP at 1.1960, and JPY at 134.25. US 10y is higher at 3.87%. DOW fell 1.3% and NASDAQ was down 1.8%. Indian indices remained flat.

The US PPI came in higher than expected (at 6%). While the print is lower than the previous month’s, it is much higher than expected and showed that the inflation is not falling of a cliff as was hoped. This data and the tight labor market conditions bolstered the FOMC’s claim that they have to be vigilant with higher rates for longer, to tame inflation completely.

USDINR range is very much intact still, but the bias remains towards more INR depreciation. Structurally, there have been some improvements for the Rupee in terms of lower trade deficit for the past couple of months. But one has to wait and see if the change in FY brings back higher deficits. Irrespective of the size of the current account deficit, INR needs significant FII flows to sustain the CAD. The global situation is still not amenable to large inflows, especially as long as the sword of more Fed hikes hanging around. Further, the Fed has been draining USD liquidity at a rate of almost 100 billion a month and the effect of the liquidity withdrawal will be felt sooner or later, most likely during the second half of the year. The short-term outlook for the Rupee is that it will be range-bound around the current level, but the potential for long-term depreciation remains high.

USD positive after good US retail sales data. US yield curve inverts more. INR remains range bound for now.

(16th February 2023, 7:00 AM)

INR likely to open around 82.80

Dollar traded strong and US  yields rose yesterday after US retail sales data beat expectations and solidified the possibility of more Fed rate hikes for longer periods. Dollar Index is at 103.75, with EUR down to 1.0690, GBP at 1.2025, and JPY at 134. US 10y is at 3.81% now, and the US yield curve inversion has deepened further. DOW managed to close in positive territory driven by good tech stock performance. Indian indices remain supported, as Adani issues move to the backburners.

US retail sales came in at 3% – higher than market consensus, indicating that the economy there is still running a bit hot. The Fed would be forced to consider the data and keep rates higher for longer. Markets are now pricing in at least two more hikes until May and a pause thereafter. The US yield curve inversion has deepened, with the 10-2 spread trading at -89 bp. Such a deep inversion generally is indicative of a great recession, but markets tend to hope that every time the inversion happens, the situation is different at that time. We continue to believe that the receding liquidity and high rates will impact the economy in the second half of the year, bringing about a recession. Countries such as the UK are already on the brink, and the US economy could follow such a path by the September period.

USDINR has managed to hold the 83 levels and hence is expected to remain range-bound for a few days now, given most of the important data/events are done with. The next big data set would start during the first week of March with the US payroll data. Until then, the base case remains that of a moderate movement in Rupee from the current levels.

US CPI broadly in line. INR under pressure. US retail sales today.

(15th February 2023, 7:00 AM)

INR likely to open around 82.85/90

Dollar traded sideways yesterday, as the US CPI data release failed to move currencies significantly. The CPI at 6.4% was higher than expected, and the month-on-month number was also higher. But, the core inflation at 5.6% was in line with expectations. Even as CPI numbers showed markets that the path towards normalization of inflation is long drawn, the overall release was considered broadly in line since there was an expectation of hawkish Fed even before the data release due to the previous payroll data surprise. US yields went up slightly after being lower before the data.

Dollar Index is at 103.10 now, with EUR at 1.0740, GBP at 1.2165 and JPY at 132.65. US 10y is at 3.74%. US equities were mixed with DOW falling 0.45% while NASDAQ closed 0.6% higher. Indian equities did well yesterday and saw a jump of 1% odd, and today’s opening is expected to be flattish.

The CPI data has failed to move the markets in a meaningful way as the print more or less confirmed market expectations of a terminal fed funds rate of 5.25%. The last payroll data has already ensured that rate hike projections are reset towards a more hawkish stance and the CPI has just confirmed the same. Now that the inflation data is done with, USDINR still is range bound, but the appreciation potential for the Rupee has dwindled even more after the CPI confirmed the stickiness of inflation. The US retail sales data due today has assumed more importance after the CPI data failed to provide more durable clues to the market. Higher retail sales data would mean resilience of the economy enough to bother markets and lead to another leg of Dollar strength. In light of the last US jobs data, the retail sales would be viewed for confirmation of economic strength.

For now, USDINR remains in a range, but might still try to breach the upper 83 band based on today’s data.

US CPI today. Dollar subdued, USDINR in range.

(14th February 2023, 7:00 AM)

INR likely to open around 82.60

Dollar is mildly down, following a dip in US yields ahead of the all-important CPI data today. Dollar Index is at 103.15, with EUR at 1.0730, GBP at 1.2140 and JPY at 132.10. US 10y is at 3.69%. US equities jumped higher by 1%+. Indian indices traded sluggish and ended 0.4% down.

Indian inflation came in higher than expected (6.52% against 6.1% expected). Markets might be negatively impacted due to this inflation print, and another RBI rate hike would come to be expected by markets. Today’s US CPI is critical, as the Fed strives to set its narrative that inflation is still sticky, against market expectations of rate cuts this year.

USDINR is in a tight range now, and today’s CPI can trigger a move out of the range. If the CPI turns out to be higher, USDINR can try to break the 83 level and move higher. If the CPI does come lower than expected or broadly in line, the chance of a very sharp move down for USDINR is lower, since markets might wait for the US retail sales data to see if the economy is doing well given the last payroll boost.

USD strong and US yields higher as the week opens. US CPI tomorrow.

(13th February 2023, 7:00 AM)

INR likely to open around 82.60

Dollar has opened the week on a resilient note, supported by a sharp rise in US yields, as markets revisit some of the optimistic expectations about the rate cycle. Dollar Index is at 103.60, with EUR at 1.0670, GBP at 1.2045, and JPY at 131.70. US 10y is at 3.75%, after being as low as 3.4% before the payroll data. While the DOW ended Friday in positive territory, it ended the last week with losses.

This week has the critical US CPI release (due tomorrow), US retail sales, and then a bunch of Fed speakers on the roster. While the market took optimism from the FOMC meeting and started pricing in rate cuts in the second half, the jobs data shot down those expectations reflected in the surge in the US yields. The CPI data can make or break this trend and lead to a meaningful change in market expectations about the Dollar. If the CPI data confirms the expectation that it will run towards 3% by the second half of the year, then the Dollar weakness trend might again resume, with EUR going toward 1.09/1.10. But, any higher CPI number which keeps markets worried, has still the potential to take Dollar higher even from these levels.

USDINR has managed to hold below 83 for now, waiting for the CPI data. If the CPI is favorable, USDINR may test the 82 mark and below. But, INR does not have a structural advantage yet to move consistently higher against the Dollar. Even if the CPI is sharply lower, the chance that the Rupee would see a sharp appreciation to below 81 seems minimal at this point.

Rupee remains range bound. US yield curve inversion rattles markets.

(10th February 2023, 7:00 AM)

INR likely to open around 82.50/55

USD traded sideways yesterday, and US equities traded down as markets started to take note of the deepening curve inversion in the US yields (the 10-2 spread has deepened to -85 bp). Short-term yields have been moving higher after the payroll data, as markets price in more hawkish Fed than previously anticipated. The Dollar has been able to draw some strength from the rise in yields, reversing the weakness trend of the past month. Dollar Index is steady at 103.20, with EUR at 1.0730, GBP at 1.2110 and JPY at 131.70. US 10y is at 3.67%. DOW fell 0.7% again yesterday. Indian indices ended mildly in the green (0.2%).

USDINR is now trading firmly in a new range between 82 and 83 and can be expected to remain so until the US CPI day on the 14th. Markets are now in a quandary after the last week’s US payroll data and are no longer sure of the interest rate pause in the US. The CPI data release has the potential to break this uncertainty either way. The yield curve inversion signal has been historically been highly indicative of a recession and hence a deepening inversion is something that is worrisome to most risk assets. The structural issues for the Rupee run the risk of being compounded more by a possibility of a recession in the next few months. The prognosis for the Rupee over the longer term remains bleak, though the short-term is very much data-dependent.

Rupee stable as RBI hikes. Dollar range bound for now.

(9th February 2023, 7:30 AM)

INR likely to open around 82.65

Dollar is trading steadily and US yields remain elevated after more Fed officials yesterday tried to keep the hawkish narrative going in their speeches. All the Fed members who spoke reiterated the stickiness of inflation, especially given the tight labor market indicated by the blockbuster payroll report and the historically low unemployment rate in the US. Dollar Index is at 103.30, with EUR at 1.0725, GBP at 1.2070 and JPY at 131.60. US 10y is at 3.61%. US equities fell as markets re-assessed the interest rate path after FOMC speakers’ comments. DOW fell 0.6% while the tech index fell 1.7%, driven by a fall in Google Stock. Indian equity indices managed a 0.6%+ rise, as Adani stocks stabilized with each day.

INR traded sideways yesterday with a downward bias after the RBI hiked rates by 25 bp. The RBI commentary pointed to global geopolitical and commodity price risks and seemed to indicate that inflation still has an upward bias. USDINR is now in a new range between 82 and 83, with a slight bias towards 83. The range can be broken again after the US inflation data is due on the 14th. If the CPI comes in even mildly higher than expectations, there would be a sharp reaction in markets, including a surge in USDINR. On the other hand, if the CPI data confirms the recent downtrend, the fall in USDINR could be relatively milder, as market expectations currently are slightly reset after the last payroll data. For the next few days, the current range in USDINR might hold with relative ease.

INR remains vulnerable as the global Dollar manages stability. RBI policy today.

(8th February 2023, 7:30 AM)

INR likely to open around 82.80

Dollar is mildly weaker after Powell speech turned out to be a non-event as markets could not get much in the way of policy and outlook. Dollar Index is slightly down at 103.20, with EUR at 1.0730, GBP at 1.2050 and JPY at 131.10. US yields remain fairly stable and US equities ended higher in a choppy trade. DOW is up 0.8%. Indian indices are down ahead of the RBI monetary policy today.

RBI policy might not move the Rupee much today, though some minor reaction to the policy is possible, if there are any surprises. The broad expectation is for a 25 bp hike, though some believe that the RBI may even pause to give inflation some time. Powell’s speech shied away from providing major clues to the policy narrative going forward, though it mentioned that 2023 is a year of sharply falling inflation. Dollar is marginally down after the speech, but the weakening momentum seems to be still stalled.

INR remains vulnerable as the global Dollar weakness persists. USDINR could continue to push towards 83 in the next few days until the all-important US CPI data decides the medium-term direction for markets.

INR remains vulnerable as the global Dollar manages stability. RBI policy today.

INR is under pressure as the global Dollar takes a foothold. Powell’s speech is in focus.

(7th February 2023, 7:00 AM)

INR likely to open around 82.70

The post-US payroll Dollar strength momentum remained intact yesterday, and US yields continued to creep up, as expectations of a dovish Fed pause got nullified by the blockbuster jobs report. Dollar Index is at 103.35, with EUR at 1.0735, GBP at 1.2045, and JPY at 132.40. US 10y is above 3.6%, after being closer to 3.4% before the payroll data. US equities slipped again yesterday, with DOW ending mildly negative at 0.1%, and S&P 500 seeing a cut of 0.6%. Indian indices ended 0.5% odd lower even as major Adani stocks stabilized.

The unexpected surge in US job numbers has taken markets by surprise. Dollar reversed some of its recent losses, which also meant that an already-vulnerable Rupee had to suffer meaningful losses in the past few days. Tomorrow’s RBI policy is unlikely to lead to an immediate move in the Rupee. Markets expect a 25 bp hike in the Repo rate tomorrow followed by a pause, as inflation is already below the RBI’s target band. The more important event would be today’s Powell speech. After stoking dovish expectations in the FOMC press conference, it would be interesting for markets to see if Powell continues a similar narrative or if he tries to temper down market euphoria.

USDINR is now firmly in a higher range with a bias towards reaching the 83 levels. As we have been reiterating, INR remains vulnerable structurally, and any sort of negativity in the global environment will tip the scale toward INR depreciation. In the short-term, even though the bias is toward depreciation, the global Dollar weakness trend has not run its course and hence INR might still see some stability. The bigger risks of recession globally have some more time to play out and hence the long-term outlook for the Rupee remains vulnerable even from hereon.

Dollar weak after bumper US payroll data. INR under pressure.

(6th February 2023, 7:00 AM)

INR likely to open around 82.20

Dollar got a boost on Friday after the US jobs data release showed an unexpected surge in jobs-added for January. Dollar Index is trading at 103.05 now, with EUR below 1.18, GBP sharply down at 1.2035 and JPY weaker at 132.30. US equities ended Friday in the red. Dow fell 0.4% while S&P 500 saw a 1%+ fall. US yields jumped sharply after the jobs data brought back the possibility of a more hawkish Fed. Indian equities closed 1.5% higher after some stability was seen in Adani stocks.

US jobs data release came as a surprise to markets. The data release showed 517k jobs were added last month against expectations of a downtrend towards 185k. The previous month’s number was also revised higher. The data showed that the economy is yet to suffer significant adjustments in the labor market despite the rate hikes till date. The wage growth was in line with expectations. This release has now opened up the possibility that recession is still a while way for the economy and that the Fed would be very comfortable holding a high fed funds rate for longer. Tuesday’s speech from Powell has now taken on even more importance after the data.

This week is relatively quiet on the data front, but the Dollar weakness trend seems to have paused for now. As for the Rupee, Adani-related pressure has ensured that no benefit of Dollar weakness could accrue to the Rupee. Now that the Dollar has stabilized well, as seen in the fact that Dollar Index is back close to 103, INR would find it very difficult to sustain appreciation. Until the US CPI release on the 12th, Rupee could remain under pressure, depending on how the domestic equity market factors play out.

INR under pressure despite global Dollar stability. ECB and BOE raise rates but indicate a pause.

(3rd February 2023, 7:00 AM)

INR likely to open around 82.10

Even as the global Dollar remains in a range, INR is being pressured by concerns around the Adani group and the concomitant FII outflows. Dollar recovered some losses after the ECB and BOE rate decisions. Dollar Index is back around 101.70, with EUR below 1.09, GBP at 1.2210, and JPY at 128.70. DOW managed a marginally negative close despite sharp jumps in tech stocks. Indian equity indices remain sober even as Adani group stocks are hammered.

ECB and BOE both raised rates by 50 bp. While the ECB signaled another 50 bp in the next meeting, BOE indicated a pause in the cycle. EUR shot up after the ECB hike to trade above 1.11+, but reverted after the press conference, as markets perceived dovishness in tone. BOE changed the statement language to imply that forceful future hikes in rates are now a thing of the past.

INR moved against the global trend yesterday and was not able to capitalize on the Dollar weakness at all. Fears of systemic risk from Adani group issues, and the fact that FIIs are selling Adani stocks massively put pressure on the Rupee. As a result, cross-INR rates have gone up presenting a good opportunity for exporters. As for USDINR, the range between 81-82 is now broken and one can expect the Rupee to remain under pressure since the global Dollar has also recovered some of the post-FOMC losses. The rate at which Adani stocks have been sold off does indicate the market’s perception of significant issues with the group, but more important for the economy and currency is the banks’ exposure to the group and how systemic the problem could evolve to be. Given the event risk now, INR might stay under pressure irrespective of global developments for the next few days.

FOMC hikes 25 bp as expected. USD weaker.

(2nd February 2023, 7:00 AM)

INR likely to open around 81.65/70

Dollar is sharply down post the Powell press conference, especially against the EUR. INR did not react much to the union budget as expected. Dollar Index is now at 100.85, with EUR above 1.10, GBP at 1.2370, and JPY at 128.70. US yields are down after the Powell presser, with the 10y lower at 3.4%. DOW closed flat after being down intra-day while the tech index is up 2%. Indian equity indices ended 0.3% higher, despite the carnage in Adani stocks. Today is going to be volatile for Indian equity indices after the decision to withdraw the Adani FPO hit newswires last night.

The FOMC hiked 25 bp as expected and retained hawkish language that more hikes are needed, and an extended pause is warranted indicating that they would not want rate cuts to start soon. The statement moved from focusing on the “pace” of future hikes to the “extent” of hikes, implying that a pause in the rate hike cycle is coming. Markets reacted negatively to the statement, only to turn positive after Powell tilted dovish in the press conference. Among other aspects in the presser, the fact that he seemed to take the ongoing easy financial conditions lightly, gave markets the signal that the Fed is fine with the current environment. While acknowledging that below-trend growth is likely in the coming months, Powell said it is needed for inflation to stay low.

In all, the FOMC press conference turned out to fuel market expectations of rate cuts this year. Now expectations are for a 50 bp cut by Jan 24, despite the Fed indicating they would prefer to hold for longer. Dollar has fallen as a result, especially as other central banks such as the ECB are still in the hawkish zone.

On the domestic front, the union budget proposed large infrastructure spending, and some tax sops for the middle class with the tax structure trying to lure them away from savings into consumption (by removing tax deductions for savings schemes in the new regime tax structure). While fiscal discipline is promised, the overall move towards lower fiscal consolidation by 2026 remains tricky. Indian yields were docile after the budget. USDINR though could not see much to react to.

With the FOMC providing dovish fuel to markets, one can expect some more sustenance to the current USD weakening trend. USDINR still remains in the current range but might drift lower towards the lower end at 81 in the next couple of weeks, provided the global Dollar move sustains after the coming ECB and BOE rate decisions. Friday’s US jobs data could cause some moves in currencies, depending on the wage growth numbers. The FOMC has managed to keep markets happy, but with enough caution to not cause euphoria. The next critical data point for markets and the Rupee is the US CPI on the 14^th of this month.

FOMC today as also is the Union budget. INR range intact.

(1st February 2023, 7:00 AM)

INR likely to open around 81.75

USD is mildly weak ahead of the FOMC statement/presser today, but Rupee is under pressure despite the benign Dollar. Dollar Index is just below 102, with EUR at 1.0860, GBP at 1.305, and JPY at 130.10. US yields remain muted, while the US equities had a solid day yesterday. DOW ended 1.1%, while NASDAQ jumped 1.7%. Indian indices traded flat and listless ahead of the union budget today.

INR remains vulnerable despite the ongoing Dollar weakness trend, and yesterday saw more pressure on the Rupee probably due to the economic survey yesterday and the union budget event today. The economic survey, while highlighting India’s growth prospects commented about more depreciation possibility for the Rupee and the potential for elevated current account deficit going forward.

Today’s budget might not have a direct impact on the Rupee, but markets hope that a reform-oriented budget can attract FDI and FII flows eventually, leading to some solace for the Rupee. The primary factor for the Rupee in the short term remains the FOMC result. It all depends on how Powell would manage to keep the narrative balanced to not risk either a complete meltdown or a euphoric rise in markets if he sounds too dovish. The base case remains for a 25 bp hike in rates, but with a signal that the cycle is ending. An outcome too divergent from expectations today can pull USDINR well out of the current range.

FOMC starts today. Currencies trade sideways.

(31st January 2023, 7:00 AM)

INR likely to open around 81.50/55

Dollar is mildly stronger, and equities are jittery, ahead of the start of the all-important FOMC meeting today. Dollar Index is just above 102, with EUR hovering around 1.0850, GBP at 1.2360, and JPY at 130.30. DOW is down 0.8%, and S&P 500 more so as tech stocks were down sharply. While there is the confidence that the FOMC would move to a neutral stance in this meeting, there is some jitteriness as well that they might continue to be hawkish in their tone, in which case there could be a possibility of a sell-off in markets.  Indian equities managed a positive day and broke the post-Adani weakness yesterday.

Despite the FOMC rate hikes to date, the financial conditions index in the US remains reasonably easy, as falling bond yields and rising equity markets made the overall conditions favorable. The FOMC might want to ensure that the inflation expectations remain anchored and hence want the financial conditions to tighten. The odds remain in favor of a hawkish messaging tomorrow.

USDINR is trading in a tight range and has been for the past few days. Today might not be an exception to this trend, and the range-y behavior could continue until the FOMC statement tomorrow.  Structural factors remain deterrents against any meaningful Rupee appreciation, despite the global Dollar trend. While the long-term outlook remains uncertain for the Rupee, the short-term behavior is event-driven – first by the FOMC and then by the US CPI.

INR stable ahead of FOMC week.

(30th January 2023, 7:00 AM)

INR likely to open around 81.50

Dollar remains in a range, stock markets cautious and risk appetite measured, as the important FOMC week is underway. Dollar Index is at 101.75, with EUR at 1.0870, GBP at 1.2390 and JPY at 130.10. US equities were positive on Friday and the futures have opened in a subdued fashion today. Indian equities remain vulnerable, as markets are rocked by the Adani report from Hindenburg. Friday saw Nifty fall 1.6%, and Bank index fall 3%+ on concerns that a collapse in Adani group can trigger systemic issues, given bank exposures. The stock market turbulence could keep the Rupee a bit vulnerable for the next few days.

The FOMC is slated for 1^st Feb. Markets are expecting just a 25 bp hike and then a pause. The real risk is now if the Fed either goes with a 50 bp hike or if they keep their projections up for future meetings. Fed speakers have been trying to communicate that the inflation is still a concern, and that a rate cut is out of question. While the recent US growth data shows a solid economy still, some pockets such as housing are seeing stress and consumer debt servicing is coming under pressure. Markets hope that the Fed would pause soon and start cutting rates once the inflation comes down to the target level.

INR range has gone unchallenged in the past few days and the next couple of days before the FOMC might see a similar behavior. Indian equity markets do present a headwind for the Rupee, which is not able to capture much benefit of the Dollar weakening. For now, range-bound INR remains the base case scenario.

​Dollar weak on strong risk appetite post good US macro data. INR still range-bound.

(27th January 2023, 7:00 AM)

INR likely to open around 81.45/50

Dollar is weak and risk appetite strong, after US data showed that the economy is still doing well, despite the rate hikes till date. Dollar Index is at 101.60, with EUR at 1.09,GBP at 1.2415 and JPY at 129.80. US yields are slightly higher after the US GDP and durable goods releases painted a rosy picture of the economy. DOW ended yesterday 0.6% higher, while S&P 500 shot up by 1.2%, driven by tech stocks.

INR continues in its current range and is trading with a neutral bias. While the Dollar weakness is a positive factor, domestic flows have countered the Dollar trend, keeping INR range bound. The latest data out of the US, while assuaging the markets that recession is still a while away, might embolden the Fed to keep their hawkish tone for longer time. The current range of USDINR could continue until the 1^st FOMC statement. The big question for markets will be whether the Fed moves with 25 bp as expected and delivers a message of pause in rates, or whether they surprise the markets with a hawkish stance and even worse, a 50 bp hike. Until the FOMC though, one can expect a range-bound Rupee.

INR under pressure even as global Dollar wavers.

(25th January 2023, 7:00 AM)

INR likely to open around 81.50/60

Even as USD struggles to put up a strong performance against most majors, Rupee has not been able to benefit much from the Dollar weakness. Yesterday saw a reversal again in the Rupee, as fundamentals such as lack of flows and low forward premium continued to dominate the global Dollar weakness advantage. Dollar is trading lower today – Dollar Index is at 101.70. EUR remains the primary driver of Dollar weakness. EUR is at 1.0890, GBP is at 1.2320 and JPY is at 130.30. US equities traded mixed – DOW gained 0.3% while other indices ended in the red. Indian indices also traded flat yesterday.

INR is clearly being pressured by fundamental factors. Importer demand has been strong due to low forward premia and attractive hedge rates due to the dip in USDINR, while exporters remain on the sidelines waiting for a reversal in both spot and forward premium. Even as the global Dollar weakness trend is established well, USDINR seems to have hit a bottom around the 81 levels in the short term. The next critical event in the form of the FOMC meeting on the 1^st might provide either momentum towards 81 and below or lead to a sharp move back above 82.50, depending on how hawkish the Fed is. The long-term risk factors such as recession remain very much in play and the second of this year could see risk aversion-led moves in markets and the Rupee in a more pronounced way.

INR remains subdued despite Dollar weakness. USDINR back in the range.

(24th January 2023, 7:00 AM)

INR likely to open around 81.40

Even as the Dollar remains subdued, INR has failed to yet again break the 81 mark decisively and reversed back to the middle of the range. Dollar stabilized yesterday after the previous day’s sharp correction. Risk appetite remains strong in US markets. S&P 500 broke a long-term trendline signaling a rally from here. Dollar Index is at 101.80, EUR is at 1.0875, GBP is at 1.2380 and JPY is at 130.40. DOW ended 0.75% stronger, while S&P 500 jumped 1.2% driven by a surge in tech stocks. Indian indices traded higher by 0.5% buoyed by the positive moves in US equities.

With no significant data in the offing for the next few days, currencies including the Rupee would trade based on technical and news-related factors. US equities have started to now see a sustained move higher in an indication that markets are not pricing in a recession possibility much despite the persistent inversion of the yield curve. Even though the Fed hiked aggressively until now, the financial conditions in the US have been fairly benign, driven by favorable equity performance and moderate corporate credit spreads. While inflation is now expected to completely ease, a resurgence in inflation driven by China is still a risk the Fed might not want to take. We can expect the messaging from the Fed to keep reiterating more rate hikes. Further, typically monetary policy works with a lag of 9-12 months and hence one can expect a deepening of recession soon in the US, which markets are not expecting for now.

USDINR failed to break the 81 levels yet again, implying a very strong support zone in that area. Rupee has fundamental issues in the form of a lack of flows, a high current account deficit, and a low forward premium, which are preventing a very large appreciation for now. Rupee requires a very strong Dollar move globally to take it meaningfully lower. The next milestone is the 1^st Feb FOMC until which INR might stick to its current range provided the Dollar does not see a very large depreciation pressure.

Dollar weakness trend accelerates. Rupee in a comfortable position for now.

(23rd January 2023, 7:00 AM)

INR likely to open around 81.00

Dollar retreated on Friday as risk appetite picked up pace and Fed dovish expectations overshadowed any concerns about recession. EUR is sharply higher on expectation of ECB’s hawkish stance for the next 2 meetings. US stock markets were up sharply on Friday. US yields remain subdued as rate cut expectations continued to get entrenched.

Dollar Index is at 101.45, with EUR trading close to 1.09, GBP at1.2430. JPY is not able to capture much benefit from the ongoing Dollar weakness trend, as the BOJ policy of yield curve control keeps the yen vulnerable. US equity indices rose sharply on Friday, with the DOW seeing a 1%+ rise and NASDAQ jumping by 2.6%. Indian indices fell by 0.4% odd on Friday, but are set for a good opening today.

INR is now looking to break the 81 barrier and go lower from here. Markets now believe that the Dollar weakness trend is a long-drawn one as Fed is expected to stop hikes soon and revert to rate cuts by the second half of the year. Markets for now, are discounting the possibility of a deep recession despite the indications of stress in certain parts of the US and global economy. The Dollar weakness momentum is strong as the current projections of US CPI are that it will revert to 2-3% range by June of this year. The main question on which market seems to have pinned its hopes is whether the Fed will rush to cut rates due to recessionary conditions and risk a reversal in inflation trend. The Rupee remains stable and is benefiting in the short-term. But the medium to long-term prognosis remains an issue as global recessionary conditions are set to deepen in the coming months. The next leg of the current move can be more pronounced post the 1^st Feb meeting.

Stable and uneventful markets. Fomc remains the next milestone.

(20th January 2023, 7:00 AM)

INR likely to open around 81.30

Currencies were stable even a equities traded cautious yesterday. Dollar Index is slightly lower at 101.80, driven by EUR at 1.0830, GBP at 1.2390 and JPY at 128.55. US yields remain subdued as safe-haven flows keep yields low. DOW traded 0.75% lower on concerns that the Fed may hike rates more than necessary and cause a deep recession. Indian indices also have been trading subdued, with yesterday seeing a 0.3% fall for the frontline indices.

Rupee has now been settling in a new range between 81 and 82 with a neutral bias. The move towards 82 has been sold into quickly, while at the same time, the 81.25 zone seems to be holding well. The risk event for markets remains the FOMC meeting on the 1^st and until that day, one can expect a range-bound move in USDINR. With most data for the month out of the way, the day on day move in currencies until the Fed meeting would be based on FOMC member comments and technical positioning of the market.

Rupee stable amidst volatile Dollar. US retail sales signals slowdown.

(19th January 2023, 7:00 AM)

INR likely to open around 81.40/45

Dollar traded volatile yesterday, reacting to various data and events. Rupee was helped by a Dollar retreat during the afternoon trade yesterday, leading to a low close for USDINR. Dollar reversed course and strengthened in the NY session to close higher. While the BOJ decision to continue their policy led to a sharp fall in JPY, the move got reversed. The US retail sales came in lower than expected, after which Dollar initially fell, but recovered after Fed members spoke about the need to keep rates above 5% to fight inflation. The US PPI inflation, while showing a downward trend, came in higher than expected. US equities ended sharply lower, while Indian indices had a good day.

Dollar Index is now at 102.20, with EUR stable at 1.0790 (after trading 1.0880 yesterday), GBP is at 1.2320 and JPY is at 128.4 (traded 131.4 yesterday). GBP has been outperforming other majors as UK inflation still remains above 10.5%, though trending down. DOW cracked 1.8% yesterday, after weak retail sales data triggered growth fears and as Fed speakers continued to stress on higher rates to fight inflation. Risk aversion helped Dollar strength.

As for the Rupee, the fall from 81.80 level towards 81.30 yesterday, is a good technical indicator for further downside to USDINR. But the 81/81.25 zone is a good support zone for USDINR and as long as these levels hold, the base case remains that of a range-bound Rupee. Global Dollar remains in a range still waiting for the next Fed meeting to provide the direction. And, Rupee might follow a similar pattern until that day.

Rupee under mild pressure despite subdued global Dollar. Structural factors assert.

(18th January 2023, 7:00 AM)

INR likely to open around 81.65/70

Dollar traded subdued (except against EUR) as market’s inflation expectations remain well anchored. INR could not hold on to the gains of last week and has started to reverse course yet again as fundamental issues trump the global Dollar weakness. EUR dipped on expectations that ECB might also go slow on rate hikes after the next meeting. US equities traded mixed, though DOW fell sharply due to underwhelming quarterly results miss by Goldman Sachs. Indian equity indices did well yesterday, following the previous day’s good global equity performance.

Dollar Index is now at 102.20, with EUR at 1.0780, GBP at 1.2280, and JPY at 128.90. US yields are steady and the 10y is at 3.54%. DOW ended 1.1% down, while S&P 500 closed 0.2% down. Nifty was higher by 0.95% higher in yesterday trading. USDINR could not hold to the opening lows and traded 81.80+ yesterday.

USDINR remains in a new range between 81 and 82, but the bias towards 81 seems to have dissipated now. Fundamentals for the Rupee remain shaky, as macro picture of flows and high current account deficit, is further sullied by the low forward premium. There is a structural pressure on the Rupee now and hence it is not able to capture much benefit commensurate with its global peers. News of potential large inflows (Adani FPO or Exim bond etc.) might keep the Rupee from large depreciation yet, and the next big event remains the month-end FOMC. Until then, a range-bound Rupee remains the base case scenario.

INR gives up some gains as Dollar stabilizes. FOMC remains the next big trigger.

(17th January 2023, 7:00 AM)

INR likely to open around 81.65

Rupee could not hold on to the gains yesterday and is being pressured again as structural factors remain a deterrent for its sustained appreciation. Dollar is also slightly higher. Yesterday was a US holiday and hence the limited action overnight. Indian equities traded subdued yesterday. Dollar Index is at 102.15, EUR is at 1.0820, GBP is at 1.2190 and JPY is trading at 128.80. US 10y is at 3.53%. Nifty is down 0.3%.

USDINR has not been able to breach the 81 support and is now back above 81.50. The fundamental picture for the Rupee remains unfavorable, as persistent current account deficit is aggravated by capital outflows. Further, the low forward premium remains a negative factor for the Rupee, as exporters shy away from hedging and importers look to cash in on the low forward premium.

Dollar has been able to hold, albeit at lower level, and is now waiting for the next trigger in the form of the FOMC meeting. This week’s US retail sales release might create some flutters if it indicates signs of either deep recession or reasonable strength of the economy. The long-term possibility for deep recession and events leading to market panic remains tangible, and we continue to believe that any Dollar weakness now could reverse into Dollar strength driven by risk aversion in the coming months.

USD remains subdued. INR in a comfortable zone. No major market movers this week.

(16th January 2023, 7:00 AM)

INR likely to open around 81.30

Dollar remained under pressure on Friday, and the post-CPI Dollar trend remained intact. US equities continue to see positive moves, and US yields remain docile as dovish Fed expectations take root more deeply. Dollar Index is at 101.70 now, with EUR at 1.0860, GBP at 1.2260 and JPY at 127.70. EUR remains strong relative to GBP as the EU inflation remains firm and ECB is expected to be hawkish for longer time relative to the Fed. JPY has seen a positive move, aided by higher than expected Japanese PPI. Markets now expects that the BOJ will abandon their yield curve control program sooner or later given the higher inflation. US equities ended the last week on a positive note (DOW +0.35%). Indian indices had a positive with a 0.5%+ jump, following the positivity in global markets.

INR has a managed to appreciate close to 81 level but has seen some resistance at that level. The fundamental picture for the Rupee remains shaky as the problem of high current account deficit is compounded by FII outflows.  Given the sharp correction in the US CPI, markets now expect the Fed to talk dovish and even project some rate cuts later this year or in early 2024. Until Feb 1^st FOMC statement, there could be some volatile data/comment-driven moves biased towards Dollar weakness against crosses.  There are some important data releases / events such as US retail sales, BOJ policy decision this week, but the critical event remains the 1^st Feb FOMC. USDINR might settled into a new range around 81-81.50 band for a few days, until there is some clarity on the Fed thought process.

Dollar beaten down after soft CPI data. INR at an advantage.

(13th January 2023, 7:00 AM)

INR likely to open around 81.15/20

Dollar got beaten down again yesterday, after the US CPI data confirmed market expectations that the US inflation is sharply coming off. The CPI printed at 6.5%, in line with expectations and markets took off on a relief rally, bringing the Dollar down further. Dollar Index is at 102 now, with EUR above 1.0850, GBP at 1.2215 and JPY at 129. EUR has been the biggest beneficiary of the colling inflation trend. DOW rose 0.65% as inflation release ratified market expectations of the trend. US yields are down sharply, with the 10y falling to 3.45%. The 2y treasury is lower than the O/N  Fed funds rate, indicating market hopes of a cut in rates in the coming year. Indian equities remain subdued despite the global positivity, as the FII outflows continue to play spoilsport even though domestic investors are lapping up stocks. Nifty ended 0.2% lower yesterday.

The inflation data is exactly in line with expectations (both monthly and annual as well as headline and CPI numbers). Since markets were secretly hoping that the print will come lower than expectations, as was the case in the last two releases, the fact that the release was just in line might be a slight negative for the markets. We must watch the market reaction today and another couple of days, to gauge whether there would be any reversal in the trends as it typically occurs after a data event. It is unlikely that the Fed will pivot to dovishness based on this print since the inflation remains much more than their target level.

INR is clearly on the road to break 81, given the strong global momentum. The Indian CPI has also been on the lower side (latest being 5.72%) and hence the RBI can be expected to go slow on further hikes. The forward premium might remain subdued in coming weeks, capping the potential for a very sharp INR appreciation. That said, the short-term Dollar weakness momentum is strong enough for the Rupee to have benefited thus far. From here on, one has to watch for couple of days whether there would be any reversal in markets or whether the euphoria remains firm until the next Fed meeting.

INR upbeat on waning Dollar. All-important US CPI today.

(12th January 2023, 7:00 AM)

INR likely to open around 81.60

Dollar remained subdued and risk appetite was strong yesterday on bets that the latest inflation data would cement the declining trend. Dollar Index is at 102.85, with EUR at 1.0765, GBP at 1.2160, and JPY at 131.75. The US yield curve inverted more as short-term yields are resetting towards expectations of lower rates this year and next couple of years. Markets continue to ignore the historical correlation between deeply inverted yield curves and recession. US equities rose again yesterday with the DOW seeing a 0.8% jump and NASDAQ moving up by 1.8%. Indian indices ended slightly lower, by around 0.1%.

Today’s inflation data is one of the most critical points in the recent period, as it has the potential to turn the narrative completely on either side. Markets continue to expect a sharp correction in CPI and even expect a 2%-3% range by middle of this year as the previous year’s high base comes into effect. The Rupee is able to capture some benefit of the ongoing reversal in inflation expectations and is set for more if the CPI comes in lower. Underneath the interest rate expectations, the liquidity from the Fed continues to recede each month, and with ECB also potentially expected to clamp down on their balance sheet size, the negative impact of liquidity withdrawal will come to the fore sometime this year. Further, it is naïve to expect that 4.5%-5% rates in the US and high rates in the EU would not result in recessionary pressures at all. The depth of the coming recession will surprise markets in our view and lead to resetting of risk appetite again.

The second half of this year might turn out to be very volatile, fraught with risk aversion and panic events in different segments of the market. History shows that almost all rate hike cycles of the Fed over the past 25 years have led to a sharp market correction just as the cycle ends. We are almost in that stage and things are not different this time around.  We continue to believe that the more the Rupee appreciates in the short-term, the more the future pain would be for the Rupee.

INR breaks below 82 on ongoing Dollar weakness. Tomorrow’s CPI critical.

(11th January 2023, 7:00 AM)

INR likely to open around 81.70

USDINR fell sharply yesterday after days of hanging on to the range above 82. The relentless pressure on the Dollar owing to changing Fed expectations has finally led to some relief for the Rupee. Even as Indian equity indices fell 1%+, INR has managed to reap some benefit of the ongoing Dollar weakness trend. Dollar Index has managed to stabilize at 103 level. EUR is the primary driver of the Dollar weakness now, as hawkish ECB expectations outweigh the potential for EU problems later on.  EUR is at 1.0730, GBP is trading at 1.2145 and JPY is at 132.45. US yields are slightly higher. US equities managed a 0.5%+ jump after Powell refrained from commenting on the economy and monetary policy in his speech yesterday, which was a relief to markets.

USDINR is now in a new range, but the underlying momentum could carry it a bit lower from here. Tomorrow’s CPI is important now, and any significant deviation of the data from expectations can trigger significant moves in markets and the Rupee. Dollar has managed to stabilize ahead of the inflation data, as US yields held their ground well yesterday. Given that the risk appetite in global markets is not yet in the euphoric zone, one can expect that the current move in the Rupee could stall once the momentum ends. Structurally, the Rupee remains weak and the coming months could see a revival in Rupee weakness again. Any dip in USDINR remains a buy for the longer-term. Importers can look to increase their hedge ratios now, while exporters might considering lightening their hedge ratios to prepare for the next depreciation move.

Dollar retreats yet another day. INR benefits.

(10th January 2023, 7:00 AM)

INR likely to open around 82.15/20

Dollar weakness trend picked up steam yesterday as hopes of Fed pause got more entrenched. There are expectations that the Thursday’s inflation number would clearly show a downtrend and seal the deal on a Fed pause soon. Markets are pricing in just a 25 bp hike the next meeting. Dollar Index has fallen below 103 as EUR trades above 1.1725, GBP at 1.2170 and JPY at 131.70. The bulk of the Dollar Index move is driven by an appreciation in EUR as EU inflation remains stickier than US inflation. US equities ended the day lower and the previous day’s rally could not be sustained. Indian indices shot up 1.3%+ yesterday, following the US moves on Friday.

INR is now in a sweet spot, though not benefiting as much as the crosses such as EUR have. The Dollar weakness trend has picked up momentum despite the Fed talking hawkish. Even as macro data suggests impending recession, markets seem to weigh Fed dovishness more than the recession possibility for now. The USDINR range is still intact, though the bias is firmly towards some INR appreciation. If the CPI comes in lower than expected, we can expect this leg to extend and take USDINR towards 81.50 or below. EURUSD is poised to move towards 1.10 level, if CPI data cooperates. The long-term consequences of high rates are yet to be felt in the markets and we expect a few more months of calm before the risk aversion wave hits. The long-term view remains bearish for INR as both structural domestic and global issues come to the fore in 2023. Any short-term dip in USDINR remains a buying opportunity.

Dollar on the backfoot after US data suggests slowdown. Risk appetite strong on hopes of Fed dovishness.

(9th January 2023, 7:00 AM)

INR likely to open around 82.30

Friday’s US jobs data and a sharply lower ISM services data triggered a reversal in Dollar strength and a solid equity rally combined with a correction in US yields. Dollar Index is down to 103.50 now, with EUR at 1.0665, GBP at 1.2110 and JPY at 131.90. US 10y has fallen to 3.55%. US frontline indices saw a 2.1%+ jump as fears of aggressive Fed hikes abated after the macro data. While Indian indices fell on Friday (down 0.7%), today’s Asia opening suggests optimism.

While the US jobs data showed a solid 223k jobs added (200k expected), the wage growth was lower than expected. Markets ignored the headline jobs number but latched on to reducing wage pressures. The ISM services came in below 50 (contractionary zone) indicating a fast correcting economy. The data spurred hopes that the Fed would no longer be too aggressive since the falling ISM is proof that the economy is cooling off fast. Markets are in a state where they treat bad data as good as long as it staves off Fed aggression. But there would be a limit to which this thesis can be stretched, since worsening data means a recessionary economy and higher risks. The next few months would be a tussle between the recession possibility and the Fed expectations.

INR seems to be benefiting finally from the weak Dollar environment. While the range is still intact, the bias is now towards some Rupee appreciation, but not yet enough to take USDINR significantly lower. The structural issues of low forward premium and high CAD remain deterrents for a meaningful and sustained INR appreciation. The next trigger is the all-important US CPI data due on Thursday. If the CPI also ratifies the market hopes that inflation is clearly on the downtrend, then one can expect some sustainability to the INR rally. If, on the other hand, there are signs that inflation remains sticky, then a sharp global reversal in the Dollar is very much possible. Until Thursday, the bias remains towards INR stability/appreciation given the global environment. The long-term recession trends could come into picture in the second half of this year, creating a market panic/risk aversion sentiment. But that possibility is a few months away.

Dollar strong, but Rupee range still intact. US jobs data today.

(6th January 2023, 7:00 AM)

INR likely to open around 82.65

Dollar revived yesterday and US equities fell after the ADP private jobs data beat expectations and jobless claims fell, triggering fears that the robust job market would embolden the Fed to be more aggressive. US equities fell for another day yesterday, with a 1%+ cut to the main indices. Dollar Index has jumped close to 105, with EUR falling sharply to 1.0525, GBP to 1.1910 and JPY to 133.75. Today’s non-farm payroll data, if is more than the expected 200k, can trigger further Dollar strength, as any indication which suggests a strong labor market is a negative for the markets in the short-term. In addition to the US data, today’s EU inflation release can potentially move EUR. The expectation is a fall in the EU inflation rate to 9.7%, going by the recent data out of Germany and other countries.

USDINR range is still intact, and the Rupee has managed to stave off a move towards 83+ for now. But the global Dollar strength trend has the potential to pick up steam, if the jobs data today and then the CPI data on the 12^th come in hotter than expected. For the next few days, INR can be expected to stick to the current range until either an overwhelming risk aversion wave takes the Dollar higher or a higher-than-expected inflation data triggers more rate hike fears and moves the Dollar. The best strategy to hedge in this environment is to use option structures which provide some upside if there is a counter-trend move in the Rupee.

INR range remains intact. FOMC minutes signal continuing high-rate environment.

(5th January 2023, 8:00 AM)

INR likely to open around 82.70

Dollar is mildly weak despite the FOMC minutes signaling longer period of high rates in the US. The minutes showed that the Fed thinks that the rate pause/cut expectations are unwarranted, and that inflation will remain elevated compared to their 2% target. The Fed does not expect any cut this year, contrary to market expectations of a cut. The minutes acknowledged that the inflation might have peaked but made it clear that the chances of a rate cut are minimal. Markets have moved the hike probabilities marginally higher post the minutes. While the US equities fell post the release of the minutes, they recovered somewhat by the day-end, ending on a positive note. Dollar could not manage much benefit from the data event.

Dollar Index is at 103.90, with EUR at 1.0620, GBP at 1.2050 and JPY at 132.05. US 10y is slightly subdued, at 3.7%. DOW managed 0.4% move higher, while the tech index jumped 0.7%. Indian indices saw a sharp 1%+ fall yesterday but are set to open in the green today. USDINR managed to keep the range intact despite the risk aversion move in Indian equities.

We can expect stable Rupee for yet another day today. Global environment remains positive as the FOMC minutes are discounted by the markets more or less. The next event is the tomorrow’s US jobs data which, if beats expectations, can lead to more risk aversion in global markets. Yesterday’s JOLTS data showed that the labor demand remains strong in the US. Strong jobs number tomorrow can lead to worries about Fed continuing with rate hikes/long pause. But our view is that the jobs data might not tilt the cart with respect to the Rupee, and the range might remain intact for few more days until the inflation print. Until then, the base case remains that of a stable INR in a range.

​INR under pressure on strong global Dollar. FOMC minutes ahead.

(4th January 2023, 8:00 AM)

INR likely to open around 82.85/90

Dollar recouped some momentum yesterday as the general sense of impending recession and potential inflationary environment continuing for some more time, asserted again in markets. Dollar Index is at 104.30 now, with EUR at 1.0565, GBP below 1.20 and JPY back close to 131. The sense of risk aversion led to safe haven buying of US treasuries and brought the 10y yield down sharply to 3.72%. US equities could barely manage a positive close despite starting the day well. DOW ended flat, but NASDAQ was down 0.75%. Indian indices managed a 0.2% close. EU stocks did well yesterday buoyed by less-than-expected inflation data out of Germany and helped bring down EUR.

INR traded above 83 briefly yesterday in line with the strength in the Dollar. Markets are now waiting for the Fed minutes and then the US jobs data to figure out the next moves. The new year has started in a subdued fashion, but no long-term signals are not yet apparent. There is some risk aversion in markets probably since not many positive triggers remain, at least until the next inflation data print potentially comes lower. USDINR is still in a range but might try to break 83 again depending on how USD moves today. Oil prices remain docile, which is a good development for the Rupee. The next couple of weeks could determine the trigger points for the Rupee. For now, the base case remains that the current range will be intact.

INR range intact. Dollar continues to be on the backfoot.

(3rd January 2023, 8:30 AM)

INR likely to open around 82.70

The first trading of 2023 was more or less uneventful with moderate moves in markets and currencies, as most markets were closed. Dollar is mildly weak, with the Dollar Index around 103.35 level. EUR is at 1.0675, GBP is at 1.2075 and JPY is below 130. US 10y is higher at 3.85%. Indian equity indices ended the day higher – Nifty was up 0.5%.

USDINR continues to stick to a very tight range as there is not yet much impetus on either direction. This week’s US jobs data might provide some thrust if either the jobs number or the wage growth differ significantly from expectations. Fed minutes will also be in focus this week and markets will try to read through the thought process at the Fed regarding future hikes. For now, we can expect some more days of range-bound trading until probably the US inflation data. As for crosses, EUR CPI is due this week and the data release can provide some momentum to EUR on either direction. The theme remains that of Dollar weakness in the short-term.

Dollar weak and INR stable at the start of the new year. Volatile 2023 ahead.

(2nd January 2023, 7:30 AM)

INR likely to open around 82.70

The final day of the last year ended with some Dollar weakness, with EUR moving above 1.07, JPY trading close to 131 and GBP hovering around 1.21. US yields continue to remain elevated, suggesting that the Fed might continue to be hawkish in its approach, contrary to expectations. EUR seems to be buoyed by ongoing aggressive narrative from the ECB and this move can carry the EUR slightly higher from here, though it is unlikely that the ECB can go ahead with sharp rate hikes for long time without causing issues in the EU. US equities ended the last day of 2022 in the negative territory, as did Indian indices.

The year 2023 can prove to be like 2022 in terms of potential volatility in currency markets. The two primary themes which can dominate markets are:

1. The potential global recession brought on by aggressive central banks: Currently markets do not expect a deep recession and expect a soft landing. Housing and other markets in the US are already showing signs of distress and there is a real risk of a sharp downturn affecting all markets including currencies. The positive side of this story is that a deep recession would force the central banks to retreat and be accommodative and markets might take solace from that possibility. The recession scenario is medium-term issue for currencies.
2. Inflation data and central bank action: Inflation is already peaking out. A reduction in the inflation can lead to the Fed becoming dovish and lead to a Dollar weakness trend resuming with vigor. In such a case, crosses and to some extent INR, can see some appreciation. But the fact remains that the liquidity withdrawal would continue to be enforced even if the rate hike cycle stops.

In our view, 2023 will be a tussle between the above two themes. The initial part of the year might see the inflation theme playing out more, with the US inflation coming off more and the EU inflation remaining elevated. But eventually, we could see a risk aversion driven panic in markets and a resumption in the Dollar strength.

Along with these themes some hidden issues have the potential to disrupt the currencies in a big way. As housing market crashes, the downstream impact on investors/consumers/banks can cause systemic issues again in the US. In the EU, countries like Italy are already seeing their bond yields touch 5% level, which was unsustainable during the EU crisis. The budget deficit of these countries is much more than the EU crisis level. The situation in the EU remains very vulnerable to panic events if the ECB continues to hike aggressively.  EU banks are already under focus due to their balance sheet issues. China might create an inflation surge by spending massively on their economic revival post Covid.  Finally, BOJ might give up on their easy monetary policy which would imply even lesser global liquidity. All these events pose a threat to markets and currencies in 2023.

As for the Rupee, the initial part of the year might be positive for the currency, on balance. While the low forward premium remains a deterrent, revival in flow situation, temporary Dollar weakness and the possibility of favorable global environment might help the Rupee marginally. But eventual decline in the Rupee looks imminent in the medium-term as the global events combine with the Indian current account situation. The more the INR appreciation in the short-term, the more the potential depreciation later. In all, the Rupee can move in a very broad range of 81-86 in 2023, with bias more towards 86 at some point. We recommend aggressive use of options in managing Rupee volatility while simultaneously playing for some potential shor-term reversals.

Yet another day of quiet currency movements. Clear direction for the Rupee only next year.

(30th December 2022, 7:30 AM)

INR likely to open around 82.75

As expected, yesterday saw subdued currencies again as there are no real triggers in the year-end markets to make a judgement of the future direction. There is no sustained risk aversion in equity markets, for one to expect that Dollar would sustain some period of strength. US equities had a good positive day yesterday unlike the previous days of correction.

Dollar Index is at 103.70, with EUR at 1.0660, GBP at 1.2050 and JPY at 132.60. EUR has been able to sustain well for now, as ECB hawkishness is more expected than Fed’s in the short-term. US 10y is stable at 3.82%. DOW jumped 1%+, primarily due to a large .2.5%+ move in tech index.

USDINR is not seeing much action these days as both the global environment is stable and domestic factors remain dormant. The current account deficit for the second quarter of this FY came in at 36 billion, and one can expect a similar number for the other quarters in the entire year. We can expect around 120 billion CAD for the full FY and removing the FDI contribution, we are left with 90 billion Dollar demand to be fulfilled. The year could end with a neutral FII picture at best (most optimistic) which means that the entire burden of INR management is to be felt through RBI FX reserves. The structural situation for the Rupee is not amenable to any sustained appreciation, unless the flows massively reverse in the new year. In the short-term, the new year might bring some fresh inflows and cause a temporary move towards 81.50 or the new year can see a reversal in the Fed pivot sentiment and lead to more outflows. USDINR could remain volatile in the next month or two depending on the data on inflation and growth.

Dollar sideways. INR remains stuck to its range.

(29th December 2022, 8:00 AM)

INR likely to open around 82.80/85

Yesterday was yet another range-y day for currencies. Dollar is slightly stronger, and US yields continue to remain elevated. US equities though have not managed a “santa-claus” rally and continue to see red. Dollar Index is at 104.25, with EUR at 1.0630, GBP at 1.2040 and JPY at 133.65. DOW is down 1.1%. Indian indices traded flat. There is some sense of risk aversion building in equity markets. The new year would determine whether there is a sustained trend of risk aversion, or the current phase is just an year-end phenomenon.

USDINR range remains unbroken as expected. The same behavior might continue until the next year, as new year flows and data start to determine the next direction. For now, we can expect some more sideways movement for the Rupee in its current range.

INR under mild pressure as US yields prop up the Dollar.

(28th December 2022, 7:30 AM)

INR likely to open around 82.80

Dollar is firm, especially against JPY, supported by higher US yields. INR remains under mild pressure, though still intact in its range. Dollar Index is at 103.95, with EUR at 1.0640, GBP at 1.2022 and JPY trading at 133.90. US 10y has reached 3.85%. DOW managed a green close, but NASDAQ fell by 1.4%. Indian indices saw a good 0.6% rise yesterday.

With China effectively ending Covid restrictions and having declared a huge government spend to boost the economy, one can expect a sudden demand burst for commodities, including oil in the coming months. The risk of renewed inflationary pressures in the global economy is a possibility now, especially given that they raised their GDP forecast and reportedly announced massive government spending in the economy.

In the short-term INR does not seem to have a clear direction and all depends on how the new year starts vis-à-vis flows. Long-term risks in terms of either a global recession or a renewed spike in inflation would keep the Rupee on its toes. In the next few days, INR can be expected to trade sideways and move in line with global Dollar trends.

Dollar slightly weak. Rupee range bound.

(27th December 2022, 7:30 AM)

INR likely to open around 82.65/70

Dollar is mildly weak in illiquid holiday trading. Dollar Index is at 103.75, with EUR at 1.0645, GBP at 1.21 and JPY at 132.85. Since most of the markets were closed, there is no signal value to the currency and market moves yesterday. Indian equity indices posted a handsome revival of 1.2%+, taking the cues from the Friday’s US market performance.

USDINR range is very much intact, and the next few days could see sideways moves in the currency pair, as markets assess the next year’s outlook and data. The next triggers remain the US jobs data and then the inflation print.

Dollar stable in thin holiday trading. Rupee remains range-bound and waiting for the next trigger.

(26th December 2022, 7:30 AM)

INR likely to open around 82.80

Markets are quiet and today is a holiday for most major markets. Currencies are range-y in trading, with Dollar Index settled at 104.05. EUR is at 1.0615, GBP is at 1.2070 and JPY at 132.50. US yields continued to move higher in Friday trading. The 10y is back above 3.75%. While Indian indices traded well in the red (Nifty down 1.8%), US equities managed a good 0.6% odd gains. The broader Indian markets (mid cap indices) saw a brutal sell-off on Friday.

Given today is a holiday, one can expect benign moves in markets and currencies for now. INR remains in a tight range, as is the Dollar. The US PCE inflation came in slightly higher than expected, showing that inflation remains sticky. As we enter the new year, the evolution of inflation and the Fed action would continue to be the key variables for the Rupee. The next set of data points would be the US jobs data next month and then the key US inflation. One can expect a fairly restricted Rupee for the next few days.

INR continues to trade in a tight range. Dollar steady, but slight risk aversion persists.

(23rd December 2022, 7:30 AM)

INR likely to open around 82.80

Yesterday was yet another range-y day for currencies. Dollar traded slightly strong after better than expected US GDP release spurned fears of hawkish Fed. US equities fell as good growth/jobs data seems to be negative for markets. The Rupee remained in a very tight range for yet another day on lack of any material triggers.

Dollar Index is at 104.05, with EUR at 1.0605, GBP at 1.2050 and JPY at 132.75. DOW fell 1% and tech index fell 2.2%. Indian equity indices closed 0.4% odd down and are set for lower opening today. As we approach the year-end, markets could trade in a docile fashion, but the risk of an outsized move cannot be ruled out as markets become more illiquid. China covid situation is a concern if supply chains get disrupted severely. News reports suggest that it is an Omicron wave in China and hence we can expect to it be benign for the world and India.

INR range could continue for few more days until the next data points in the new year. Unless the China situation blows up, there are few market-moving factors for the next few days.

Dollar subdued. Rupee remains range bound as no large triggers in the short term.

(22nd December 2022, 7:00 AM)

INR likely to open around 82.80

Dollar traded subdued as JPY continued to strengthen following the BOJ move. US yields fell slightly, and the US equities saw a solid jump yesterday, after days of negative returns. Dollar Index is at 103.70, with EUR at 1.0625, GBP at 1.2110 and JPY at 131.90. US 10y is at 3.65%. DOW jumped 1.6%+ yesterday. Indian indices fell 1%+ yesterday, following the cues from the previous day’s equity moves. Today could see a positive start, given the overnight equity gains.

INR remains stuck to a tight range and is refusing to benefit at all from the favorable Dollar environment globally. As markets take down some of the Dollar strength thinking that the monetary policy divergence between the Fed and other central banks would converge going forward, the Rupee has not been able to catch up to the moves in global currencies as well as Asians such as KRW. INR used to be an outperformer both on monthly and annual return basis until the recent Dollar retreat. Now, INR is almost at the bottom of the pile vis-à-vis other emerging market currencies on an annual performance basis. There could be some more upside to the Rupee over the next few weeks if the Dollar remains weak and the new year flows pick up steam.

But reasons for more INR depreciation also abound. The possibility of recession in the coming months is growing with each rate hike by the major central banks. The housing data in the US is showing a clear downward trend, even reminiscent of 2007-08 period to some extent. The question now is the depth of the recession and whether central banks manage to pilot a soft landing. For now, a range-bound Rupee remains the base case scenario and depending on how January flows occur, there could be some appreciation possible. The long-term is clearly negative for the Rupee and for global markets in general.

JPY spikes after BOJ yields on the yield curve control. Dollar steady, INR range bound.

(21st December 2022, 7:00 AM)

INR likely to open around 82.65

Dollar traded weaker yesterday, going by the Dollar Index at 103.75. But most of the Dollar weakness is due to a sharp appreciation in JPY after the Bank of Japan relaxed their yield curve control policies and shocked markets. The BOJ has allowed the Japanese bonds to trade in a range – rather than controlling the yield close to zero. The change in stance was taken by markets to be an acknowledgement by the BOJ that the Japanese inflation impact due to the crashing Yen is not acceptable and hence the interest rate differential between Japan and the US will shrink. USDJPY is now at 132.25 (falling from 137.25). EUR is marginally higher at 1.0610 and GBP is at 1.2170. US yields continued their reversal, with the 10y back above 3.7% as markets re-evaluate whether the excess optimism about the Fed is justified.

US equities traded in the green yesterday after a few days of negative returns. Indian indices also seem to be subdued after reaching all-time highs. The reality is that there is a clear slowdown in the global economy and the Chinese covid new reports are not helping the sentiment. Reports of large number of infections and even deaths in China are of concern to markets since China is a very key part of the global supply chain.

USDINR traded in a very narrow band yesterday, as the global Dollar has stabilized in a range too. Rising US yields, potential risk aversion in global markets, China covid concerns are all negative for the Rupee. The bias remains towards more depreciation, but the triggers are not significant enough to cause a large move for now.

Dollar stable as both recession fears and rate hike expectations are prevalent. USDINR remains range bound.

(20th December 2022, 7:00 AM)

INR likely to open around 82.60

Dollar traded steady and US equities fell again overnight, as both Fed rate hike fears and recession fears continue to cause risk aversion in markets. Dollar is slightly higher now, with the Dollar Index at 104.40. EUR is at 1.06, GBP is at 1.2145 and JPY is at 137.45. US yields traded mildly higher yesterday, with the 10y reaching 3.6%. DOW ended 0.5% lower, but NASDAQ gave up close to 1.5%. Indian equities had a positive day yesterday, and Nifty saw a good 0.8% gain. Brent continues to trade in a range as recession fears and OPEC production cut expectations balance out well. Brent is around 80.50 now.

INR remains in a range on lack of any market triggers which can move the Rupee in a secular direction. The next big data points are due in the new year and until then, one can expect reasonably range bound Rupee until then. As the year end approaches, there is a tussle going on between inflation/fed hike fears on one hand and the global recession fears on the other. While in the first scenario, US yields tend to move higher, the second scenario will lead to a fall in the US yields, especially the long term. As for the Dollar, both these scenarios tend to lead to Dollar strength. The medium to long term remains uncertain for the Rupee and other majors as Dollar strength has more legs to go, in our view.

Dollar stable amidst slight risk aversion. Rupee remains vulnerable.

(19th December 2022, 7:00 AM)

INR likely to open around 82.75

Dollar traded firm, US equities ended weak, US yields remained a bit subdued as risk aversion continued yet another day on Friday. Recession fears seem to be creeping into the markets as the US Fed and the ECB remain firm in their intention to take rates higher. USD is slightly higher in Asia open trade today. Dollar Index is at 104.25, with EUR at 1.06, GBP at 1.2179, and JPY at 136. DOW ended 0.9% down on Friday, but futures are in the green today. Indian indices also were down 0.75% odd on Friday. US 10y is at 3.5%.

INR remains vulnerable as risk aversion sentiment is taking hold of markets. As we move into the year end, markets might trade subdued as uncertainty around the terminal Fed funds rate and the question of whether the high rate environment would suddenly trigger a global recession in the coming couple of quarters come to the forefront. USDINR has been able to hold below 83, helped in part by global Dollar weakness trend. The lack of carry is the primary roadblock to a meaningful INR appreciation, as exporters continue to wait for better premium in the future.

As regards data, the US PCE inflation is due to this week along with some manufacturing data. The next important data event is the US payroll data in Jan followed by the earnings reports from companies across the globe, which will help determine whether corporates are starting to get affected by the recessionary trends.

USDINR might trade in a range with an upward bias for the next few days.

Dollar tries to revive after US retail sales signals recession. INR trade deficit lower, but Rupee under pressure.

(16th December 2022, 7:00 AM)

INR likely to open around 82.80/85

The post-FOMC caution, reflected in muted market performance after the rate hike, turned into a risk aversion sentiment yesterday. Most markets fell sharply across the globe and Dollar tried to regain some strength. US long-term yields remained steady, as risk aversion ensured some safe haven buying. EUR got a fillip after the ECB hiked 50 bp and signaled more hikes, but the spike in EUR got sold into quickly and EUR ended at the pre-ECB level. US retail sales came in much lower than expected, triggering recession fears, and causing a deep correction in US equities.

Dollar Index is at 104.10, with EUR stable at 1.0640, GBP at 1.2190 and JPY at 137.55. While GBP and JPY fell against the Dollar, EUR remained stable due to the ECB policy event. DOW ended 2.25% lower (720 points) and NASDAQ fell 3.2%, sharp corrections after a long time. Nifty ended 1.3% lower and is set for more caution today.

US retail sales caused some concern after a negative print of -0.6% triggered fears that the consumer side of the economy is cracking under the weight of rate hikes. What remains to be seen is whether yesterday’s move is just a temporary correction or whether this is the start of a larger move post the realization that US interest rates will reach 5% sooner or later. As for the Rupee, the lower trade deficit (23.9 billion) for November, might give some solace, but is still immaterial in the larger picture. The Rupee could not manage any upside despite the persistent Dollar weakness until now, as the carry advantage (forward premium) of the Rupee has dissipated. If the Dollar resumes a move upwards, the pressure on the Rupee is set to increase even more. As for cross-INR, one might expect some pause in the move as crosses would recalibrate to the post-Fed scenario and the recession concerns emerging now.

FOMC hikes 50 bp and sounds hawkish. Markets mixed. INR range still in tact.

(15th December 2022, 7:00 AM)

INR likely to open around 82.50

Dollar is mildly weaker in a volatile trade yesterday, despite the FOMC raising rates by 50 bp and signaling more-for-longer rates. The initial reaction to the Fed statement was a mild Dollar strength, which got reversed during the Powell press conference. US yields rose in response to the statement, but the long-term yields corrected down as markets seem to be expecting much more dovish Fed than what Powell and the Fed statement projected.  US equities ended the day lower.  Dollar Index is now at 103.35, with EUR at 1.0672, GBP at 1.2415 and JPY at 135.40. DOW ended 0.4% down. US 10y is at 3.49%.

FOMC hiked rates by 50 bp and said that inflation is still a problem and needs rates to be higher for longer. The dot plot projected a higher terminal rate than in the previous meeting. The FOMC now projects that the rates will peak around 5.1% (so another 50-75 bp hikes). Markets were expecting a stop to the policy rates by this meeting, which the Fed is not in agreement with. Powell said that the FOMC would need persistent inflation decreases and a clear path towards 2% target for them to consider rate cuts. But markets are of the view that the Fed would pause soon, and rate cuts could begin in 2023. The market projects almost 75 bp lower rates by end of 2023 than what Fed estimates.

In their economic projections, the FOMC acknowledged lower growth rates and higher unemployment rate next year, but did not project any recession in the economy. The inflation is projected to reach 2% by next year, as they expect the housing related inflation to feed into the main indices in the next 6-9 months.

In all, the FOMC event is a mixed bag for the markets. The hawkish FOMC rate projections are balanced out by Powell’s comments that they will look to increase the inflation target itself over the next few years. Despite the Fed’s messaging, markets continue to expect dovishness soon (as early as next meeting). The mild moves in asset classes show the mixed opinion about the FOMC outcome.

As for the Rupee, the FOMC did not provide the trigger for a sustained move in either direction. The Rupee cannot hope to ride on market dovishness enough to break the 81.50 levels downwards. On the other hand, the general Dollar weakness background is protecting the Rupee from a sharp depreciation. The INR forward premium could face some more downward pressure as the short-term US rates could remain elevated due to the Fed stance on smaller-but-longer rate hikes. Net net, USDINR remains vulnerable to higher move depending on the global Dollar behavior.

US CPI lower than expected. Dollar weak. FOMC today.

(14th December 2022, 8:00 AM)

INR likely to open around 82.40

Dollar traded weak and US yields fell after the US CPI came in lower than expected across the board. The headline CPI was 7.1% against 7.3% consensus. The core CPI also was lower than expected. Even the MoM numbers were below expectations, suggesting that there is a secular downward trend now in inflation data. It seems that the inflation in the US has indeed peaked. Markets have started to price in a small chance of just 25 bp hike today’s FOMC. The commentary now is that this hike may be the last for this cycle. The inflation data showed that other than some housing related costs, there is a general decline in most of the components.

Dollar Index has fallen to 103.65, with EUR at 1.0630, GBP at 1.2345 and JPY at 135.55. US 10y is lower, at 3.49%. US equities shot up after the data and managed decent gains of 0.3% (DOW). NASDAQ did see a 1%+ jump. Surprisingly, there was no euphoria after the CPI miss, and probably markets are waiting for how the Fed would react to the data before making a secular move.

Even though the inflation is down, it seems that the outsized rate hikes from the Fed have worked their way into cooling the economy. The big question is whether the high rates coupled with receding liquidity cause a recession in the coming month, which has the potential to cause market panic given the valuations. The rise in equities and easing of yields and credit spreads have made financial conditions in the US accommodative, despite the sharp rate hikes.

As for the Rupee, it has not been able to benefit much at all from the ongoing Dollar weakness patch. The low forward premium remains a deterrent for exporter selling and hence the pressure on the Rupee remains firm. The RBI has also been absorbing USD flows, keeping INR from appreciating much. Now the Rupee depreciation is more or less in line with the global crosses such as EUR, as reflected in the fact that the cross-INR rates are approaching the pre rate hike levels.

While markets might take solace from the falling inflation trend, the long term issues such as potential recession, receding liquidity and high valuations remain problematic for risk assets, and hence INR continues to be vulnerable over the next few months.

US CPI today. Dollar subdued, but the Rupee remains tentative.

(13th December 2022, 8:00 AM)

INR likely to open around 82.60

Dollar is trading subdued despite strong US yields, ahead of the crucial CPI data today. US equities saw a handsome rally on expectations that the CPI would be lower than expected forcing the Fed to be dovish. Dollar Index is at 104.55, EUR is at 1.0550, GBP is at 1.2285 and JPY is at 137.65. US 10y is above 3.6%. DOW ended 1.6% higher, almost as if markets got a whiff the today’s CPI data might come in lower than expected. Indian indices traded flat yesterday.

The market consensus for today’s CPI is 7.3% YoY. Any print lower than this number would be positive for the markets. But CPI below 7% is going to trigger a large rally in risk assets and lead to a sharp fall in the Dollar even from these levels. The interest rate differential which kept the crosses weak, could dimmish even faster if this inflation print is much lower than expected. On the other hand, if the CPI surprises on the upside, like the PPI did, one might see a sharp correction in the markets and expectation of 75 bp hike on the 14^th would again put pressure on global risk assets.

India inflation, released yesterday, came in around 5.9% – within the RBI’s target range.  The outlook for Indian rates now seems to be positive and the RBI rate cycle might be closer to the end. If US CPI remains hot, there could be more pressure on the USDINR forward premia and hence more depreciation pressure on the Rupee is possible. The US CPI is very important now in many respects.

The post-CPI impact would be felt for the next two days as the Dec 15^th morning (India time) Powell press conference could change the narrative if the Fed feels that the market has run too ahead. This meeting also includes economic projections which would give a sense of what FOMC is projecting as inflation.

As for the Rupee, it is not able to maintain any upside of the global Dolla reversal. If the CPI does come in lower than expected, we can expect some solace to the Rupee and a move towards 81.50 or below is possible. But a higher-than-expected CPI is sure to trigger a move towards 83.50+ driven both by global Dollar strength and pressure on the forward premia. For the next few days, USDINR will remain completely data and event driven.

Dollar tentative, but yields higher and supportive. Inflation and FOMC meeting this week.

(12th December 2022, 8:00 AM)

INR likely to open around 82.45

Dollar is stable ahead of an important week for markets. First, the CPI and then the FOMC meeting are very important events in the current scenario. Friday saw US yields moving higher, and equities falling after the PPI inflation came in hotter than expected. The Dollar though remained subdued. Dollar Index is now trading at 104.80, with EUR at 1.0515, GBP at 1.2220, and JPY at 136.85. US 10y shot up to 3.55% after the PPI data showed that inflation is still running high.  DOW ended 0.9% lower, on concerns that the CPI might be higher than expected going by the PPI. Indian indices also traded lower by around 0.6%.

The CPI is scheduled for tomorrow. Consensus is for a 7.3% rise in inflation. If the data comes in higher than consensus, expectations of a 75 bp hike on the 15^th might again take over markets and cause a sharp Dollar strength move. But, if the CPI is much lower than expected, we can expect another leg of the Dollar weakness trend for the next two days until Powell sets the narrative after the FOMC meeting. The fight of expectations is between inflation and recession and any data point which comes in very different from expectations would rile markets in either direction.

USDINR remains elevated despite the overall Dollar weakness, probably due to ongoing structural demand for Dollar buying due to low forward premia. This week could set the direction for the Rupee if the data is decisive enough. In the short-term, INR at least does not have the runaway depreciation pressure, but the medium-term structural issues remain with the potential to take USDINR higher.

USD subdued. INR still under pressure, but might see some stability on global cues.

(9th December 2022, 8:00 AM)

INR likely to open around 82.20

Dollar lost ground, US yields remain subdued and US equities posted a good performance as risk sentiment revived a bit yesterday, after a few days of caution. Dollar Index is at 104.60, with EUR trading at 1.0570, GBP at 1.2260 and JPY at 136.15. US 10y remains under pressure, now at 3.46%. DOW rose 0.55% and NASDAQ by more than 1%. Indian indices also ended the day on a positive note, with around 0.2% gain for the main indices. Oil rose yesterday but has suffered large losses over this week. The oil price fall is a big positive for the Rupee, provided it sustains at these levels and does not move higher on OPEC pressure. Brent is now at 76.75.

Markets will wait for the CPI data due Tuesday next week. Today’s PPI might give some indication but cannot be held on to for any confident projection of the CPI. The Rupee could not manage to pull back its losses after the sharp two-day fall driven by flows and positioning. One can expect some stability around the current level until Tuesday inflation print. The structural issues such as low forward premium have reduced the exporter selling demand and increased the importer demand, thus keeping USDINR elevated. But, given that the global Dollar has weakened overnight, one might expect some solace for the Rupee.

INR remains vulnerable. Global Dollar stable. US yields signal recession.

(8th December 2022, 8:00 AM)

INR likely to open around 82.30

The Rupee remained vulnerable yesterday, after the two day spike in USDINR due to both technical and structural factors. The global Dollar weakness momentum has stalled for now, but the Dollar remains shaky as US yields continue to correct sharply. The fall in yields is more about recessionary expectations than about dovish fed expectations. Dollar index is at 105.25, with EUR back above 1.05, GBP at 1.2190 and JPY at 136.95. US 10y is down to 3.45% as bonds seem to signal recession in the coming months. USDINR forward premium has stabilized and as did USDINR spot after the RBI hiked rates by 35 bp. The hike in rates helped stabilize interest rate differential and forward premiums a bit, but not enough to move the premia much higher.

USDINR remains in a vulnerable zone. The RBI rate hike of 35 bp came with a sense that future hikes might be limited now given the Indian inflation trajectory. In this context, the next US inflation data has become very critical in that, if the data comes in lower than expectations, the resulting recalibration of FOMC expectations would impact the forward premia also significantly. For importers, a dip in USDINR, coupled with lower premia, presents a good opportunity for long term hedging. Exporters remain reluctant to lock in lower premia and hence the general demand for USDINR remains high.

Going forward, one can expect the forward premium to stabilize at these levels, unless the RBI intervenes in the forward market to ensure that forward premia remain high enough to ward off any pressure on the spot. As of now, the terminal Fed funds rates is expected to be around 5%, and any data point which can impact this expectation would also impact the forward and then the USDINR spot. The next week remains critical for the markets and the Rupee, as the inflation data and FOMC meeting can decide the course for the markets for the next few months. As for USDINR, spot given that some of the move was driven by ad hoc flows, there could be some correction in the spot, but might not be enough to take it to below 81.50 level immediately.

INR under pressure as ad hoc USD demand compounds the fall in forward premium. Dollar remains stable after couple of weeks of sharp correction.

(7th December 2022, 8:00 AM)

INR likely to open around 82.40

Even as the Dollar regained some lost ground yesterday, the Dollar move does not explain the sharp INR losses seen again yesterday. The fall in the Rupee seems to be more ad hoc flows and positioning led aided by crash in forward premium. Dollar Index has risen to 105.50, with EUR at 1.0470, GBP at 1.2140 and JPY close to 137. The US 10y remains stable around 3.54% and US equities again fell 1%+ on renewed fears that the Fed might not be as dovish after all. Indian equities also fell moderately by around 0.3% odd, but not enough to explain the sharp collapse in the Rupee.

The unexpected move in the Rupee is being driven by both demand for Dollars from large companies including oil companies, and the sharp fall in the forward premia over the past few days, making hedging for importers attractive. The fall in the premia is indicating a coming Dollar shortage in the banking system, in which case, the spot moves higher and the forward premia crashes quickly. The RBI’s earlier buy/sell swaps along with the falling interest rate differentials have led to a fall in the forward premium, which in turn discourages carry trades and exporter hedges and hence puts pressure on the Spot. The RBI must quickly step in to prevent further deterioration in the forward premium through sell/buy swaps and alleviate the Dollar shortage which has the potential to carry the premia to negative territory also.

Even though the spot has jumped higher by almost 1 Rupee the forward rate for importers remains attractive even at the 6m tenor. For exporters, we might see an unattractive period for hedging unless the spot compensates much more than the forward loss. In all, the right tenor of hedge and the right spot/forward dynamics would provide attractive opportunities for both.

As for the fundamental move in INR, the longer the current conditions continue, the higher is the possibility of a structural pressure on the Rupee. The Dec 13^th inflation data remains a critical point now, as a lower inflation print there can lead to some easing up of global Dollar stress and rate hike expectations. But, if the inflation comes in hot, USDINR can shoot up above the previous highs, especially given the current situation.

INR sees an ad hoc depreciation. Dollar tries to regain some ground, but still is weak.

(6th December 2022, 8:00 AM)

INR likely to open around 81.90

USDINR saw a surprising jump yesterday, seemingly due to large outflows and customer demand from oil companies. The move was completely contrary to the global trend of Dollar weakness and rise in EUR, GBP and other crosses the previous day. Overnight session saw USD crawl back slightly higher as strong US economic data fanned some fears that the Fed might not be as dovish as market hopes it to be. Dollar Index is at 105.20 now, with EUR trading at 1.05, GBP at 1.22 and JPY at 136.95. US 10y is slightly higher, at 3.57%. US equities fell yesterday – DOW down by 1.4% and NASDAQ by 1.9%. US ISM services data came in higher than expected, indicating a healthy economy still, despite all the rate hikes till date. Indian indices were flattish, though sectoral indices such as Bank nifty were higher.

USDINR saw a very divergent move yesterday, as a combination of outflows (rumored to be some FDI exits and demand from Oil companies) and market positioning led to a counter move. Given the overnight reversal in Dollar weakness trend, the Rupee might not recover much from yesterday’s losses immediately. But, given the global backdrop of good risk sentiment and lower long-term US yields, INR might remain protected from sharp depreciation also. Once the ad hoc flows are done away with, there could be some move again downwards for USDINR over the next week, provided the global Dollar sentiment stays its course.

While on the surface, the global economy seems to be going fine, there are pockets of problems emerging in different places – be it the EU bank health concerns, US real estate funds feeling some stress, crypto exchanges going bankrupt. As liquidity gets tighter, any of the potential pockets of stress can come to bear on global markets. One must be careful about the potential pitfalls of a receding global liquidity wave. For the Rupee, while the short term is still stable, the long-term risks remain a threat and hence we are of the view that any dip in USDINR continues to be a opportunity to buy.

Dollar weak despite strong US payroll data. INR in a safe zone. RBI MPC starts today.

(5th December 2022, 8:00 AM)

INR likely to open around 81.25

Dollar failed to capitalize on better than expected US non-farm payrolls data on Friday. Despite the job additions, at 263k, beating expectations, markets chose to focus more on the previous Powell dovish tilt and ignored the positive data release. Dollar Index continues to fall and is at 104.20 now. EUR is trading at 1.0575, GBP at 1.2335, and JPY at 134.30. US 10y remains under pressure and has now reached close to 3.5% (from a peak of 4.3% odd). The fall in long-term rates in the US signals a big shift in market expectations, that we are very close to the end of the current rate cycle, and that we will see a dovish Fed for some time to come. US equities were mixed on Friday but continue to be stable despite potential recessionary conditions coming up in next few months. As for Indian equities, they continue to thrive at all-time highs, and are hoping that India will buck the trend even if there is going to be a global recession.

USDINR remains above 81 and has not been able to benefit much from the sharp reversal in the Dollar strength trend. With news of China opening some parts from lockdowns, CNH has sharply appreciated to below 7, helping Asia FX. INR would benefit from the easing of pressure on the Yuan and can potentially see some appreciation due to that reason. The structural problems for the Rupee remain very much relevant, though not visible in the foreground.

RBI MPC meeting starts today, and the expectation is for a moderation in rate hikes, given the latest inflation print is below 7%. Markets expect a 25-35 bp hike on an average in this policy. INR is unlikely to move much based on policy outcome, unless the RBI surprises markets with a much larger hike. Given the global risk sentiment, USDINR might attempt to move towards 81 and below again. But, going by the recent behavior of the Rupee, there might not too much appreciation in the currency despite the ongoing Dollar weakness, at least until the all-important US CPI on the 13^th. Until then a reasonably range-bound Rupee is the base case expectation.

USD weakness continues post Powell speech. US jobs data today.

(2nd December 2022, 8:00 AM)

INR likely to open around 81.15

The post Powell fall in the Dollar accelerated yesterday accompanied by a continuing dip in US yields. Dollar Index has fallen to 104.80 now, with EUR at 1.0510, GBP at 1.2235 and JPY at 135.30. The US 10y has given up more ground, now at 3.55%. There is a clear expectation building up that we are close to the peak of the current rate cycle, despite the messaging from the Fed that rates will continue to go up for longer time in smaller steps.

DOW ended negative despite the positive risk sentiment (by 0.6%). Nifty ended 0.3% higher and has been able to maintain consistent gains despite being around the all-time highs. Brent has resumed its up trend again as OPEC production cut remains the driving force, offsetting China and global demand concerns. Brent is now at 87.30. Oil prices remain a negative for the Rupee.

USDINR has not yet managed to break the 81 level, but given the overnight risk sentiment and Dollar weakness, today might see some more INR appreciation. Given the structural issues for the Rupee, any dip in USDINR would be temporary. Today’s US jobs report could add more volatility, especially if the numbers are good enough to warrant fears in market that the Fed can afford to be hawkish for longer time. In all, it is a good time for the Rupee as global Dollar strength seems to be reversing in the short term. But, in the coming months, one can expect recession/liquidity driven issues to emerge and cause disturbances to emerging assets including the Rupee.

USD falls after Powell signals smaller hikes. INR in a comfortable zone now.

(1st December 2022, 8:00 AM)

INR likely to open around 81.20

Dollar lost some ground after Powell speech signaled smaller hike in December meeting. Markets did not heed much to the message from Powell that we are a long way from pausing the rate cycle. Dollar Index is at 105.65, with EUR at 1.0425, GBP at 1.2080 and JPY at 136.75. US yields fell post the speech, and the 10y is now down to 3.62%. US equities closed handsomely in the green, with DOW seeing a 2%+ jump. Risk sentiment is strong as markets now expect a pause of the rate cycle visible on the horizon. Indian indices did well yesterday with Nifty jumping 0.75%. Today also is expected to be a good day for markets.

INR is now trying to breach the lower end of the current range, as risk sentiment revived strongly post Powell speech. While markets are happy with the fact that the next rate hike might not be 75 bp, the fact is that Fed clearly wants to keep hiking for longer time until inflation is tamed. EU inflation also came in at 10%+ indicating tight monetary conditions from ECB also going forward. For the Rupee, the short-term appreciation moves might not last for too long as tightening liquidity and impending global recession could trigger a bout of depreciation in the coming months. For now, INR is in a sweet spot and can enjoy some stability.

USDINR stable on stable risk sentiment. Powell speech ahead. China Covid situation remains a concern.

(30th November 2022, 8:00 AM)

INR likely to open around 81.60/65

Dollar kept the previous day’s gains yesterday, as markets remain tentative ahead of a Powell speech today. Dollar Index is at 106.65, with EUR at 1.0340, GBP at 1.1975 and JPY at 138.70. US 10y yield is steady around 3.75%. US equities had a mixed day and while DOW closed flat, NASDAQ fell another 0.6%. Indian frontline indices closed in the green despite a negative start – Nifty ended around 0.3% higher. Crude remained firm as OPEC output cuts balanced out fears of recession. Brent is at 85 USD per barrel.

Markets will look forward to today’s speech by Powell, in the backdrop of influential Fed members this week trying to drive down the message that rate hikes have a way to go still. There is caution in markets over the fact that while inflation might have peaked, it still is very high and disruptive, and that the Fed cannot afford to pause hikes anytime soon. Dollar has managed to hold well for now, and China covid concerns are not helping the Asian currencies including the Rupee.

USDINR remains in a tight range for yet another day. As we keep reiterating every day, the short-term stability might last few more days until the inflation data, but the medium to long term outlook for the Rupee remains uncertain as the possibility of a global recession is increasing with each rate hike from the central banks of various countries. The short-term dip in USDINR, if any, continues to be a good opportunity to load up or lighten the hedges, as the case may be.

INR range bound. Fed members continue to talk up inflation. China Covid worries persist.

(29th November 2022, 8:00 AM)

INR likely to open around 81.65

Dollar reversed some of its Friday losses, as Fed members continued to hammer down the point that rates have still some space to go higher and it is too early to look at pausing the rate cycle completely. China Covid protests also soured sentiments, with equities correcting 1%+ in the US. Dollar Index is now at 106.50, with EUR at 1.0350, GBP below 1.20 and JPY at 138.90. US 10y is slightly up, at 3.7%. Indian indices continue to nudge up, and yesterday saw another 0.3% odd rise in Nifty. Crude jumped higher on speculations of OPEC production cut, with Brent now trading at 84.

USDINR remains stuck to a narrow range between 81.25 and 82 now. This week has some potentially important data points which can trigger a breach of this range. But, the most important data release remains the US CPI, due on December 13^th. Until that time, even if there is a move out of the current range, the move might not be durable and would be very much headline dependent. Fed speakers continue to talk hawkish, cautioning the markets that even if the rate hikes slow down in the coming meetings more rate hikes for longer time are appropriate. Further, the balance sheet reduction is continuing under the radar at a pace of 100 billion a month. The receding liquidity remains a dark horse and can lead to sudden jerky movements in markets in months to come. While in the short term USDINR remains in a range, long-term prognosis for INR remains uncertain.

USDINR stable ahead of a data heavy week. China covid fears dominate.

(28th November 2022, 8:00 AM)

INR likely to open around 81.70

Dollar remained steady on Friday, and equities traded mixed. US yields remained subdued, as expectations about reversal in the Fed strategy remain the main theme in markets. Covid related protests in China have added to uncertainty in CNY and have put pressure on Asia FX. Dollar Index is now at 106.25, with EUR at 1.0360, GBP at 1.2050 and JPY at 138.55. US 10y is trading at 3.65%. DOW ended 0.45% higher, but NASDAQ ended 0.5% in the red. Indian indices had a decent day, with a 0.15% jump. Oil is down on China Covid strategy due to its negative impact on growth. Brent has fallen to 81 now, as Chinese growth worries and the general recessionary conditions put pressure on oil demand expectations.

DOW futures are down now, indicating caution in markets ahead of a data-heavy week. The week has US core PCE inflation, followed by US jobs data along with ISM indices. More Fed members are scheduled to speak this week. Markets might take some cue from all these events and be volatile, though one would expect a reasonably range-bound behavior in currencies. USDINR has been pushing towards the higher end of the current range, primarily due to the CNH related pressure on Asia FX. Dollar has not been able to regain much ground after the FOMC minutes driven fall. The fact that USDINR could not sustain the momentum which carried it to 80.50 and below indicates that the Rupee continues to be structurally weak. But, for now, the range between 81 and 82 seems to hold in the base case scenario. Unless one of the data points this week comes in much different than expected, we can expect a stable USDINR for the next few days.

INR range bound. Overnight US holiday keeps currencies quiet.

(25th November 2022, 8:00 AM)

INR likely to open around 81.65

Dollar remained in a tight range after the bout of weakness on Wednesday following the release of the FOMC minutes. Yesterday was a US holiday and there was not much movement in currencies hence. Dollar Index is at 105.80, with EUR at 1.0410, GBP at 1.2110, and JPY at 138.75. US 10y is at 3.67%. Indian indices had a good day yesterday, with a 1.2% odd rise, due to the global risk appetite the previous day.

The Rupee has not been able to capture much of the sharp Dollar weakness reaction post the FOMC minutes release. As a result, the cross-INR pairs have jumped higher and now present a good opportunity for exporters to lock-in some higher rates there. Despite this move in cross-INR rates, the movement in crosses has still not reached a level where they are at par with the move in USDINR in percentage terms. The cross-INR levels are still lower than the 2021 peaks indicating that the Rupee still is an outperformer when compared to global currencies. As for USDINR, we can expect more range-y days ahead until the next set of data points (especially the US CPI) trigger a fresh move.

Dollar down after FOMC minutes. INR range intact.

(24th November 2022, 8:00 AM)

INR likely to open around 81.65

Dollar is weaker and US yields are down after the FOMC minutes released yesterday confirmed the market’s hope of less aggressive hikes in the future. Dollar Index has fallen to 105.65, with EUR above 1.0435, GBP at 1.21 and JPY down to 138.75. US 10y is now at 3.69%. US equities ended higher – DOW by 0.3% and NASDAQ by 1%. Risk sentiment has turned positive after the FOMC minutes, taking down the Dollar. Indian Indices continue to do well with a green close yesterday also. The overnight optimism means that today could be another positive day for Indian markets.

The minutes revealed that most FOMC members felt that lower rate hikes would be appropriate soon. While markets took it to mean that the Fed could put a stop to the rate cycle soon, our view remains that the minutes have just reinforced the fact that the pace of rate hikes would slow, but the cycle might not end soon. Further, the liquidity withdrawal will remain in place and the effects of receding liquidity will be felt in the coming months. The weakness in the Dollar is a good opportunity to load up on appropriate hedges in crosses.

USDINR could now move in a more range-bound manner, as the upward pressure on the pair would now abate due to the global Dollar weakness. Any dip in the currency could be a short-term move, as structural issues remain very much important. For now, INR is expected to be stable in the broad range of 80.50-82.00.

INR range bound and global USD slightly weak. FOMC minutes today.

(23rd November 2022, 8:00 AM)

INR likely to open around 81.75

Dollar retreated mildly yesterday as US yields cooled off a bit and risk aversion held well in US markets. Dollar Index is at 106.95, with EUR trading at 1.0320, GBP at 1.1890 and JPY at 141.30. US 10y has fallen to 3.75%. US equity indices saw handsome gains of 1.2%+. Indian indices closed around 0.5% higher.

USDINR has been stuck in the range below 82 for a few days now as global Dollar has stabilized in a range around 106.50-107.50 on the Dollar Index. Some of the post-CPI optimism has been nullified by the relentless messaging from Fed members that inflation is still a big threat and policy dovishness is ruled out. There is some balance in market expectations now and in that context today’s FOMC minutes release is important. Markets will try to understand the Fed’s thinking around the inflation threat and around the potential shift in the rate strategy.

The base case remains that of a range-y Rupee for the next couple of weeks until inflation data is released next month. Until then, there could be moves in USDINR in either direction depending on news or comments from Fed members.  Though the China Covid spread, and lockdowns are issues of concern for the Rupee, they are not likely to cause large moves in USDINR. The structural pressure on the Rupee remains very relevant but is a long-term factor.

USDINR mildly higher, as Dollar strength persists. China’s Covid situation continues to bother .

(22nd November 2022, 8:00 AM)

INR likely to open around 81.75

Yesterday was a fairly uneventful day as far as currencies are concerned. Dollar is stronger, and US yields mildly up, as markets wait for a direction in the form of new inflation data next month. Dollar Index is at 107.50, with EUR at 1.0260, GBP at 1.1850 and JPY at 141.75. US equities ended lower, driven again by the tech index (NASDAQ) which fell 1.1%. The positive momentum which started after the inflation data has clearly paused for now, aided by the continuous browbeating by Fed officials on the dangers of persistent inflation and on the need to be aggressive in containment.

INR remains under mild pressure, but not enough to create a sharp depreciation move. As long as the global Dollar strength manages to hold, USD INR could drift higher gradually. With China again seeing Covid surge, markets are a bit tentative about the possibility of more widespread lockdowns again, affecting their economy. USDCNH has moved sharply higher from the 7.05 range to 7.16 now and INR has had some pressure due to this factor. In all, INR remains in a range, though there is a slow creep towards 82 and above. FOMC minutes and then the core PCE inflation are two more data points to watch out for until the month end and might affect the Rupee if they turn out to be different from expectations.

Dollar consolidates as rates stabilize. USDINR range-bound in the short-term.

(21st November 2022, 8:00 AM)

INR likely to open around 81.70

Dollar managed a mild strength on Friday amidst a modest rise in yields, as markets start to reevaluate the optimism about a Fed pause. Dollar Index is now trading at 107.17, with EUR below 1.13, GBP at 1.1840 and JPY at 140.45. US 10y is above 3.8%. US equities managed a positive close, even as NASDAQ ended flat. Indian indices ended Friday down by 0.2% and are set for a cautious start to the week. INR remained range-bound, but the positive momentum has now stalled.

This week is relatively data-light and has FOMC minutes to look forward to in addition to US durable goods data. Unless the minutes reveal a significant discussion among the members on pausing rate hikes, markets could move sideways in a data-dependent fashion. The Rupee is now stable, but biased towards mild depreciation, as the fundamental picture remains unfavorable. Even though the primary focus of markets is the Fed rate strategy and inflation, there has been a consistent withdrawal of liquidity continuing month on month. For judging the market outlook, flow of money is more important than the stock of money. As there is a negative flow due to QT, markets could find it difficult to sustain a consistent appreciation. Further, the sharp rise in global rates will percolate into the global economy soon, and hence an uncertain recessionary period remains the base case. In this context, any appreciation in the Rupee presents a good opportunity to stack up on some import hedges or lighten the export hedges.

Dollar steady, and INR range-y as Fed speakers reiterate caution on inflation.

(18th November 2022, 8:00 AM)

INR likely to open around 81.50

Dollar remained steady and US yields rose mildly yesterday as Fed speakers held the line that inflation is still high and it would take more hikes from them to cool it. Dollar Index is at 106.55, with EUR trading at 1.0365, GBP at 1.1865 and JPY at 140.25. US yields rose yesterday, with the 10y up to 3.76%. Global equities were down yesterday on rising yields. DOW ended flattish while S&P 500 and NASDAQ were down by around 0.3%. Nifty also fell by around 0.4%.

Fed speakers who spoke yesterday reiterated the need for them to continue to be aggressive about inflation. They continue to remind markets that CPI is still very high, and one should not get ahead of oneself in expecting a pause/reversal in Fed strategy.  USDINR has settled into a range again as the Dollar weakness momentum has come to a halt due to the constant messaging from the Fed. With no significant macro data events slated for the next couple of weeks, the base case remains that of a range-bound INR for now. Unless there is a technical rally/selloff in markets the next important data event remains the PCE inflation and then the next month’s macro data (Jobs and then CPI).

INR remains under mild pressure even as global Dollar remains weak. India trade deficit worsens slightly.

(17th November 2022, 8:00 AM)

INR likely to open around 81.50

The mild Dollar weakness trend remained intact globally, but the Rupee has not been able to keep the initial momentum going and USDINR has slid slightly ever since the initial burst towards 80.50. Dollar Index is slightly lower today, at 106.38. EUR is at 1.0370, GBP is at 1.1880 and JPY is trading at 139.55. US yields remain on under pressure, and the 10y is pushing towards 3.7% and below. Market expectation of a dovish Fed remains the primary theme despite Fed speakers attempting to downplay the importance of the previous CPI data.   US equities ended the day lower, primarily due to a 1.5%+ fall in the tech index. Indian indices ended almost flat.

India trade deficit for last month came in at 26.7 billion. The deficit remains at an unsustainable level, and is sure to weigh on INR especially when global flows continue to be hard to come by. At this rate, an annual current account of deficit (CAD) of 120-130 billion is possible, which would take the natural level of USDINR higher from a Balance of Payments perspective. Even though the CAD is manageable as a % of GDP, the absolute numbers do have an effect on the currency, especially when capital flows do not match the deficit.

US retail sales rose higher than expected per the data release yesterday. The data shows a resilient economy despite the series of rate hikes. Such data will embolden the Fed to keep with the current rate strategy. While the data release per se, did not move markets, it is an important point which shows that a deep recession is still some time away and the Fed might stick to being aggressive for a few more months.

USDINR remains in a range below 81.50. But, given the momentum of the move towards 81.50 from the 80.50 bottom, it is possible that USDINR might move up mildly from here. The trade deficit release is not going to help the Rupee for sure. There is no large trigger though for the Rupee to move towards 83 in the next 2-3 weeks though. So, one can expect a reasonably range bound currency for now.

Rupee range bound. Dollar remains weak, but momentum slowing.

(16th November 2022, 8:00 AM)

INR likely to open around 81.10

Dollar moved in a range yesterday recovering some of the intra-day weakness, but overall is lower than the previous day. Dollar Index is at 106.30, with EUR at 1.0375, GBP at 1.1870 and JPY at 139.95. US yields continued to drift lower yesterday. The US 10y is trading at 3.78%. US equities traded in the green yesterday. Even as DOW rose just around 0.2%, the NASDAQ continued its spree with a 1.9% odd rise. Indian indices remain close to one year highs – nifty rose 0.4% yesterday.

USDINR seems to be forming a new range around the 80.50-81.50 band. The trigger for the sharp upwards momentum has waned after the last CPI data. On the other hand, the downward momentum is now on hold as markets reassess whether the Fed would actually be so dovish as they expect, going by the speeches from the Fed members. The next major data point is the US PCE inflation and until then, markets could move sideways depending on news and comments of the day.

USDINR revives a bit as Dollar weakness trend stalls. Fed speakers downplay market optimism.

(15th November 2022, 8:00 AM)

INR likely to open around 81.00

Dollar fought back a little yesterday, as markets took a breather from the post-CPI risk rally. Fed speakers tried to downplay the last CPI data and commented that it is unlikely that they would budge on the current strategy. Dollar Index is now at 106.80, with EUR at 1.0320, GBP at 1.1770 and JPY at 140.30. US equities ended the day lower, with DOW falling 0.6% and NASDAQ dipping more than 1.1%. Indian indices saw a moderate fall of 0.2% odd.

USDINR has managed to rebound from the 80.50 range, as the Dollar strength trade stalled. The current market behavior is very similar to the July optimism when lower-than-expected CPI triggered a sharp Dollar rally. Fed members pointed out that the current market optimism about the pause in rate hikes is misplaced and that even a 7.7% inflation is extremely high. The reality is that inflation, even if it falls to 6% range, is still much higher than what the Fed would be comfortable with, and they are likely to keep draining liquidity for long time to come irrespective of a pause or slowdown in pace of hikes.

USDINR could set a new range between 80-82 for now, until the next CPI data since the Rupee appreciation momentum has stalled, and the depreciation triggers are yet to set in. The long-term prognosis for the Rupee remains bleak, due to the possibility of a low-growth driven panic in risk assets compounded by the effects of receding global liquidity.

Dollar weakness trend continues. INR on favorable ground. Month end PCE inflation now key.

(14th November 2022, 7:30 AM)

INR likely to open around 80.50

The Dollar weakness bout continued Friday, with yet another correction in the Dollar. There is a slight revival in USD after today’s Asia open though. Dollar Index is trading at 106.50. EUR is at 1.0345, GBP is at 1.1785 and JPY is at 139.05. Friday being a bond market holiday, US cash yields remained unchanged, but equities saw some more gains. The repricing of the change in FOMC’s rate strategy is firmly underway. DOW ended flat, but NASDAQ saw 1.9% jump. The impact of the inflation data is being felt on the Dollar more than any asset class. The entire edifice of Dollar strength is built on sustained rate hikes from the Fed and the yield divergence with other currencies, especially the JPY and other majors. Now given the widespread expectation of a potential pause in the Fed strategy, how strong would be reversal be is the question for the markets.

INR is benefiting well from the ongoing Dollar reversal trend. The momentum is strong now, and a breach of 80 might on the cards. This week has some important US macro data such as retail sales, but the US core PCE inflation towards the month-end remains the next critical data point, especially in the light of sharply lower CPI. If the PCE comes in higher and remains stubborn, some of the current market expectations are at the risk of not being met. Even though the inflation rate seems to have peaked, it is still at an unacceptably high level and the Fed might not go for a full pause in rates, but rather a slowdown in pace of rate hikes. The Fed speakers have been commenting that the discussion in upcoming meetings would be towards reducing the pace of hikes and not on stopping them altogether.

Equities are now seeing a surge despite the risks of a global recession. Euro area and UK inflation remain very high, forcing their central banks to purse aggressive rate hikes. A bout of sharp recession is needed in most parts of the globe to see a sustained fall in inflation. Equities currently do not price any large recession and earnings drop. Further, liquidity withdrawal is set to continue even after rate hikes stop. The previous bull run in global assets was largely due to surging liquidity from central banks and now that there is a net drawdown in liquidity, the risk of a reversal in global risk assets remains very tangible.

INR is enjoying the current period of Dollar slump and can see more appreciation towards the range below 80. But long term factors listed above will mean that there would be another bout of INR depreciation coming again may be in a couple of months. We continue to believe that the dip in USDINR remains a good hedging opportunity for importers and as a means of lightening the hedge ratio for exporters.

INR strong amidst global Dollar rout. US CPI below expectations. Triggers massive rally.

(11th November 2022, 6:30 AM)

INR likely to open around 80.75

Dollar crashed, yields fell sharply, and stocks shot up higher in a massive rally yesterday, after the US CPI came in lower than expected. The CPI came in at 7.7% against the expected 8%. Core CPI also was lower at 0.3% as against 0.5% expected. Dollar Index is now at 107.75, with EUR at 1.0185, GBP at 1.1665 and JPY at 141.90. US yields crashed and the 10y is now at 3.8%. Markets now ascribe 0% probability of a 75 bp hike. The terminal Fed funds rate projections (the end of the rate hike cycle) is down below 5%. US equities saw a massive rally, with NASDAQ ending higher by 7.3%, and DOW by 3.7%. The sharp move is primarily due to a short squeeze as the data was a complete surprise to wall street. Indian indices will also see a sharp rally today and Nifty will reach its 52-week high today as indicated by futures.

INR has benefited immensely from the crash in the Dollar and now the momentum is so strong that 80 looks now a possible target. The inflation print showed that the effects of the monetary tightening have started to trickle in, and the Fed will probably go slow on quantum of hikes in the coming meetings. But the same rate hikes will also impact demand in the coming months, and a recession remains a clear possibility. The next question would be how fast the inflation will start to fall, and whether this data is just an outlier. These issues will keep long-term prospects for the Rupee uncertain. The short-term though is very amenable to Rupee stability, as the most important driver of the global move seems to have peaked.

Dollar slightly stronger after unexpected US midterms. US CPI today.

(10th November 2022, 8:00 AM)

INR likely to open around 81.50

Dollar showed a mild reversal yesterday, and recouped the lost ground slightly, and US equities fell after the uncertain outcome in the US midterm elections. Dollar Index is at 110.25 now, with EUR at 1.0015, GBP at 1.1390 and JPY at 146.20. US 10y has fallen to 4.08%, due to mild risk aversion. US equities fell 2%+ after the midterm elections showed that there it no republican sweep of the Congress and the Senate as expected. Now that the elections revealed a good performance from the Democrats, it could mean that the inflation and rate hikes are not that critical factors from a political perspective, and hence the Fed would be emboldened to continue with its strategy without worrying about political influence. On the domestic front, Indian equities ended slightly lower, and are expected to open cautiously given the overnight US equity performance.

Today evening release of the US CPI remains a very important event for markets. Now that there is firm hope of a pivot from the Fed, a strong CPI can cause havoc and a weak CPI can fuel a good rally. INR is in an indecisive spot now and is very much data dependent. For now, further appreciation in the Rupee is possible, if the global Dollar weakness momentum resumes after the CPI. Irrespective of whether the CPI comes in slightly lower or higher than expected, the fact remains that inflationary pressures remain high in almost all major economies. As the global liquidity is withdrawn in the coming months, there could be another bout of risk aversion in markets in the coming months. From a short-term perspective, INR might have some room for appreciation, but over the longer term, the outlook continues to remain uncertain.

INR gains solidly on the back of global Dollar weakness. US CPI tomorrow can be the decisive factor.

(9th November 2022, 8:00 AM)

(7th November 2022, 8:00 AM)

INR likely to open around 82/82.10

Friday saw a bout of Dollar weakness after a mixed US jobs report. USDINR was on the downtrend during the intra-day trade on Friday but ended sharply lower in the NDF trade, after the lower-than-expected earnings growth in the US jobs report triggered a relief rally. Dollar Index is down at 111, with EUR at 0.9935, GBP at 1.1330 and JPY at 147.20. US yields remain elevated, but US equities saw a good 1%+ rally on Friday.

The NFP report revealed that the economy added 260k jobs, which is higher than expected. Even the September number also got revised upwards. But the unemployment rate jumped higher, to 3.7% and the annual wage growth declined to 4.7% from 5%. While the initial reaction to the jobs report was a knee-jerk Dollar rally, the unemployment rate and lower wage growth somehow convinced markets that the Fed would be forced to go easy on their hawkish stance. In our view, the jobs report continues to show a tight labor market and the market optimism might turn quickly in the coming days. The US CPI data on the 10^th is very critical now, for the market to form a long-term view on where the Fed would end up on the rates.

USDINR is now at the lower end of the range. Whether the current momentum is enough to take it towards 81.00 or whether there could be a reversal back toward 83 could be determined by the US CPI data. Even though the wage growth has fallen in the latest NFP release, it is still high enough to continue to stoke demand side inflation. INR is not yet out of the woods as structural inflation is very much entrenched. Markets are still pricing in around 50% probability of a 75 bp hike in the next meeting. Any dip in USDINR remains a buying opportunity unless structural factors such as the trade deficit and the global inflation trend reverse.

Dollar strength persists. INR trying to breach the current range. US jobs data today.

(4th November 2022, 8:00 AM)

INR likely to open around 82.70

The pressure on the Rupee continued for yet another day, as the post-FOMC Dollar strength solidified, and US remains remained on the ascendency. Dollar Index is at 112.60, with EUR at 0.9765, GBP at 1.1210 and JPY at 148.05. US 10y is at 4.16%. US equities remained in the negative zone, with the DOW down 0.45% and the NASDAQ seeing yet another 1.5%+ fall. Indian equity indices saw a moderate correction of around 0.2%.

The latest US data (ISM) shows a reasonably resilient economy, and it seems that the monetary policy of the past few months is yet to show its full effect. While the Fed wants to consider the lag effects of the past hikes, the worry remains that the entire impact of all the rate hikes suddenly causes economic and market disruptions. For now, markets remain slightly stressed, but not in a panic mode.

USDINR went near the 83 level yesterday, as markets took the Powell press conference to mean hawkish Fed for some time to come. The pressure on the Rupee could remain, but might not be enough to cause a sharp move breaching the current band, and towards 84. Today’s US jobs data might cause some volatility, especially if wage growth numbers come out very divergent. But, the key data remains the US CPI to be released next week. For now, USDINR remains biased slightly towards more upside.

FOMC hikes as expected. Uncertainty about future FOMC strategy remains. INR range intact for now.

(3rd November 2022, 8:00 AM)

INR likely to open around 82.75

Dollar whipsawed in a volatile session after FOMC outcome and ended the day finally higher. Equities fell by close of trading. Dollar Index is now at 111.80, with EUR at 0.9830, GBP at 1.1405 and JPY at 146.35. US 10y is at 4.11%. DOW is down 1.55%, while S&P 500 is even more in the red driven by tech stock crash (NASDAQ down by 3.35%).

The FOMC raised rates by 75 bp as expected. The statement had a line stating that, going forward, they would consider the cumulative effect of the past hikes and the lag time taken for the hikes to impact the economy. Markets were happy that this is the dovish pivot language expected, and that the Fed would pause for a while or slowdown the pace of hikes. But the Powell press conference poured cold water on these hopes, especially through statements indicating that they are a long way from rate cuts, and that it would take a high threshold for them to consider changing their strategy. Dollar regained lost ground post the press conference and ended the day higher. In all, FOMC did a reasonable balancing job in keeping the uncertainty in the narrative going and ensuring that markets do not stick on to either a firm belief of pause/rate cuts or a fear of continuing sharp hikes.

A reading of the FOMC statement indicates that the pace of hikes would slow down in the coming months, may be with a 50 bp in December and 25 bp in January. All this conjecture is contingent on inflation data softening enough in the coming months. With the FOMC not clearing the way for markets in either direction, it is up to the incoming data to set the tone now. US macro economy seems resilient enough for the Fed to maintain hawkish tone for now. The next inflation release in the coming week would now be very critical.

India trade deficit is yet to be released. The expectation is that rising USDINR would slowly eat away at the deficit, which even at 25 billion is very high for comfort. Today’s RBI MPC meeting is meant to discuss RBI’s letter of response to the government on rising inflation and its failure to protect the 2%-6% inflation band – procedure required by law. No interest rate decision is expected in this meeting.

USDINR range remains intact even after the FOMC. While the hope that the interest rate cycle might come to a pause in the next 2-3 months is positive for the Rupee, the creeping global liquidity strain will remain a major negative factor in the coming months. In the short-term, the FOMC outcome has ensured that sharp depreciation momentum is now stalled. USDINR might get some breathing air until the US CPI data next week.

Markets quiet ahead of FOMC. USD and risk assets steady. INR range-bound.

(2nd November 2022, 8:00 AM)

INR likely to open around 82.65

Markets are quiet and subdued ahead of the FOMC decision today. Dollar is steady and US yields remain in a tight range, but the looming FOMC decision has the potential to trigger a large move in all asset classes. Dollar Index is at 111.25, with EUR at 0.9885, GBP at 1.1505 and JPY at 147.95. US 10y is at 4.02%. US equities ended negative yesterday, by around 0.25% on the DOW and 0.8%+ on the NASDAQ. Indian equities remain bullish and saw a 0.7%+ odd rise again.

FOMC statement today is keenly awaited to look for any language which supports the expectation that the Fed would slow to a halt soon. In the past 3-4 weeks, a hope has set in that the Fed would not be able to afford continuing hawkishness and that they would be forced to call a pause despite firm inflation. It would be interesting to see how Powell would handle this aspect in the press conference and whether he would continue to talk aggressively like he did in the Jackson Hole symposium a few months ago. US macro data is still resilient enough even now, and the Fed might not consider a shock to the economy as a major risk factor.

On the domestic front, the trade deficit data is awaited today, and a 25+ billion deficit is expected again. The structural problem for the Rupee remains very much relevant. The current optimism around rate hike cycle does not take into consideration the continuing withdrawal of liquidity. The ECB would also eventually be forced to reduce their balance sheet size, given that the inflation in EU actually is on the rise still rather than plateauing (the latest inflation print of 10.7% is an all-time high for the EU area). Even if there are short-term avenues for Rupee appreciation, we are of the belief that the receding liquidity can open up vulnerabilities in the global financial system and has the potential to lead to liquidity and credit events in the next year or so. USDINR remains a buy on dip for the long term.

INR under pressure ahead of the FOMC meeting. US yields strong. Dollar steady.

(1st November 2022, 8:00 AM)

INR likely to open around 82.75

Rupee has been failing to capture any meaningful upside of any global Dollar weakness trend and but has been quick to react sharply to even a mild Dollar strength. Yesterday was one such day when the overnight Dollar strength influence the move towards the top end of the current Rupee range. On the eve of the FOMC meeting, Dollar remains steady, and US yields are slightly elevated and US equities are down as uncertainty about tomorrow keeps markets on tenterhooks. Dollar Index is at 111.30, with EUR at 0.99, GBP at 1.1490 and JPY at 148.40. US 10y traded steady around 4.05%. US equities ended lower, driven by a 1%+ fall in the tech index. Indian indices though, remain very resilient, and yesterday saw a solid 1.3%+ jump.

Tomorrow’s FOMC can be a major event, in the context of markets’ expectation of a dovish pivot. If the FOMC does move towards neutral language and signal the coming end of the rate hike cycle, we can see a humongous rally in risk assets and a sharp appreciation in the Rupee. But the likelihood of such an outcome is low given the persistent inflation numbers across the globe. If the FOMC refuses to budge on their stance, USDINR could breach 83 again and move towards 83.50 levels. Markets have a lot going on the hope of a dovish pivot tomorrow.

On the domestic front, the trade deficit data due today/tomorrow is important to gauge if structural pressure on the Rupee has any chance of easing in the future. For now, USDINR remains in its range, and the range can hold potentially until tomorrow.

Dollar steady and US yields firm. Risk appetite remains strong. INR range intact. FOMC this week.

(31st October 2022, 9:00 AM)

INR likely to open around 82.25/30

Dollar has opened the all-important FOMC week firm. The core PCE inflation on Friday came in within expectations and helped a mild Dollar strength and a rise in US yields. US equities continued their bear market rally on Friday with a solid 2.5% jump. Dollar Index is now at 110.70, with EUR at 0.9950 and GBP at 1.16. JPY is again higher, at 148 after the BOJ refused to budge from their zero interest rate policy. US 10y is trading at 4.04%.

The FOMC meeting is scheduled tomorrow, and the statement is slated for Nov 2nd. Markets fully expect a 75 bp hike in this meeting, but more important would be the tone of the statement and press conference and whether Powell would ‘pivot’ to a more dovish tone. As of now, inflation data remains very resilient despite the falling economic indicators. Markets hope that the Fed would acknowledge the slowing growth and assuage concerns with a dovish language. A similar hope was dominant in August also after a slightly lower than expected CPI data, only to be quashed by the FOMC later. As of now, markets expect a 50 bp hike in December and 25 bp or so next year followed by a long pause.

Even more important than the rate hike is the continuing liquidity withdrawal (QT) – going at a pace of 100 billion a month currently. There are pockets of Dollar shortage already sprouting out in various markets. With the ECB also set to discuss balance sheet shrinkage in their December meeting, global liquidity is set to remain tight even if the rate hikes pause for a while. While the short-term volatility might lead to some appreciation in risk assets including the Rupee, medium-term impact of liquidity withdrawal is sure to set risk assets on a path of high uncertainty.

In addition to the FOMC, ISM and US jobs data, and trade deficit data on the domestic front are important for the Rupee. The current USDINR range remains unbroken, but the latest risk rally has softened the momentum of INR depreciation. But, fundamental issues such as high current account deficit and persistent inflation remain impediments for any meaningful appreciation in the Rupee.

INR range intact. Dollar holds after few days of correction. US yields remain soft. FOMC next week.

(28th October 2022, 8:30 AM)

INR likely to open around 82.35/40

Dollar recovered some of the previous days’ losses despite the continuing softness in US yields. Dollar Index is at 110.30, with EUR at 0.9980, GBP at 1.1575 and JPY at 146.50. US 10y fell again yesterday, now at 3.9%. DOW managed a 0.6% positive close despite the fall in tech stocks. Facebook crashed 20% yesterday after poor earnings. Amazon also fell sharply on earnings. Indian indices rose a modest 0.3% odd. Brent crude remains strong due to Dollar weakness, now at 94.20.

The ECB hiked 75 bp yesterday, as expected and said the discussion on balance sheet reduction would be in focus from the December meeting. Markets expect a 50 bp cut next meeting and 25 bp thereon. ECB is in a bigger quandary than the Fed as the EU growth is plagued by geopolitical risks and simultaneous inflation spike poses a significant problem for the central bank. EUR did not react much to the ECB announcement.

USDINR failed to break the lower end of the current range, despite the opportunity presented by a sharp fall in the Dollar. Today’s core PCE data might add more uncertainty to the move now that the positivity around the weakening Dollar seemed to have tempered down a bit. The fundamental case for Rupee depreciation remains well formed, and the natural medium-term direction for the Rupee remains towards more depreciation. Next week would be very critical for the Rupee, due to the FOMC meeting event and the US jobs data.

Global Dollar retreats and INR benefits. PBOC action additional boost to the Rupee. US yields softened.

(27th October 2022, 8:30 AM)

INR likely to open around 82.10

Dollar retreat accelerated over the past couple of days on the back of a meaningful fall in US yields. Chinese central bank’s action on CNH has led to a good appreciation of the currency, helping other Asian currencies along. Dollar Index is at 109.75 now, after touching 113 as the recent high. EUR is above parity, at 1.0060, GBP is at 1.1610 and JPY is at 146.40. US 10y has reached close to 4% and lost 25 bp from the recent high. The 2y US yields have fallen, even more, indicating softening expectations on the Fed action in the next 1-2 years. DOW ended yesterday in the red, brought down by a sharp fall in NASDAQ (-2%) on the back of weak corporate earnings. Indian indices are slightly tentative, but the sharp fall in US yields should help bring positive momentum.

USDCNH is now at 7.23 level after being as high as 7.32. The PBOC set the onshore Yuan to fix lower and asked the state-owned banks to intervene and sell USD to support the Yuan. The CNH move has helped the Asian currencies and has led to a correction in USDINR below 82 intra-day yesterday. There seems to be a sudden shift in Fed expectations also, after weak US economic data, and hopes of a pause in Fed hike cycle after the Jan 2023 meeting are renewed again. The move in the Dollar is reminiscent of the correction seen after a weaker-than-expected CPI 3 months ago. The same theme is playing out this time around – that slowdown would cause a quick softening of inflation and that the Fed would be forced to abort as markets cannot sustain rate hikes beyond a level.

Today’s US core PCE inflation remains a critical data, especially in the current move. If the PCE inflation remains high, there could be a reversal back to a higher Dollar. But, if the data turns out better, we can expect a sharper Dollar fall and a USDINR below 81.50 in the coming days before the Nov 2nd Fed meeting. Structurally though, INR remains weak as global inflation is far from being under control and the Fed would be forced to continue their rate hikes even at the cost of the recession. A dip in USDINR and the current rise in crosses are good levels to hedge appropriately.

INR remains range-bound amidst steady Dollar. Core PCE data next important event.

(25th October 2022, 7:30 AM)

INR likely to open around 82.75

Dollar is subdued, US yields are steady and risk appetite is strong as overnight US equities surged 1.8%+ on hopes of weakening economy and eventual normalization of Fed policy. Dollar index is at 111.75, with EUR at 0.9890, GBP at 1.1318 and JPY at 149. BOJ intervened heavily in the FX market on Friday and yesterday, but USDJPY refuses to fall meaningfully. They reportedly spent almost 50 billion on the interventions until now but have no real improvement in JPY to show for. JPY is important for all Asian currencies, especially CNH and KRW, as an extremely weak JPY would force them to maintain devalued CNH and KRW.

US equities closed well in the green as “bad data is good news” theme continues to be the mainstay of the markets. The latest PMI data out of the US, which were lower than expected, show a deteriorating economy. Somehow markets remain hopeful that the recession would be superficial, and the Fed would withdraw quickly once they see recession deepening.  Indian indices ended higher by around 0.9% in the Muhurat trading yesterday.

The Rupee is developing a new range between 83 and 82.25, which can hold potentially until the next Fed meeting on November 2^nd. In the meantime, the Core PCE inflation release this week can move the needle on the Rupee range, if it diverges from expectations significantly. The underlying structural pressure remains persistent on the Rupee, but short-term volatility including some appreciation possibility, remains on the table as markets recalibrate Fed expectations based on hopes of economic slowdown.

INR remains under pressure. US yields higher on Fed expectations.

(21st October 2022, 8:00 AM)

INR likely to open around 82.80

Dollar continues to be strong as US yields keep surging due to solidifying expectations of aggressive Fed action in the coming months. Dollar Index is at 112.90, with EUR at 0.9780, GBP at 1.1215 and JPY above 150. US 10y rose again yesterday, now at 4.23%. DOW ended lower by 0.3%, but S&P 500 saw a deeper cut of 0.8%. Indian indices ended flattish. Oil continues to remain steady even as recession fears pick up steam. Brent is at 92.50 USD per barrel.

GBP fell yesterday after the UK PM resigned after the failed attempt at tax cuts which resulted in market turmoil. While we might be tempted to blame the UK tax cut proposal for the sudden move in GBP and the UK bond market a couple of weeks ago, the underlying problem is that excessive leverage in various markets is being brought out as the liquidity recedes and rate hikes cause asset price drawdowns.

As for the JPY, it breached 150 yesterday, even as the BOJ remains silent on intervention. Japan CPI came in hot, as the sharp depreciation in JPY is leading to imported inflation there. It is a matter of time before the BOJ either withdraws from the zero interest rate policy or intervenes heavily in the forex market.

USDINR remains in the new zone below 83, but the bias remains towards more depreciation. Global Dollar refuses to relent, especially as US yields continue to break through critical levels. Markets continue to expect a peak fed funds rate of 4.75% -5% as of now, but the liquidity withdrawal program remains the key problem for markets. There are signs that global Dollar liquidity is tightening sharply as evidenced by usage of swap lines by some central banks. If the liquidity shortage deepens in the next 6 months or so one can expect even the forward premia to fall a bit more a bit as banks use Rupee funds to generate USD.  As for the Rupee, the prognosis remains uncertain, but the volatility in the market is such that one good data point can turn the tide and cause a meaningful appreciation of the Rupee towards 81 in the short term. Prudent hedging and risk management using options is helpful in the current volatile regime.

INR under pressure. Global Dollar strength revives.

(20th October 2022, 8:00 AM)

INR likely to open around 82.95/83.00

USDINR saw an unexpected jump yesterday, ostensibly due to some large corporate buying flow, coupled with a jump in the Dollar on the back of strong UK and EU CPI. Overnight trading saw the revival in the Dollar back to 113 level on the Dollar Index. EUR is at 0.9760, GBP is at 1.1200 and JPY is at 149.95. US 10y is higher, now at 4.15%. US equities ended lower, with the DOW down 0.3%, and NASDAQ down 0.8%. Indian indices had a green day but are set for a cautious open today.

The EU and UK CPI data came in hot, and markets seem to realize the reality that the inflation fight is far from over. The jump in US 10y is also indicating the impact of receding liquidity on US long term yields. While the Fed can be expected to continue its hawkish rate hike policy and liquidity withdrawal, there would come a time in the next few months that would force them to backtrack on their narrative even as inflation refuses to back down.

For the past 20 years, the US engaged in the strategy of using free Dollars printed out of thin air to import and run large current account deficits. Now that the real goods and services refuse to back down (price inflation), the economy built on such strategy has to take a hit in the form of lower standard of living and deep recession. By adopting the strategy of rate hikes and quantitative tightening, the Federal reserve is causing Dollar shortage globally and the unprecedented leverage built into the global system is suddenly looking too large for comfort. There is a real risk of the entire edifice of global economy, supported hitherto by lose monetary policy, collapsing on itself unless global central banks play their strategies very cautiously. While such an eventuality is possible, one cannot work with this assumption as the base case. The more palatable scenario would be of a manageable recession causing inflation to back off in a year or so.

As for the Rupee, the sharp movement yesterday, has tilted the balance towards more depreciation. Even as USD remains reasonably contained, INR has reached 83 again. If the global Dollar momentum picks up steam, USDINR could move towards 84.00 sooner than later. The next major event remains the November 2^nd FOMC meeting.

Dollar subdued on strong risk appetite. INR range still intact.

(19th October 2022, 8:00 AM)

INR likely to open around 82.25/30

Dollar traded subdued even as US yields remained elevated, on the back of revival in risk appetite for yet another day in global markets. Dollar Index is now at 111.90, with EUR at 0.9855, GBP at 1.1340 and JPY at 149.20. US 10y is at 4.02% and JPY is reflecting the persistent interest rate differential between the US and Japan. DOW saw 1%+ gain yesterday on the back of strong earnings. Indian indices also jumped 1% yesterday tracking the global equity performance.

With no significant data out of the US forthcoming in the next few days, markets could take a breather and try and generate a bear market rally until the month-end, after which the FOMC dynamic would take over. As for the Rupee, while the momentum towards 83+ has stalled for now, the global positivity is not helping the currency beyond a level and the range above 82.10 level seems to be holding for now. Fundamental factors such as an aggressive Fed and other central banks, receding global liquidity, potential global recession on the horizon and raging inflation in most parts of the globe, are very much relevant still and any rally in the Rupee and other risk assets might just be a temporary phenomenon.

For now, the UK market issue seems to have settled down after the UK government reversed its tax cut plans. Going forward, governments across the world are going to face this problem of keeping their economies above water as rate hikes start to cause deep recessions. The rupee is stable for now and longer the period of stability, faster would be the subsequent move. As things stand, the balance of odds point to that move being towards more depreciation.

Dollar weakens as risk appetite revives. INR stable in the current range.

(18th October 2022, 8:00 AM)

INR likely to open around 82.20

Yesterday saw a revival in risk trade. Dollar traded down, US yields slightly low, and US equities surged. The UK government walked back on the tax cut proposals, leading to a sharp move in GBP and a relief rally in risk assets. Earnings reports yesterday of some US companies including Bank of America surprised on the upside and gave a boost to US equities. Dollar Index is down to 112, with EUR at 0.9830, GBP at 1.1340 and JPY at 148.90. The relative underperformance of JPY is due to the persistent yield differential between Japan and the US, and lack of any intervention by the BOJ. Indian equities did well yesterday, and the frontline indices jumped 0.8% odd.

INR is now at the lower end of the current band. Given that there are no real data triggers out of the US to move markets, technical factors can continue to carry the momentum a bit more from here. Until the next Fed meeting on the 2^nd of November, USDINR could drift lower also depending on the news events and overnight market performance of the day. But any dip remains a buying opportunity.

INR range-y as Dollar stabilizes. Relatively data-light week ahead. Developments in UK markets and UK/EUR CPI in focus.

(17th October 2022, 8:00 AM)

INR likely to open around 82.40

Dollar traded stronger on Friday but gave up some gains at Asia open today. Inflation and Fed action remain the key drivers of markets. Given that the crucial data for the month is done away with, the next couple of weeks could see more news-driven activity. Dollar Index is now at 112.90, with EUR at 0.9745, GBP at 1.1230 and JPY at 148.60. US 10y is above 4%. DOW ended 1% in red on Friday, but S&P 500 and NASDAQ saw deeper cuts of 2.35% and 3%+ respectively. The sharp fall in US markets has led to Asia markets opening subdued. While the Indian indices jumped 1%+ on Friday, we can expect a lower opening today.

Among other things, today could be important for UK bond markets, as it is the first day after the emergency BOE bond-buying program has stopped. While the UK PM has fired her finance minister, her political future itself is not sure and hence is the uncertainty about the tax cut plan, which was the culprit which triggered the bond market scare in the first place. While GBP is higher on hopes that the UK government would not move on tax cuts, the fact that the BOE is now in a quandary on rate hikes/inflation fight and market stability reveals the problems central banks are going to face in the coming months.

The next Fed meeting is scheduled for November 2^nd. Until then, markets would react to technical factors and news related headlines. This week has UK and EU CPI data and any surprises there could cause knee-jerk moves in markets. USDINR has settled into a new range between 82.25 and 83 and could continue in this range for a few more days. The fundamentals remain bearish for USDINR, and any dip remains a good buying opportunity.

Risk appetite revives despite higher US CPI. Fundamentals continue to be negative for the Rupee. But short-term stability possible.

(14th October 2022, 8:00 AM)

INR likely to open around 82.20

In an extraordinarily volatile session post the US CPI release, USD ended lower than the pre-CPI levels, after being much higher intra-day. Dollar Index is down to 112.20 now, after being above 114 intraday. EUR is at 0.9790, GBP is at 1.1340, and JPY is at 147.30. US equities saw wild swings and rallied sharply eventually in an unexpected reversal. DOW ended 2.8% higher, taking all risk assets higher with it. US yields surged initially, after the CPI report but retraced most of the gains later. US 10y is at 3.92% now, after being higher than 4.05% initially. Indian indices fell 0.7% odd yesterday but are set for some gains today owing to strong US equity performance.

The US CPI rose 8.2% last month,  higher than the expected 8.1% rise. The core inflation rose 0.6% MoM as against 0.4% expected. The report clearly is a negative for the economy as there is a clear stickiness in inflation despite almost 5-6 months of FOMC rate action. Rate hike odds for the next meeting are now solidified and 75 bp is almost priced in. But, markets continue to hope for a rate cut next year, despite the inflation data, which underlines the hope that a recession and market risk events would force the Fed to stop its policies.

The sharp reversal in markets yesterday was unexpected, and is being attributed to market positioning, and short covering. In our view, these types of extremely volatile reversals occur when technical factors dominate the market for a brief period and such moves are reversed soon. Further elevated volatility and erratic behavior is not a good omen in these times. Historically, such sharp reversals tended to signal deeper cuts later. We would watch for a few more days whether yesterday’s whipsaw move is sustainable or could reverse quickly.

As for the Rupee, the fundamentals continue to be more and more negative. While INR has managed to dodge a sharp depreciation move post the inflation data release, the structural inflation and the potential for Fed action would keep the Rupee under pressure. Any dip in USDINR in the current environment remains an opportunity to add to long positions. The domestic situation is also not that conducive to the Rupee. The last India CPI print at 7.4% indicates the need for more aggressive rate hikes from the RBI, and the good economic growth being hoped for could be jeopardized if inflation remains high for the next few months. All in all, the US inflation data event is over, and the Rupee is safe for now, though the long-term pressures could force the depreciation of the Rupee again in the coming weeks.

INR stable ahead of US CPI data. Global Dollar strength persists.

(13th October 2022, 8:00 AM)

INR likely to open around 82.25

USD is mildly weaker ahead of the all-important US CPI data today. GBP has retraced back to 1.11 again after markets seem to be hopeful that the BOE would not stop supporting the market anytime soon and might continue the emergency program for a bit longer. Dollar Index is at 113.15, with EUR just above 0.97, GBP at 1.1095, and JPY closing at 147. US 10y is slightly lower, at 3.91%. US equities closed in the red, but only by around 0.1%. Indian equities continue to be resilient, and yesterday was a good day with a 0.8% odd rise for the indices.

The minutes of the last FOMC meeting were released yesterday. Fed officials seem to view the risk of not doing enough in terms of rate hikes as riskier than falling short and causing entrenched inflation. For now, the minutes clearly indicate that rate hikes and liquidity withdrawal strategies would remain the mainstay of the action plan.

There are now comments starting to circulate about the health/liquidity of markets and the capital positions of banks. Yellen commented that the liquidity situation in treasury markets is fine. Bank of America’s CEO said that their capital position is strong. While there is no immediate threat to markets in these areas, the fact that market liquidity and capital positions are even being mentioned indicates the potential for some of these aspects to become points of concern later.

INR has seen the depreciation momentum abate a bit despite strong global Dollar pressure. Today’s CPI data is very critical as it can cause a complete shift in FOMC expectations. Yesterday’s PPI release indicates that the CPI is likely to be as per expectations, but we must wait for the big data event. INR could again touch the 83 level if the CPI comes in hotter than expected, while even 81.25 or so is also possible if the CPI is lower than expected.

USD strong amidst worries about the UK bond markets. INR stable for now, but vulnerable. US CPI tomorrow.

(12th October 2022, 8:00 AM)

INR likely to open around 82.30

Dollar strength remained intact yesterday, driven by a sharp fall in the Pound. The Bank of England announced that the emergency QE measures which was announced to support their bond market will end this week, while announcing additional measures to ease liquidity stress for funds in a targeted way. Dollar index is at 113.55, EUR is at 0.9690,.GBP is at 1.0930 and JPY is at 146.35. DOW managed a positive close, but other frontline indices closed well in the red. US 10y is at 3.95%. Indian equity indices closed 1.5% lower as the global sentiment continues to be weak.

BOE governor spoke yesterday wherein he warned that the UK faces substantial financial risks. While the bond buying program meant to help stabilize the markets would end this week, the BOE took additional steps in the form of doubling the amount of bonds which can be bought for the next 3 days and a new liquidity support facility until the month end. The bottom line here is that the bond market in the UK continues to be unstable and that even if the BOE manages to calm the market for now, it’s ability to do a liquidity withdrawal program is now seriously hampered. Markets are worried about how they will toe the fine line between inflation fighting measures and market stability. Post the BOE governor’s comments, GBP fell, and UK yields moved higher.

The rupee has managed to hold on from a sharp depreciation despite the global dollar strength and surging yields. Today’ US PPI can trigger some action,  but the critical US CPI data tomorrow is the one to watch out for. A higher-than-expected number tomorrow can cause quick surge in USDINR back towards 83. As we keep reiterating, current market conditions remain very uncertain and accident-prone and the Rupee has the potential to depreciate meaningfully even from these levels.

Dollar steady, and markets relatively calm. INR biding time for the data events this week.

(11th October 2022, 8:00 AM)

INR likely to open around 82.40

Dollar remains strong, the US yields are higher and stocks are mildly down as markets wait for the CPI data for further direction. Dollar Index is at 112.95, with EUR at 09.715, GBP at 1.1090, and JPY at 145.75. US 10y touched 4% yesterday and is at 3.95% now. US equities fell again yesterday, with DOW registering a 0.3% fall and the NASDAQ correcting more than 1%. DOW futures indicate a cautious start to today. Brent remains elevated after the OPEC product cut decision and is at 96.50 now. Indian indices have been very resilient compared to the global equity performance. Nifty ended flattish despite Friday’s sharp US market correction. Crude continues to be buoyed up by the OPEC stand. Brent is around 96 $ now.

INR managed to regain some of the opening losses yesterday, as global markets stabilized yesterday after Friday’s US jobs data. This week has events in addition to the US CPI which can again rattle markets and the Rupee. The Bank of England is slated to end the temporary bond-buying program they initiated to contain the bond market crash couple of weeks ago. The BOE also is eager to continue the rate hike strategy to fight persistent inflation. The dilemma for global markets now is to determine whether a global recession in the coming months creates structural issues such as defaults and liquidity problems, or whether central bank action itself causes market-wide issues and leads to shock events.

For the Rupee, the global environment is clearly detrimental and events such as these can trigger a move any time. Of course, there could be periods of calm also, but a sustained appreciation of the Rupee looks unlikely at this juncture.

Dollar on strong legs after good payroll data. Rupee vulnerable. Critical US CPI data this week.

(10th October 2022, 7:30 AM)

INR likely to open around 82.80

Dollar remained strong, US yields rose, and US equities fell sharply on Friday after the US jobs report came in better than expected. The US added 263k jobs and the unemployment rate fell to 3.5% while the wage growth remained solid, as per the jobs report. The data release quelled any hopes of a dovish pivot from the Fed, as most metrics on the labor market continue to point to the resilient economy still. Dollar Index is now at 112.90 with EUR at 0.9745, GBP at 1.11 and JPY at 145.45. US 10y is at 3.89%. The DOW fell 2.1%+ after the payroll data. Indices closed slightly lower on Friday, but are set to open in the red today, following the sharp fall in US markets on Friday and the fall in US equity futures.

This week has the all-important US CPI data release (on the 13^th) along with the minutes of the last FOMC meeting. As of now, the Fed is not seeing any evidence of a sharp deterioration in the economy to make them think of a change in their strategy. Markets were hoping that bad economic data would force the Fed to pivot to a less aggressive stance on rates, but the latest jobs data poured cold water on those hopes. The next inflation data is very critical now, in this regard.

US rates remain elevated across the curve and mortgage rates have hit multi-decade highs. The QT program ( liquidity withdrawal) remains at the maximum pace of 100 billion a month, and the next few months could see its initial impact in the form of Dollar shortages in the global economy. As the global liquidity tightens, equity markets could find it difficult to sustain and the economic recession would also put pressure on jobs and corporate earnings. We are heading into a tentative period for markets and the economy by the year-end.

INR is being continuously pressured by the global Dollar strength, higher US yields and creeping risk aversion. Further, the rise in crude prices towards 100 $, due to the recent OPEC decision is adding to Rupee’s woes. USDINR could convincingly break 83 in the coming days.

INR resumes slide as Dollar strength revives on Fed speak. US jobs report today.

(7th October 2022, 6:30 AM)

INR likely to open around 82.25

USDINR broke through the 82 mark in the overnight NDF session, buoyed by a strong Dollar and rising US yields. Fed officials stomped any hopes of a dovish pivot next year and said as much in their speeches yesterday. The message from most of the Fed speakers was that the inflation fight would continue for the foreseeable future and market hopes of a rate cut next year are too optimistic. The sense conveyed was that the bar is very high for the Fed to reverse the current strategy, implying that market tantrums would not move them unless there is an all-out panic. In another news, it is rumored that the UK government would again try and bring back the tax cut plan, which was one of the triggers for the previous week’s UK bond market scare.

Dollar Index is at 112.15, with EUR below 0.98, GBP at 1.1150 and JPY close to 145. The US 10y is at 3.82%. DOW ended the day negative with a drawdown of 1.1%. Indian indices managed a positive day with a 0.3% odd rise but are set to open lower following the overnight US market close.

The momentum of INR depreciation has again picked up steam. The fact that the move above 82 happened despite the lack of any large risk event does not bode well for the Rupee. The path to 83 is now clear, but today’s US job’s data might influence the speed of the next move. The critical inflation data next week remains the pivotal event for markets and the Rupee. For now, our view remains that the Rupee is set for depreciation towards 83 or so.

Rupee stable on global revival in risk appetite. US yields remain elevated. US jobs data tomorrow.

(6th October 2022, 8:00 AM)

INR likely to open around 81.60/65

Dollar remains subdued despite Fed speakers reiterating that they would not budge until inflation is curtailed. US yields are slightly higher, with the US 10y trading above 3.75% again. Dollar Index is at 110.90, EUR is above 0.99, GBP is at 1.1355, and JPY is at 144.65. DOW had a roaring rally in Tuesday’s session with a 3%+ gain, but yesterday was a mild -0.2% loss day. Indian indices were revived with a 2%+ move on Tuesday and are set for a stable start today.

The “pivot” from the UK central bank, in going for a Quantitative Easing strategy to prevent bond market collapse there, has triggered fresh hopes in the market, that central banks would prioritize market stability over inflation fighting. Even when the Fed officials try to send the message out that they are committed to the inflation fight, markets have built up hopes of a pivot towards policy reversal soon.

The US data remains healthy despite recession fears, as the latest services ISM shows. While the market might hope for a reversal in the Fed thought process, we believe it is unlikely that the Fed would give up on the hawkish strategy soon. Now that the QT (liquidity withdrawal) is at its maximum pace, we could require 2-3 months for its effects to be felt on the US treasury market.

INR has benefited somewhat in these past few days, in that the sharp depreciation momentum has stalled for now. But it is a matter of time before the next leg would begin, as the ground reality is that inflation remains very high and persistent. The next data point occupying market focus is the US jobs data this Friday. The latest JOLTS release shows job openings in the US economy have crashed and, in that context, market is hoping that the Friday’s data point shows a sharp correction in jobs-added, which hopefully will force the Fed to backtrack on its hawkishness.

As for the Rupee, the structural deprecation bias remains unchallenged. Short-term stability and appreciation are possible, but the behavior of the Rupee suggests that positive factors might not have much influence while negative factors have outsized effect. Any dip in USDINR remains an opportunity to buy the Dollar.

INR stable after overnight relief rally. Dollar and US yields down. Uncertain risk environment remains.

(4th October 2022, 8:00 AM)

INR likely to open around 81.55

Dollar retreated yet another day yesterday, as an equity relief rally and fall in yields triggered by the UK government’s withdrawal of its tax cut plan, helped sentiment. Dollar Index is at 111.75, with EUR at 0.9815, GBP close to 1.13, and JPY at 144.80. The US 10y yield has fallen to a 3.6% level now, indicating a slight reversal in market expectations of the intensity of Fed hawkishness. US equities put out a strong relief rally, with DOW ending 2.66% higher. While Indian indices fell 1.2% yesterday, the overnight US equity performance would lead to a good opening today.

The UK government reversed its tax cut agenda, after the plan led to a market reaction in the UK bonds and spread to the global treasury market. While central banks remain hawkish, there is a creeping sense in markets that not a lot more rate hikes can be sustained from here and would lead to unpredictable issues in different markets. The next data point is Friday’s US non-farm payroll and good data can trigger another bout of risk aversion in the current environment.

As for the Rupee, the trade deficit continues to be negative for the currency. The latest print came in at 26.5 billion, though lower than last year, is still at an unsustainable level. The overnight relief rally has led to a dip in USDINR, but structural factors remain negative. Any sustained fall in USDINR remains an opportunity to buy USD.

Dollar is subdued for now. INR is vulnerable still. EU banks under the scanner. Macro data releases start with US payrolls this week.

(3rd October 2022, 8:00 AM)

INR likely to open around 81.50

Dollar remained subdued in Friday trading and at Asia open today. Dollar Index is at 112.15, with EUR trading at 0.9805, GBP at 1.1135 and JPY at 144.80. US 10y is slightly higher, at 3.8%. US equities ended sharply lower on Friday, with DOW falling 1.7%+. Indian indices did well on Friday, jumping 1.8%.

RBI raised repo rates by 50 bp on Friday. They lowered the GDP forecast to 7% and retained the inflation forecast for the full fiscal at 6.7% (above the target of 6%). The RBI policy decision was more or less on expected lines. More hikes can be expected, especially given the hawkishness from other global central banks. The policy did not have much impact on the USDINR movement.

While on the surface, global markets seem relatively calm, there are rumors circulating about the health of EU banks. Specifically, the credit default spreads (CDS) and stock prices have been indicating ongoing issues with both Credit Suisse (CS) and Deutsche Bank (DB). CS CDS spreads are closing in on 2008 highs. While the management of the bank has clarified that their liquidity position is fine, such rumors cannot be taken lightly when markets are reflecting a deteriorating credit and liquidity in these banks. This week is important in this aspect, and if CS does see issues, the situation can escalate very quickly across global markets.

The key reason for both the UK pension fund scare last week or the focus on CS now is that bond yields have jumped more than 200% in most economies in the past few months. The bond prices have fallen significantly as a result, at a time when global liquidity is being tightened. Such moves create a need for collateral at a time when the collateral values depreciate. Further, specific to the EU is the Russia issue because of which most Russia/Ukraine exposure of the EU banks are being marked to zero. The point of focus in the coming weeks and months would be the impact of the collateral issues and the FOMC’s Quantitative tightening on US treasury market.

INR remains vulnerable to the ongoing risk aversion. While Indian equities have managed well until now, one must be watchful in the coming 2-3 months. The natural direction for the Rupee remains towards more depreciation. The start of the new months brings economic data such as the US non-farm payroll, trade deficit and US inflation into focus. Further, one has to be mindful of the potential landmines discussed above, and if any of such issues flare up, USDINR could move sharply higher even from these levels.

Dollar on the retreat. INR gets a temporary reprieve. Structural factors remain detrimental to the Rupee.

(30th September 2022, 8:00 AM)

INR likely to open around 81.45/50

Dollar retreated sharply yesterday due to a solid GBP rally after the BOE bond intervention. Dollar Index is at 112.15 now, with EUR surging above 0.98, and GBP moving close to 1.11. JPY remained subdued at 144 as US yields remained steady yesterday. The move in EUR and GBP is primarily due to a sense of relief that central banks will intervene in markets if the situation demands even at the cost of potential future inflationary pressures. Equities though are in a spot of bother, as recession fears and rate hike concerns remain very much entrenched. DOW fell 1.5%+ yesterday, and NASDAQ even more – by 2.8%+. The US 10y is trading at 3.78%, and even the 2y is down to 4.15% odd, due to a potential re-thinking in markets that even the FOMC could be forced to hold on from further rate hikes if market dislocations come up because of their strategy. Indian equities were moderately down (0.3%). Given the cautious Asia opening, equities can be expected to trade muted today.

INR could not hold on to the initial gains yesterday, as the Dollar strength returned during the intra-day trading yesterday. But, given the overnight fall in USD, one can expect some solace to the Rupee today. The US data remains tight enough for the Fed to keep its aggression going. The core PCE inflation remains elevated as per the latest release. The temporary reprieve in Dollar strength due to the BOE intervention could last for a few more days, but the fundamental pressures remain and any dip in USDINR remains a good buying opportunity.

UK bond market jitters east after BOE intervention. USD weaker, US yields fall as result. INR gets temporary reprieve but remains vulnerable.

(29th September 2022, 8:00 AM)

INR likely to open around 81.60

Dollar is weaker, driven by a sharp move in GBP.  US long-term yields are sharply lower and US equities have rebounded after the Bank of England (BOE) intervention in their bond market. Dollar Index is at 113.30, EUR is at 0.9675, GBP is at 1.0790 and JPY is at 144.30. Dollar was weaker during the overnight US session but has got back some losses after Asia opened. GBP traded as high as 1.09 before settling below 1.08 now. The US 10y has fallen 25 bp and is at 3.75% now. DOW ended 1.9%+ higher, driven by the correction in the 10y yield.

What happened in the UK bond market (Gilt market) in the past few days and especially yesterday, should serve as a harbinger to what might happen in other markets and how central banks might react if structural issues creep in. The UK gilt yields surged after the UK government announced a fiscal package including tax cuts last week. The surging yields put pressure on the UK pension funds that had leveraged swaps done to manage their liability positions and generate yield. With rising rates, the collateral needs forced the funds to sell more of their Gilt assets leading to a loop of even higher yields. Yesterday, the 30y Gilt moved 16% in a session, reaching 5%, leading to a situation where large funds had to dump even more bonds. One more day of such a situation would have resulted in the collapse of large pension funds and a freeze in the bond market. Our view is that this situation is a direct consequence of the liquidity withdrawal program (Quantitative Tightening) being used to fight inflation. The BOE had to step in and announce a temporary reversal in the program and they would actually buy bonds now (and print money) to support the structural issues in bond markets.

The UK situation shows how rising yields coupled with liquidity withdrawal can suddenly trigger systemic issues, and also how quickly the central banks can fold when things move tight. Temporarily, the markets have stabilized there, but the inflation fight is now more difficult than it seems for the BOE. A similar move in US treasuries cannot be ruled out as the Fed is absorbing liquidity at the pace of 95 billion a month. The UK incident has shown us that central banks have a very difficult time now and the inflation fight can spill into market-wide liquidity issues very quickly.

Equities rejoiced at the fact that when push comes to shove, central banks would choose market stability over inflation fighting. Asia has opened positive after the overnight surge in US indices. INR could get a temporary reprieve if the Dollar reversal has some more legs. But as long as the FOMC remains firm on inflation (at least in their narrative), any Dollar weakness and yield fall are likely to be temporary and we can expect a rebound again. INR remains as vulnerable as it was yesterday, just that the pace of depreciation has stalled for now.

Dollar relentless. INR under pressure. US 10y breaches 4%. Geopolitical issues add on.

(28th September 2022, 7:30 AM)

INR likely to open around 81.80

The relentless Dollar surge continued yesterday, and the Dollar Index is above 114.50 now. EUR has cracked to 0.9550, GBP is at 1.0670 and JPY is at 114.75. The US 10y is at 4%. Equities are not able to hold on to any intra-day gains in the current environment. DOW closed 0.4% down, after opening well. Indian equities managed a flattish close. Oil remains subdued despite the news of damage to the Nordstream pipeline, which supplies gas to the EU. Brent is trading around 84.

Even as inflation, recession and central bank action remain the focus of the markets, geopolitical issues have added to the agony now. There are rumors that the Nordstream pipeline was sabotaged through an explosion. The next few days are critical in that if Russia blames the US for this activity or if the US and EU blame Russia, an escalation in the war is a possibility.

The rise in yields across the globe is a result of not just the rate hike action, but also the receding global liquidity. The rise in long-term yields indicates that the large fiscal deficits in most major economies cannot now be financed with easy money from the central banks. As the rates remain elevated, the interest burden on governments increases at an alarming rate, and sometime next year, the focus will return to the fiscal health of some countries.

INR is now firmly on the depreciation path, with just the pace of the move uncertain. An 82.50-83 range looks possible for now, but an outsized move towards 85-86 in the next 1y remains a possibility (though with a small probability).

Dollar surge continues, supported by US yields. INR manages to hold for now, but outlook uncertain.

(27th September 2022, 8:00 AM)

INR likely to open around 81.40

Dollar retained the strength for yet another day, supported by the unrelenting rise in the US yields. Equity markets fell again as risk appetite remains shaky. Dollar Index is at 113.75. EUR is at 0.9630, GBP has moved higher to 1.0760 and JPY has reverted to the pre-intervention levels and is at 144.50. US 10y is at 3.87% after being close to 3.95% intra-day.  The move in 10y is also reflective of the fact that the Fed, which was financing the huge government borrowings until last year, has now turned a net seller of bonds. The 2y is at 4.31%, as markets now price at least 5-6 hikes in the next few months. DOW fell 1%+ again, though the futures indicate some recovery. Asia has opened mixed.

USDINR has now stabilized around the 81.25-82.50 range waiting for the next trigger. This week has the US PCE along with comments from Fed speakers including Powell. Fed members who spoke yesterday continued to talk hawkish. While GBP has recovered some of the lost ground, JPY is back in focus and markets are watching the BOJ action now. CNH continues to be under pressure amidst concerns about the Chinese economic prospects. In all, the global environment is detrimental to the possibility of stable currencies.

In addition to the monetary aspects, geopolitical concerns remain another threat to markets and the Rupee. EU’s winter is now starting, and the potential energy rationing is slated to deeply impact industry further. On the political front, Italy now has a right-wing government which has views in contrast to the EU and the globalization agenda. There are already comments from the EU commissioner that sanctions can be imposed if Italy does not honor EU laws. More importantly, the Italian yields have been spiking (10y at 4.6%, <1% a year ago), and a country with large fiscal program as Italy can face some heat due to politics.

In all, the global environment is now a powder keg and a spark from any direction can blow up markets. Whether the spark is monetary/inflation/fiscal one or a geopolitical one is anybody’s guess. INR remains vulnerable in the current situation and is set towards more depreciation. While the fall in crude prices is a positive development for the Rupee, the general recession concerns and the outflows from Indian market nullify that benefit. Further, the RBI reserves also undergo a devaluation due to the fall in the US treasury prices (rise in yields).

The best strategy for importers in this environment is to stay cautious and hedge to protect business margins rather than try and save on hedge costs.  Exporters can afford to wait it out a bit more and keep utilizing existing hedges, even though at a loss, and hope to rollover at higher rates in the future.

INR remains extremely vulnerable. GBP flash crashes. Global Dollar surge unrelenting. CNH cracks after China coup rumours.

(26th September 2022, 8:00 AM)

INR likely to open around 81.30

The relentless Dollar surge has begun to create sharp, unexpected, outsized moves in currency markets – an indicator of panicky, broken markets ahead. Dollar Index has surged to 113.40, primarily due to the flash crash in GBP. EUR is at 0.9660, GBP has recovered to 1.0575 after falling from 1.08+ to below 1.04 momentarily, and JPY is at 143.75 – almost back to pre-intervention levels. US 10y is down, but still above 3.7%. The US 2y yield at 4.25% continues to signal a persistently aggressive Fed. US equities had yet another bad day on Friday, and the frontline indices fell 1.6%+. Indian indices also cracked 1.7%+ on Friday.

The week has opened cautiously for equities, but global currencies are starting to behave in an erratic fashion, which does not bode well for the Rupee. While the GBP move is specifically due to the UK government’s proposal of tax cuts to help the populace tide over inflation, the fact is that the underlying Dollar strength is so strong that even minor triggers are now enough to cause volatility. Even as the Rupee was catching up to fellow Asian currencies, they continue to drive even weaker. USDCNH has crashed to the 7.15 level after rumors about the possible coup in China and Xi Jinping’s house arrest floated around yesterday.

INR is now in a very vulnerable place given the global climate of high volatility. As were reiterating earlier, the September/October period has proven to be risky for the markets. With the Dollar liquidity rushing out of the system at pace, the next 2-3 months can turn out to be even more volatile. Equities have weathered the volatility relatively well compared to currencies. The risk now is a panic in equities triggered by either currencies or politically motivated government actions around inflation or recession showing up in corporate guidance or just due to the liquidity draining out. While our base case for the Rupee was 82.00, we now fear that even an 83 is possible in the next 2-3 months. As for economic events, this week’s Powell speech and US PCE inflation data are important focal points. For now, USDINR remains a solid buy.

INR under pressure on the back of global Dollar onslaught. US yields continue to rise.

(23rd September 2022, 8:00 AM)

INR likely to open around 81.10

Dollar surge remained intact yesterday, and US yields rose, even more, reflecting the ongoing concern around the persistent inflation and the Fed rate action. Dollar Index fell slightly though, primarily due to the sharp appreciation of JPY on the back of an intervention from the Bank of Japan. INR has broken through the resistance zone of 80-80.25 convincingly and is set for a further up move to catch up to the depreciation in other currencies such as CNH and KRW. Equities are down and crude remains subdued.

Dollar Index is at 111.08, with EUR at 0.9830, GBP at 1.1235 and JPY at 142.05. US 10y has shot up sharply to 3.71% now, and the 10y even more to 4.2%. US equities fell for the second day after FOMC, with DOW seeing a fall of 0.35%, and NASDAQ cracking by 1.35%. Indian indices withstood the sharp fall in global equities and managed a 0.5% odd fall.

INR is now firmly on the backfoot now. The sharp rise in the US yields is now starting to influence the Rupee significantly. A move towards 82 seems the logical path here, but there could be some period of consolidation also depending on how markets behave globally until the next inflation print. Currencies such as CNH are seeing relentless depreciation, and INR is not immune from the Dollar onslaught. The buffer for the Rupee from the India growth story and resilience of the equity markets in the short term could help contain USDINR to the 82-82.50 zone rather than the 84-85 range. But, in the next few months, as central bank rate hikes and the receding liquidity works its way into the economies, there could be unforeseen stresses such as fiscal blowouts or overexposure of banks, etc. which might come to the fore. These are still tail-risk events and need not be of concern for now. It is just that we are heading into an uncertain time with a global coordinated rate hike environment, and one has to be watchful regarding the potential volatility anytime.

FOMC hawkish. Dollar rips higher. Risk appetite weak. INR on the backfoot.

(22nd September 2022, 8:00 AM)

INR likely to open around 80.15/20

Dollar ripped higher after the FOMC decision and the Powell presser indicated that they are not going to relent until inflation is seen to be subdued. Dollar Index is at 111.45, with EUR close to 0.9810, GBP at 1.1225 and JPY above 144.30. US yields shot up higher after the FOMC decision. The 2y has surged to 4.05%, and the 10y is at 3.55%. The 10-2 yield curve inversion has deepened to -50 bp, indicating a significant recession possibility in the coming months. US equities had a volatile session with wild swings into the positive territory, before closing in deep red (-1.7% down). In addition to the FOMC event, Putin’s policy announcement about drafting Russian citizens into the war created a sour taste in the markets.

FOMC raised the rates by 75 bp to 3.25%, as expected. The ‘dot plot’ median rate for 2022 increased to 4.4% from 3.8% previously, indicating that at least 5 more hikes of 25 bp in 2022 can be expected. The inflation forecast was raised both for 2022 and 2023, and the markets read that the sticky inflation means higher-for-longer rates. The GDP forecasts were lowered, and the unemployment rate was projected to be higher than previous estimates, suggesting that the FOMC acknowledges the impact of hikes on the economy. While the forecasts were downgraded, the quantum of a downgrade, especially of the unemployment rate to around 4.4%, is too optimistic in our view. It is unlikely that the FOMC would achieve a glide path to a smooth landing for the economy while aggressively hiking rates like the current path.  In addition to the rate hikes, the balance sheet reduction plan has picked up full steam at a clip of 100 billion a month from this month. The effects of the hikes and the liquidity withdrawal would be felt in the coming 2-3 months.

Dollar strength is now firmly established, and most currencies are at multi-year lows against the USD. Until now, despite the sharp moves in Asian currencies like CNH and KRW, INR has held well against the USD. We continue to believe that once the current range is broken, the Rupee could see an extended depreciation to catch up to the move in other currencies. The unrelenting move in US yields cannot be ignored by the Rupee forever.  We are heading into an uncertain time for INR.

FOMC decision today. INR stable, but vulnerable. Dollar surge continues, and US yields are higher.

(21th September 2022, 8:00 AM)

INR likely to open around 79.80

Dollar is strong and US yields elevated ahead of the FOMC decision today. US equities gave up 1%+ yesterday, reflecting the worry about the hawkish Fed. Dollar Index is closing in on 110, with EUR at 0.9965, GBP at 1.1380 and JPY at 143.70. US 10y is at 3.55% and US 2y yield is closing in on 4%. Indian equities did well yesterday, following the positive close of US equites the previous day. Asia has opened down by 1% odd, reflecting the overnight US market performance. Crude remains subdued around 91 per barrel.

INR remains stuck to the range and is moving in incremental fashion, despite the outsized moves in the global markets. Today’s FOMC decision is important for the Rupee, in that if the Fed stays more aggressive than expected. The base case expectation is for a 75 bp hike, with the press conference signaling more hikes in the next meeting. But, the narrative of the Fed could induce some market reaction, specifically their stance on how sticky the inflation is going to be and how they view the potential for recession. The Rupee remains surprisingly resilient despite the sharp rise in global yields, indicating that the RBI is playing a role in keeping it stable. The fact that the Rupee is overvalued against most currencies, and the potential fall in RBI reserves due to the devaluation of their US treasury holdings would play a role in their future strategy on intervention. We continue to believe that the pressure of rising global yields would be felt in the Rupee suddenly, taking it higher than the current range.

INR stable. Dollar steady even as US yields surge ahead of the FOMC meeting.

(20th September 2022, 8:00 AM)

INR likely to open around 79.65

Dollar is steady ahead of the two-day FOMC meeting starting today. US yields surged yet another day yesterday. Equity markets surprisingly have been quite comfortable with the high-rate environment for now. Yesterday saw some moderate gains in most equity indices. INR stayed in a tight range, waiting for a direction post the FOMC.

Dollar Index is at 109.35, with EUR at 1.0020, GBP at 1.1420 and JPY at 143.20. US 2y is at 3.95%, and US 10y has crossed 3.5%.  Markets expect 75 bp  hike tomorrow with a 100% probability and ascribe a 20% chance to a 100 bp increase. US 2y is projecting a resilient Fed action in the coming couple of years, unlike the previous months when there were expectations of a potential rate cut in 2023. The unrelenting US yield surge is being felt in currencies and not yet in equities. DOW rose 0.6% yesterday, and Indian indices also had a similar day. The biggest risk for currencies and markets in general is the resurgence of persistent risk aversion, leading to sharp corrections in equities and corporate bond spreads.

As of now, the yield differentials are being reflected completely in currencies, and the JPY is a clear example of this phenomenon. Even as the inflation in Japan picks up pace, the BOJ continues to stick to the ultra-loose monetary policy (BOJ policy is due Thursday). Chinese Yuan has also been seeing a sharp depreciation due the yield differential play. USDCNH has breached 7.00. The longer this Dollar surge continues, the more the probability of a sharp catch-up move in currencies like the Rupee.

For now, USDINR remains very stable below 80.00. Given the global yield environment and Dollar strength, the current stability cannot last much longer. May be due to the India growth story, and stable government policies, markets have rewarded the Rupee with relative stability. But as we move towards year end, the sharp decline in Dollar liquidity, coupled with higher rates, is set to pressure most currencies including the Rupee even more.

Dollar opens the FOMC week strong. US yields remain elevated. INR range still in tact.

(19th September 2022, 8:00 AM)

INR likely to open around 79.70

Dollar is strong and steady ahead of the all-important FOMC week. Dollar Index is at 109.55, with EUR just below parity, GBP at 1.1400 and JPY at 143.10. US yields remain elevated reflecting the Fed rate hike action in the short-end yield and the receding Dollar liquidity in the long-term yields. US 10y is at 3.45% and the 2y is at 3.85%. US equities ended last week on a negative note as did Indian indices. S&P 500 was down 0.45%, and Nifty fell sharply, by 1.9%.

Inflation concerns slowly are coming back into the market’s consciousness and this week’s equity behavior could determine how INR would fare against the Dollar. FOMC decision on the 21^st is now critical and two aspects would be watched with keen interest. First is the quantum of hike (75 bp or 100 bp) and second is the narrative on the future rate hike path. In addition to the Fed, the Bank of Japan has removed the word temporary in its inflation guidance and seems to be paving the way for moving a little on their zero-interest rate policy.

US recession fears continue to simmer in the background. Economic data releases such as retail sales etc. show a subdued but not a recessionary economy yet. But the guidance from the logistics major FedEx that they expect a global recession soon, shook markets last week. In our view, the FOMC and other major central banks would not stop anytime soon and would continue to hike until inflation control is achieved even at the risk of a sharp recession.

INR remains intact in its range below 80. The longer it stays in this range, higher could be the volatility of the subsequent move. With no structural positives to help the Rupee, USDINR could move higher post the FOMC. Given the open today, one can expect a reasonably stable day today and potentially until FOMC meeting.

INR vulnerable amidst continuing Dollar strength. US yields surge yet another day.

(16th September 2022, 8:00 AM)

INR likely to open around 79.70

Dollar remained elevated yesterday, supported by the continuing rise in the US yields. The US 10y is at 3.45%, but more importantly, the 2y has surged to 3.85% making the yield curve inversion even deeper (now at almost -40 bp). US equities fell yesterday, with DOW registering a 0.55% decline, and S&P falling by 1.1%+. Indian indices also fell by 0.7% odd yesterday, in line with global equities. Brent is at 91 $.

US retail sales remained decent, triggering some fears that the resilience of the economy could embolden the Fed in its hawkish stance. As for the domestic situation, the trade deficit remains the primary concern for the Rupee, at 28 billion a month. The recent CPI data at 7% is still on the higher side and would force the RBI to stay aggressive on rate hikes. The flow situation into the country remains vulnerable, but not in a state of constant panic. Given that the rate hike cycle is very much intact in India, the coming few months could see the impact on the economy and sectors such as real estate. We remain bearish on the Rupee given these additional domestic challenges. Expectations around India growth story have helped keep the Rupee from a massive depreciation. But the inevitable catch-up to the relentless Dollar surge could occur in the coming months. The potential for a global recession is very much alive and Rupee remains vulnerable to the global dynamics.

INR stable despite the Dollar surge. Risk appetite manages to hold after initial reaction to CPI data.

(15th September 2022, 8:00 AM)

INR likely to open around 79.50

Dollar managed to consolidate the post-inflation move yesterday. Dollar Index is at 109.40, with EUR at 0.9975, GBP at 1.1535 and JPY at 143.25. US equities eked out small gains even as US yields continued to move higher. US 2y has now reached 3.8% indicating a more aggressive Fed for a longer time to come. US 10y is at 3.42% – and has been sticky above the 3.3% level. DOW ended the day at 0.1% higher.

Indian equity markets have been very resilient to the global environment lately and that same dynamic was reflected yesterday, in that the Nifty managed a flat close despite the previous day’s crash in US equities. The probable belief in the India story and relatively lower inflation in the country compared to the developed economies has been helping the Indian equity market for now, and as a result, INR has been a relative outperformer in the Asian basket of late.

The rise in the US 2y yield is a reflection of the coming Fed rate hikes, much more than expected a month ago. Risk appetite in global markets is still stable but remains very vulnerable to the incoming data and commentary. The FOMC meeting and their narrative on future hikes are going to be important for markets now. An outsized 100 bp hike could trigger a market reaction to the downside.

USDINR remains fairly comfortable, but a sharp INR appreciation has been kept at bay by the US CPI data. There could be sideways movement in the pair until the 21^st Fed meeting, the caveat being that any resumption in equity market panic could lead to a move towards 80 again in the next few days.

US CPI higher than expected. Dollar surges. Rupee cautious.

(14th September 2022, 8:00 AM)

INR likely to open around 79.60

Dollar ramped up higher after the US CPI release showed more than expected inflation for the last month. The CPI came in at 8.3% and the core CPI was 6.3%, which is of more concern to markets. Even though the trend in the headline inflation data is of a slow decline, the core CPI has increased steadily, and markets worry that entrenched structural inflation would require the Fed to be more aggressive even if it means crushing the economy. Dollar Index has surged to 109.45, with EUR back below parity, GBP close to 1.15 and JPY back to 144.30 level. US yields shot up post the data, and the 10y is now above 3.4%. More importantly, the short-term 2y yield which reflects the Fed expectations more is at 3.65% after being close to 3.75% immediately after the data.

DOW crashed close to 4% yesterday, in one of the biggest selloffs post-2020 period. Markets now ascribe some probability of even a 100 bp hike in the next Fed meeting. Even though Indian indices did well yesterday, one can expect a sharp negative opening today, given the global picture.

The inflation data has poured cold water on market expectations of Fed dovishness in the coming meetings. The next few days of market reaction are important for medium-term prognosis. Whether the markets (especially equities) would continue the negative movement of yesterday is the question to be asked now. Equity market panic move remains an important risk factor for the Rupee.

Asia FX has opened weaker reflecting the Dollar strength. Chinese Yuan remains one of the weakest of the lot and fell sharply yesterday after reports of potential sanctions to deter China on the Taiwan issue made rounds. As for the Rupee, the range below 80 is still intact and it would take a few days of risk aversion to break that range. The next Fed meeting on September 21^st is now a critical event for the Rupee. For now, the CPI report has taken out the possibility of a Rupee appreciation at least.

Global Dollar retreat picks up steam. INR benefitting. US CPI data today.

(13th September 2022, 8:00 AM)

INR likely to open around 79.40

Dollar retreat picked up steam yesterday ahead of the US CPI data. Dollar Index has fallen to 108.25, driven by a sharp rise in EUR to 1.0130. GBP is at 1.1685 and JPY is at 142.50. USDJPY is refusing to move lower since the US yields remain high. The 10y is at 3.35%, reflecting the reality that large government borrowing cannot now be supported by central bank money printing. Equities had yet another positive day yesterday. DOW ended 0.7% higher, aided well by tech stocks. Nifty rose 0.6% and is inching towards recapturing the 18k level again. Brent is slightly higher at 83.40.

There is a clear dichotomy in the behavior of equities and bonds. Bond yields are indicating higher rates for a long time and tight financial conditions in the coming future. Equities seem to be hopeful that the central banks of the world somehow would keep recession shallow and control inflation at the same time. One of these themes would break in the coming months and our view is that equity markets might have to walk back on the optimism soon.

INR remains in its current range and is enjoying some stability due to the ongoing risk rally. If today’s inflation data comes in line or below expectations, the rally in the rupee can take the pair to below 78.50. But there are signs of recession already on the horizon in most of the developed economies and the inflation fight is set to continue for at least 6 months. The year-end period starting from October remains a critical period for the Rupee and markets in general. The Fed’s balance sheet drawdown is picking up pace and US yields could start to trend even higher from the current levels. It is a matter of time before markets start to react to the rising yields. Our view remains therefore that any dip in USDINR remains a buying opportunity.

INR stable reflecting global Dollar stability. US CPI tomorrow.

(12th September 2022, 8:00 AM)

INR likely to open around 79.70

Dollar remains subdued ahead of the important US CPI release this week. Dollar Index is at 108.45, with EUR just above parity, GBP at 1.1610 and JPY at 142.80. Friday saw a resumption in risk appetite, with US equities jumping 1%. DOW ended 1.2% and S&P 500 by 1.5%+ aided by tech stocks. US yields remain high, signaling the coming rate hikes and liquidity withdrawal. Indian indices saw a moderate gain on Friday.

Risk appetite is holding well ahead of the US inflation data due tomorrow. While the Fed officials continue to project hawkishness, markets seem to hope that a mild recession would tame inflation and bring back some relief to the rate hike cycle. The expectation tomorrow is for an 8.1% print, lower than last month’s 8.5%. Inflation is projected to fall slightly MoM, but the core inflation is expected to increase both on monthly basis and annual basis. If tomorrow’s data comes in line with expectations, it would go a lot towards solidifying risk appetite despite whatever the Fed says. Any upside print is likely to cause a tantrum in markets, and potentially lead to sharp move in risk assets. The data is an important risk event.

USDINR remains in a range for now, as the structural factors are kept at bay by the short-term revival in risk appetite. Oil prices have been correcting lately, and the latest news of potential price caps on Russian oil exports by the US could help lower Oil prices more. The scenario where Oil corrects significantly (a beneficial position for the Rupee), would also be the scenario where recession expectations rise steeply. Markets and the Rupee are not prepared for a deep recession in our view. If the central banks cause a sharp fall in global demand, Dollar strength could gain strength irrespective of US yields, and inflation data.

For now, USDINR is in a safe zone, but is aligned towards 81-82 levels in the coming months, as the global central bank tightening measures affect economic performance of major economies. Equities seem to be blind to the potential for a sharp recession. The risk event would be a sharp panic in equity markets, which needs to be watched out for. In the short-term though, INR seems to be stable below 80.

USD retreats despite hawkish Powell. ECB hikes 75 bp. INR in safe zone.

(9th September 2022, 7:30 AM)

INR likely to open around 79.70

Dollar retreated yesterday despite a hawkish Powell speech where he reiterated the Fed’s inflation fighting stance. EUR gained after a 75 bp hike from the ECB. Dollar Index is at 109.10, EUR is at 1.0060, GBP is at 1.1560 and JPY is at 143.70. US yields remain elevated reflecting the Fed chairman’s hawkish speech. US equities managed a 0.5%+ gain for yet another day. Indian indices also had a good day with a 1%+ rise. Crude remains below 90 after yesterday’s fall.

INR is in a stable zone now, at least until the next inflation print. Equities seem to be hopeful that somehow the central banks would manage inflation with a shallow recession. A deep recession in global economies remains a risk factor for the equity markets and currencies. As the liquidity withdrawal picks up pace in the US, the effects would start to be felt by next month and hence we are entering into a tricky period for global risk assets including the Rupee.

USDINR can remain in a range for a few more days. Structurally though, USDINR remains a buy on dips.

INR stable. Powell speech and ECB decision awaited.

(8th September 2022, 7:30 AM)

INR likely to open around 79.70

Dollar retreated, the US 10y cooled off, and US equities posted a solid gain yesterday despite expectations of hawkish Fed and inflation threat. Yesterday was one of those days of revival in risk appetite after a few days of subdued markets. Dollar Index is at 109.80 now, with EUR at 0.9985, GBP at 1.1510 and JPY at 144.15. US 10y is at 3.25%. S&P 500 gained 1.8%.

Next week’s US CPI data is the critical data point all are waiting for. Meanwhile, the ECB decision and Powell speech can move markets either way. For the Rupee, the base case range below 80 could hold for now. The sharp depreciation in CNH and the JPY remains a risk factor for the global markets and the Rupee. Further, the Russia-driven energy crisis in the EU can expose some of the underlying fault lines in their economies and cause problems for markets. While such medium-term risks remain firm, short-term INR seems to be stable at least until the next inflation data print next week.

Dollar on the rampage. US yields surge. INR remains vulnerable.

(7th September 2022, 7:30 AM)

INR likely to open around 79.85/90

Dollar is on a tear as US yields continue to ramp ahead. Dollar Index has shot up to 110.50 now, with EUR below 0.99, GBP back below 1.15 and with JPY surging to 143.20. US 10y has moved to 3.35%, indicating that the impact of hawkish FOMC expectations is now compounded by the withdrawal of Fed balance sheet at a higher rate. US equities ended yesterday down 0.5%. Indian indices ended flat.

For the Rupee, the move has been fairly benign given the global Dollar surge. Despite the structural weakness, INR has been able to hold below 80 for now. More the time spent in this range, higher would be the volatility of the subsequent move since the Rupee has to catch up to the reality sooner than later. The consistent move in US 10y would reach a triggering point at some level or the other, for the markets to take note and cause a panic reaction. USDINR remains a buy on dips.

USDINR range bound. Markets waiting for inflation data next week.

(6th September 2022, 7:30 AM)

INR likely to open around 79.75

Dollar is slightly down, and US yields remain elevated overnight. Dollar Index is at 109.40, with EUR at 0.9965, GBP at 1.1595 and JPY at 140.35. US 10y is at 3.21%. Yesterday was a US holiday. Indian indices managed a 0.75% rise, and for now, have been very resilient compared to other indices.

Structural factors remain detrimental to the Rupee, but the short-term behavior is controlled for now and is data-dependent. The next data point is the US CPI on the 13^th. Until then, Rupee could trade in a range.

INR remains under pressure. US jobs data and India trade deficit not supportive.

(5th September 2022, 7:30 AM)

INR likely to open around 79.80/90

Dollar is on a rampage after Friday’s US jobs report despite a small pullback in US yields on Friday. Dollar Index is at 109.85, driven by a sharp fall in EUR – now at 0.9925. GBP has fallen below 1.15, to trade at 1.1490 now. JPY remains above 140. EUR and GBP are plagued by worries about the energy crisis there, and the move down is not necessarily driven by the yield differential with the US. US equities ended Friday down 1%+. Indian equities traded flat on Friday and are expected to open cautiously.

Friday’s US jobs report showed an addition of 315k jobs, which is better than expected. The wage growth slowed a little bit, helping hopes of lesser pressure on inflation. On the domestic front, the trade deficit for last month came in at 28.7 billion. The persistent and increasing trade deficit is a perennial drag on the Rupee structurally. INR has not yet depreciated enough to compensate for the ballooning current account deficit in our view. With inflows jittery on the global inflation issue, RBI has to spend a significant amount of reserves to keep the balance of payments going. Also, the rise in USD/CNY is sure to put more pressure on Asian pairs though relatively milder on the Rupee. In all, USDINR is headed higher from here in the coming months, as structural issues assert themselves.

Rupee range bound despite Dollar surge. US jobs report today.

(2nd September 2022, 7:00 AM)

INR likely to open around 79.70/75

Dollar is back with a vengeance, supported by the continuing rise in US yields. Dollar Index is sharply higher from yesterday – at 109.55. EUR is at 0.9950, GBP has fallen to 1.1550 and JPY is above 140. US 10y yield has topped 3.25%, and the 2y remains above 3.5%. While US equities managed a green close, the sentiment remains jittery. Indian indices fell by around 1.25% yesterday. ISM manufacturing data in the US came in better than expected, and the Dollar took a boost from the data.

Markets await today’s US jobs report. The danger now is a better-than-expected print, which will only fuel worries about more aggressive fed. INR has managed to hold below 80 again, despite the Dollar strength.  Today’s trade deficit release is also important for the Rupee. For now, the range below 80 might not be under threat and the next major event is the US CPI release on the 13^th.

INR stable in a range on Dollar stability. US yields surge, non-farm payrolls tomorrow.

(1st September 2022, 7:00 AM)

INR likely to open around 79.65

Dollar has retreated slightly over the past couple of days, primarily due to the reversal in EUR, even though GBP and JPY continue to be weak. EUR is trading at 1.0030, GBP is at 1.1590 and JPY is at 139.40 on rising US yields. US yields continued their surge, and the 10y is at 3.21% now. The 2y yield has crossed 3.5% and the yield curve inversion is deep now, indicating a recession in the economy. DOW slid around 0.9% yesterday.

INR has managed to reverse some of the losses from the 80 mark. But given the Dollar environment globally, the upside to the Rupee is fairly limited. US jobs report tomorrow is a potential trigger point for the Dollar. It would be interesting to see if markets take a bad report to mean dovish Fed, or would the Fed chairman’s previous speech convince the markets that hawkish Fed is the base case going forward. ADP private payrolls came in lower than expected, suggesting  sluggish report tomorrow. Also important for the Rupee is the trade deficit data to be released today/tomorrow. For the Rupee, the coming 2-3 months are very critical as global risk appetite can change shape as Dollar liquidity tightens even more. INR remains very vulnerable at this time.

Rupee holds for now. Dollar in slight retreat. Macro data back into focus from this week.

(30th August 2022, 7:30 AM)

INR likely to open around 79.95

Dollar retreated yesterday, after days of an unrelenting surge. The dollar Index is at 108.70, with EUR trading above 1.00, GBP at 1.1715 and JPY at 138.55. Short-term US yields hold after the sharp rise of the past few days, and hence there is underlying support for the Dollar now. DOW managed to revive from intra-day lows but closed in the red. Indian equity indices fell around 1.5% – better than the initial open suggested. Brent remains elevated on OPEC production cut news, now at 120.70.

USDINR crossed 80.00 yesterday but managed a slight pullback as the global Dollar surge halted. With the Powell speech out of the way, markets would towards the economic data now. Given the market expectations on Fed action currently prevalent, the next inflation data point becomes extremely critical. If inflation ratifies the Fed view, another bout of market panic and a sharp move higher in USDINR is possible. Equity markets are managing to hold despite the revision in Fed expectations which occurred after the last inflation print. But, the next 2 months remain critical as the Fed continues its hawkish action and the balance sheet reduction plan picks up full steam.

INR under pressure on relentless Dollar surge. Powell stresses on inflation fight.

(29th August 2022, 7:30 AM)

INR likely to open around 79.95/80.00

The relentless Dollar March got a boost on Friday after Powell stressed that inflation-fighting remains the Fed’s primary goal, implying persistent rate hikes for the foreseeable future. The dollar Index is sharply higher, at 109.20. EUR is at 0.9930, GBP is at a 1-year low of 1.1675, and JPY is at 138.40. While the US 10y remains steady around the 3.1% mark, the short-term yields are trading higher, post-Powell’s speech on Friday. Markets now have put a 75 bp hike in September back on the table. DOW fell 3%+ on Friday and NASDAQ crashed 4%, as the realization that the Fed might not be dovish at all and could be fine with a recession, hit markets. The fact that the Core PCE inflation cooled down as per Friday’s data release, failed to bring much cheer.

USDINR is now inching towards 80.00 but might still not break the current range unless there is an equity market crash in the coming days. US equity futures continue to indicate further drawdown today, and Asia has opened weak. It is now a question of whether markets would wait for the next inflation print in September or whether the equity market fall of Friday would trigger a cascading risk aversion. For the Rupee, the direction is clear, just the pace of movement is the variable here. The next trigger is the US jobs data release this week and then the CPI release on September 13^th.

USDINR biding time. Powell speech and core PCE inflation ahead.

(26th August 2022, 7:30 AM)

INR likely to open around 79.85/90

Dollar remains solid and bond yields slightly lower, ahead of Powell’s important Jackson Hole speech. Dollar Index is at 108.50, with EUR at 0.9970, GBP at 1.1820 and JPY at 136.65. US 10y is at 3.04%. US equities notched up gains for two consecutive days. DOW ended 1% higher, driven by solid performance of tech stocks. Indian indices, though, fared poorly with a 0.5% drawdown.

USDINR has been behaving in a tepid way, waiting for further direction. Today’s core PCE and Powell’s speech could provide some fuel to the markets and set the stage for the next month’s data. The full impact of the Fed’s balance sheet reduction plan would start to be felt in a month or so, and equity market behavior at that time would be critical for the medium-term prognosis of the Rupee. For now, range-bound Rupee is the base case scenario.

USDINR range bound. Global Markets quiet. Powell speech tomorrow.

(25th August 2022, 7:30 AM)

INR likely to open around 79.75

Dollar is slightly lower, and equities trade mildly up, awaiting Powell’s speech tomorrow in the Jackson Hole symposium. Dollar Index is at 108.35, with EUR at 0.9990, GBP at 1.1820, and JPY at 136.80. US yields continue their move higher with each day, on expectations that Powell might keep the inflation fighting stance going in his speech.  US 10y is back above 3.1%. DOW ended 0.2% higher. Nifty ended yesterday flat.

As are other markets, INR also is in a range for now. Powell’s speech has become an important event now, especially since it is in the Jackson hole symposium, where traditionally central banks unveiled their policy thought process. While Powell is expected to the inflation fighting stance, the question would be on how aggressive he would project. USDINR also could react to the PCE also over the next two days. But, the broad range could remain intact until the next month’s CPI inflation data which has the potential to trigger a large move on either side.

INR remains vulnerable. Global risk appetite tentative on slowdown concerns.

(24th August 2022, 7:30 AM)

INR likely to open around 79.85

Dollar traded in a range yesterday but held strong. Dollar index is at 108.65, EUR is at 0.9950, GBP is at 1.1815 and JPY is at 136.85. US 10y remains elevated, at 3.04% now. DOW was down around 0.5%. Indian equities managed a positive move of 0.4%. US macro PMIs came in lower than expected, indicating a creeping deterioration of the US economy.

USDINR remains in the current range below 80, waiting for the next set of data points starting in September. The positive risk sentiment which emerged after the last US CPI data, has dissipated a bit since expectations of a dovish FOMC were quashed by the Fed speakers. While equities have managed a rebound, and “bad macro news is good news” thought process dominates for now, the risk of a sharp recession is also equally detrimental to global risk assets/Rupee as the inflation threat. INR remains vulnerable in the coming months.

INR under pressure on rising US yields and Dollar. Sustained risk aversion potentially seen.

(23rd August 2022, 8:00 AM)

INR likely to open around 79.90

Dollar continues to assert itself relentlessly. Dollar Index is at 108.90, with EUR firmly below parity (0.9940)  GBP at 1.1770 and JPY at 137.20. US 10y remains firm at 3.02%. Equities cracked yesterday with the DOW falling 2%. Indian indices have also started to see 1% + falls now.

The creeping sense that the Fed might not after all be dovish as earlier expected, has now started to impact all markets and just not the Dollar. The Rupee is very vulnerable now as a potential wave of risk aversion can be triggered if the next inflation print is worse than expected. Persistent fall in equities is the factor to watch out for, as that will signal a phase shift back to risk aversion, away from the risk-positive move of the past month or so. USDINR remains a buy in the medium term.

INR under pressure as global Dollar surge continues. Risk appetite waning.

(22nd August 2022, 7:00 AM)

INR likely to open around 79.90

USD has been relentless in its march, after the brief hiccup post the US CPI data couple of weeks ago. US yields have also been higher, especially after the FOMC minutes confirmed that the Fed would not let up on the rate hikes anytime soon. Dollar Index is at 108.15, with EUR at 1.0030, GBP at 1.1820, and JPY at 137.30. US 10y is close to 3% again. Equity markets have started to crack a bit, and Friday saw DOW falling by 0.9% and S&P give up 1.3%. Nifty also fell 1%+ after a while.

INR is now at the top end of its current range. With not much macro data on offer this week (except the US PCE inflation), markets would be momentum driven, and USDINR could breach 80 soon. Next month’s CPI data becomes very critical now for the medium-term prognosis. The Fed’s balance sheet has shrunk at a rate of just 25 billion a month until now. From September, the runoff would pick up steam, and the impact of the receding liquidity will be felt more in October. INR is in a vulnerable position now, due to the failure to capture any upside during the last Dollar weakness trend. The medium-term story for the Rupee remains bleak even from hereon.

INR under pressure as global Dollar strength picks up steam.

(19th August 2022, 7:00 AM)

INR likely to open around 79.75

Dollar surge continued yet another day yesterday, and INR yielded to the relentless Dollar strength. Dollar Index has shot up to 107.50+ levels, with EUR at 1.0080, GBP at 1.1905 and JPY at 136.25. US yields remain elevated (US 10y at 2.9%), as markets digest the FOMC minutes and find that the dovish Fed being hoped for is still a long time away. Further, concerns about the Chinese situation related to their real estate and the general concerns about their economy ravaged by Covid, have been playing on Asian currencies and disadvantaging the Rupee.

US equities managed a positive close yesterday, with DOW just managing to end in green. Indian indices also managed to close flat, despite the tempered down risk appetite. Crude has picked up over the past couple of days, with Brent now hovering around 96.85.

INR remains tentative and vulnerable in the current strong Dollar environment. The last US CPI print has tempered down the momentum of the Rupee depreciation, but it could not change the general direction. Concerns around the state of the Chinese economy are just the beginning of what can be expected if there is a concurrent recession across most major economies. As of now, the US economy seems to be resilient, though the GDP growth has been in the recession zone. The inflation data in other countries, especially the EU, is indicating surging pricing pressures implying aggressive rate hike environment for the foreseeable future. Our view remains that any appreciation in risk assets is a good opportunity to sell and hence any dip in USDINR remains a buying opportunity.

USDINR stable, but global Dollar remains firm.

(18th August 2022, 7:00 AM)

INR likely to open around 79.35/40

Dollar traded stable, and US yields continued to rise yesterday, indicating market’s reassessment of the inflation threat yet again. Dollar Index is at 106.40, with EUR at 1.0185, GBP at 1.2050 and JPY at 134.95. US 10y is at 2.89%. DOW saw a fall yesterday after trading positive for the past few days – fell 0.5%. Indian indices remain on the positive territory, and Nifty gained 0.65%.

The minutes of the last FOMC meeting revealed that the Fed did acknowledge the slowing growth but focused on inflation being unacceptable. As for the Rupee, USD is not yet showing signs of sustained weakness which can lead to some meaningful appreciation of INR. Given the domestic issues of high current account deficit and muted flows, it is unlikely that the Rupee would see a significant appreciation anytime soon. Even if there is an appreciation spurt due to some tactical reasons, it would most likely reverse to align with structural problems. With no major macro data on offer, Rupee could continue to trade sideways until the next month’s US CPI, reacting to global equity performance and risk appetite dynamics.

INR in a comfortable place on good risk appetite. But USD strength remains a threat.

(17th August 2022, 7:00 AM)

INR back under pressure as US yields rise.

(12th August 2022, 7:00 AM)

INR likely to open around 79.50

Dollar is still weak after the inflation report, but US yields managed to reverse all the losses fully. The Dollar now would be supported well by the rise in US yields. Dollar Index is at 105.10, with EUR at 1.0310, GBP at 1.2190 and JPY at 133.25. US equities could not continue the rally of the previous day and lost the initial positivity yesterday to end flat. The US PPI inflation index showed a negative 0.5% MoM, indicating that inflation is near its peak there. But markets could not maintain the momentum of the previous day.

The Rupee failed to capitalize on the good CPI report and the fall in the yields after that. Now that US yields are back higher, INR would remain vulnerable, though safe from a sharp depreciation possibility. The rise in yields indicates a realization that, while inflation is lower than last month, it still is at 40-year high level, and the Fed would continue its aggression. Fed speakers supported this narrative by calling for continuing hikes in the coming months. For the Rupee, a range-bound behavior is the base case scenario for the next few weeks, and any dip in USDINR remains a buying opportunity.

US CPI lower. Triggers risk rally. INR in a comfortable zone for now.

(11th August 2022, 7:00 AM)

INR likely to open around 79.10

Dollar plummeted overnight after the US CPI print came in lower than expected. The headline CPI growth YoY was 8.5% as against 8.7% expected, and 0% MoM. Core CPI also was lower than expected. The CPI data triggered a rally in risk assets, steep fall in yields and pulled down the Dollar. Dollar has since recovered some lost ground in the morning Asia session but is still on the backfoot.  FOMC rate hike expectations dipped to 50 bp from 75 bp for the next meeting. Dollar Index is at 105.20 now, with EUR at 1.0290, GBP at 1.2200 and JPY at 133.00. US 10y is now at 2.75% after being lower than 2.7% overnight.  DOW rose 1.6% and S&P 500 jumped 1.9%. Indian equities had a flat day yesterday but can be expected to see a strong opening due to the overnight equity rally.

Today’s behavior of the Rupee is important now for gauging the direction of USDINR in the next month. If markets assess that the inflation number is not enough for the Fed to reverse their strategy, USDINR might stabilize at levels slightly below the current level. If the risk rally picks up steam, INR might enjoy some upside towards 78 as well. Our view is that the inflation data is still showing significant price pressures. The data might keep any large downside to risk assets at bay, but might not be enough to ignite a sustained rally in them. USDINR could trade lower for some time, but for now, we see 78.50 as the potential low in the next few days.

US CPI today. USDINR biding time and lookin for new direction.

(10th August 2022, 7:30 AM)

INR likely to open around 79.60

Dollar is relatively firm ahead of the important US CPI data due today. Dollar Index is at 106.20, with EUR at 1.0210, GBP at 1.2070 and JPY at 135.20. US 10y is slightly lower at 2.79%, and the US curve inversion remains very deep, indicating meaningful recession ahead. US equities are tentative, with DOW down 0.2% and S&P 500 by 0.4%. Better than expected US jobs report put the spotlight back on inflation data. If the data shows persistent inflation, there could be a quick reset of Fed expectations and market optimism, leading to a sharp reaction.

INR has not managed to break through the 78.50 level and mount a durable response. Today’s inflation data has the potential to provide a new direction to the Rupee. While market expectations are for a fall in headline inflation number to 8.7% from the previous month’s 9.1%, any large deviation from expectations can create large market swings. If inflation comes in much lower-than-expected, it might spark a large risk rally in all assets including the Rupee. INR could be range-y in today’s trade, waiting for the data.

Rupee under mild pressure. US jobs solid. CPI this week.

(8th August 2022, 7:00 AM)

INR likely to open around 79.40

Dollar surged on Friday, after the US jobs report revealed sharp rise in jobs-added for last month. The US economy added 528k jobs – much higher than expected. The unemployment rate fell to 3.5%, and the wage growth was also a solid 0.5%. US yields rose sharply, probability of a 75 bp hike in the next meeting rose, Dollar jumped, and stocks ended tentatively after the report.  On the domestic front, the RBI hiked the repo rate by 50 bp – along expected lines. Given the relative inflation picture, the RBI might not be as aggressive as the Fed would be in rate hikes. The RBI action did not move the currency market much.

Dollar Index is now at 106.55, with EUR at 1.0165, GBP at 1.2060 and JPY at 135.20. US 10y is higher, at 2.83%. DOW ended 0.2% higher, while the other frontline indices fell.  Nifty ended the day flattish. Brent continues to slide on global recession fears and is currently trading at 94.20.

It seems the labor economy in the US is thriving and rising wages remain supportive to price increases. The jobs report gives way to the US inflation print this week. The US CPI release in on Wednesday and expectations are for a fall in the headline number from the previous month’s 9.1% shocker. Any large deviation from expectations would trigger outsized moves in markets.

Rupee remains in the new range as the recession theme is balancing out the inflation/rate hike fears. More range bound behavior can be expected for the next day or two until the inflation data.

USDINR stable. US jobs report today.

(5th August 2022, 7:30 AM)

INR likely to open around 79.20

Dollar is lower, US yields subdued ahead of the U jobs data today. Dollar Index is at 105.75, with EUR at 1.0235, GBP at 1.2140 and JPY at 133.20. US 10y is at 2.68%. DOW ended 0.3% lower. Crude continued its downward trend as recession fears mount. Brent is at 94.25 now. US house speaker’s visit had sparked some fears of a confrontation between US and China. While there has been no direct moves from China, news of some military activities near Taiwan is a new development to watch out for. As yet, markets are not excessively bothered about this aspect.

Bank of England delivered a 50 bp hike, warning that the inflation could peak in the UK at 13%+, despite a recession possibility. We believe that inflation in the US would be stubborn enough to force the Fed to continue their current rate hike trajectory and kill the market optimism around a dovish tilt.

USDINR jumped 79.50+ yesterday, only to give up some gains today. Rupee could remain range bound until the next US CPI release next week, unless today’s jobs report shows unexpected behavior. The underlying theme of recession vs inflation remains well in play. Oil price fall is a positive factor for the Rupee, but the last trade deficit is an ominous sign. In all, we expect the Rupee to meander in a range between 78.50 to 79.50 for some more time.

Rupee gives up some gains. Fed comments point to continued aggression towards inflation.

(4th August 2022, 6:00 AM)

INR likely to open around 79.00/79.10

Dollar regained some lost ground and US yields held on to the previous day’s gains, as Fed speakers yesterday attempted to temper down the market’s optimism. All the Fed speakers who spoke yesterday tried to downplay the possibility of a dovish rate cut possibility in 2023 and tried to assert that inflation remains a challenge. While USD and the yields reflected their comments, US equities continued their bubbly run yet another day. Dollar Index is at 106.30, with EUR at 1.0165, GBP at 1.2150 and JPY at 133.80. US 10y is holding at 2.71%. DOW ended 1.3% higher, aided by the tech index. Indian indices rose 0.35% odd.

INR has again reversed some of its recent gains on the back of a significantly higher trade deficit and the revival in Dollar and US yields as markets try to reassess the inflation vs recession dilemma.  Friday’s US jobs report is now awaited to judge the wage growth numbers and if the ongoing technical recession in the US has had any impact on the labor market. USDINR could remain range-bound with neutral bias for a few more days until the next inflation report.

INR continues its positive run. Trade deficit at record high. US inflation data now critical.

(3rd August 2022, 8:00 AM)

INR likely to open around 78.60/70

Dollar rebounded yesterday, US yields rose sharply, and US equities fell after Fed speakers said that inflation remains a primary focus for them. Dollar Index has jumped to 106.10, with EUR at 1.0180, GBP at 1.2160 and JPY a 133.20. US 10y jumped 20 bp yesterday, now at 2.72%. DOW ended 1.2% down. Indian indices ended flattish yesterday but might be set for more caution today.

India trade deficit for last month came in at an all-time high of 31 billion, driven by a jump in both oil and non-oil imports. If this sort of deficit persists, there is a clear structural danger to the balance of payments position of the country and the RBI might find some caution and maintain more FX reserves to cover the deficit. We need to watch out for the next months’ data for confirming any trend in the trade deficit from hereon.

INR has managed to gain well during this period of risk revival. The next 2 weeks are very critical for the medium-term pace of the Rupee move. Some market participants expect that inflation has already peaked and would start to taper in the next couple of months, helping the Fed towards a dovish stance. But, even if the inflation peaks at 7-8%, the inevitable is just pushed a few months away, as the Fed cannot just end its balance sheet reduction plan too soon. Our view is that even more important than the rate hikes is the reduction in global liquidity which is set to pick up pace by September. Further, the global recession cannot be just a shallow one if inflation has to come down meaningfully. Net net, we believe that even if positive conditions continue for the markets in the next couple of months, bringing USDINR down, there could be another wave of sharp depreciation in the Rupee, either due to deep recession globally or due to persistent inflation.

INR comfortable amidst global risk revival. Data now critical.

(2nd August 2022, 7:30 AM)

INR likely to open around 78.95

Risk appetite continued in markets yesterday, as “bad news is good news” theme remained dominant. Even as US data, the latest being ISM, shows that the underlying economy is still not too down, despite the GDP print, markets are trying to force the Fed’s hand into turning dovish by this year end. The US yield curve is into deep inversion, with the 2-10s now at -30 bp. The more the inversion, the deeper the ensuing recession usually.

Dollar remains on the backfoot as Fed expectations are reset dramatically despite the inflation evidence. Dollar Index is at 105.10, with EUR at 1.0273, and GBP at 1.2265. US 10y has crashed towards 2.5% now, and as a result, USDJPY has seen considerable fall from 138+ level to 130.75 now.

USDINR has been able to benefit well from the revival in global risk appetite. Discounting the possibility of a global recession, markets are somehow expecting the central banks to fold quickly and resume their dovish strategies as soon as next year. Going by the Covid example, equity markets are not that concerned about the current earnings and are willing to discount large rise in future earnings provided there is continuous money printing from central banks. We think that equities and other risk assets are again trying to lead central banks in that direction. In this context, the incoming inflation readings remain very critical.

The Rupee can find some more upside given the current climate of risk appetite. If inflation remains elevated, there could be another rebound in USDINR back towards INR depreciation. But, if the inflation data comes subdued, then more downside to the Dollar is very much possible. It currently is a data-dependent market.

Risk appetite strong. INR positive. US jobs data this week.

(1st August 2022, 8:00 AM)

INR likely to open around 79.20

Risk appetite continues and Dollar is on the retreat after last week’s FOMC meeting. Friday saw equities closing well in the green, as hopes that recession would kill Fed’s aggressive rate hike strategy. Dollar Index is at 105.70,with EUR at 1.0240, GBP at 1.2195, and JPY at 132.40. US yields continue to fall, indicating market’s expectations of a coming recession. US 10y is at 2.64%. DOW ended 1% higher and futures indicate mildly cautious Asia open. Indian equity indices have also been surging, in line with their US counterparts. Nifty ended 1.3% higher on Friday.

This week is loaded with important macro data out of the US, with Friday’s jobs report becoming critical data point along with the CPI data in the later weeks. INR has been able to gain some benefit out of the ongoing risk revival. All depends on the incoming data now, and how inflation reacts to the tight financial conditions and recessionary environment. Last week’s US core PCE continued its upward trajectory, indicating that inflation is going to be stubborn. Even though US GDP is negative for the last quarter, consumer spending still remains solid, as is the wage growth.

Any dip in USDINR now, could reverse in the coming months as the tussle between inflationary expectations and recession possibility plays out. As we keep reiterating, the September/October period could see the start of a more volatile risk-averse period for markets and the Rupee. The medium-term bias is firmly towards depreciation even now, and any short-term fall in USDINR could present a good buying opportunity.

Risk appetite healthy. US in technical recession. INR looks to bank on favorable conditions.

(29th July 2022, 7:30 AM)

INR likely to open around 79.50

Dollar continued its weakness yesterday after the US GDP (-0.9%) showed that the US is in a technical recession. Markets are now assessing whether the Fed would be able to achieve its rate hikes fully when the economy is in a recession. Dollar Index is at 106.05, with EUR at 1.02, GBP at 1.2170 and JPY at 134.50. US yields fell yesterday also, as rate hike expectations are slowly turning into expectations of rate cuts in 2023. Equities rallied again, as the bad GDP print provided the momentum, due to hope that the Fed would stop being too aggressive.

INR has finally managed to capture some upside in the backdrop of reviving global risk appetite. The big risk to the Rupee remains the next month’s inflation data. If the inflation does not show signs of reversal, markets could throw a tantrum again as then a stagflationary scenario would be the worst case scenario for the markets. Any fall in USDINR would present a good buying opportunity as inflation is nowhere near a reversal and markets would revert to the inflation focus soon.

FOMC hikes, risk-on sentiment prevails in markets. INR stable.

(28th July 2022, 7:30 AM)

INR likely to open around 79.75

FOMC hiked rates by 75 bp, as expected. Markets took the FOMC as a buy-the-news event. Equities rose sharply, and Dollar saw a mild decline. Dollar Index is at 106.20, with EUR at 1.0200, GBP at 1.2160 and JPY at 135.50. Indian equities also had a good day yesterday, with 1%+ rise.

FOMC statement went as expected, though they tried to stress on the slowing economic conditions more. Markets took the tilt to mean that the future rate hikes might not be as fast, since the Fed has begun to acknowledge the slowdown possibility. Powell, even after reiterating that inflation remains the focus, mentioned the slowdown in the economy. But he refused to consider a recessionary scenario yet and pointed to the strong labor market. Markets interpreted the FOMC statement and press conference to mean that future rate hikes would be disrupted by slowdown in the economy and the Fed might not be able to move ahead as per their ‘dot’ plot. Currently the market yields are pricing in 100 bp lower rates in 2023 from where the Fed’s projections indicate.

After the FOMC, the US yield curve fell across the board, and curve inversion deepened. There is a clear discrepancy between the market and the Fed in the assessment of recession and rate projections. We are now again in a “bad news is good news” market, and any data point which points to recession could be cheered by markets for now. The consequences of a deep recession are not yet been appreciated fully in our view.

For the Rupee, FOMC was a positive event. We should wait for a day or two more to assess if the risk appetite on display yesterday would dissolve quickly as it happened during the previous FOMC meetings. Given that the next meeting is in September, incoming data now become very critical for all risk assets including the Rupee. The data now starts with Friday’s GDP and PCE data and then the next month’s jobs and inflation data become key. Rupee could enjoy some respite in the next day or two due to the global risk-on sentiment. But we reiterate that as we move towards September/October period, the liquidity ejection and the recessionary conditions would start to affect markets in a more tangible fashion and a bout of market panic is due towards the year end.

INR is cautious. FOMC today.

(27th July 2022, 7:00 AM)

INR likely to open around 79.90/80.00

Dollar-traded firm and equity markets stumbled in yesterday’s trading. Dollar Index is at 106.90, with EUR at 1.0140, GBP at 1.2040 and JPY at 137.05. DOW ended 0.7% lower. Nifty is down 0.9%. US 10y is slightly higher at 2.81%. DOW futures indicate a positive start to Asian markets ahead of the FOMC decision today.

FOMC is expected to raise rates by 75 bp today. Markets might be relieved if the rate hike is just 75 bp, as there is a fear of an outside chance of a 100 bp hike. But all would depend on the forward guidance from Powell, specifically on how they see the inflation trajectory and how many more hikes could be expected.

INR remains in a range and has not been able to break it on either side. The balance of probability continues to lie towards more Rupee depreciation. While the current FOMC meeting is important for markets, our view remains that September/October period would pose a threat to market calm, as the Fed’s balance sheet reduction plan picks up full steam by then. While currently, there is some stability and risk appetite continuing in markets, the period towards the year-end could see very volatile markets. The risk of a sharp depreciation in the Rupee remains very much alive and the longer the period of stability now, the more could be the severity of depreciation later. Hedging decisions might take such a possibility into consideration.

INR is stable. FOMC meeting begins today.

(26th July 2022, 7:00 AM)

INR likely to open around 79.75

Markets are relatively calm ahead of the two-day FOMC meeting beginning today. Dollar is weaker, and US yields are stable. Dollar Index is at 106.25, with EUR at 1.0230, GBP at 1.2055, and JPY at 136.40. US 10y is at 2.78%. US equities ended mixed with DOW registering a rise of 0.3% while the tech index fell 0.4%. Indian indices fell around 0.5%. Oil has been trading subdued over the past few days on concerns of recession and demand crash. Oil fall has been a positive factor for the Rupee, but not yet enough to tilt the scale firmly away from further depreciation possibility.

USDINR has been in a range, with a slight downward bias for the past few days as the global risk appetite has stabilized amidst a lack of market-moving data. But the Rupee has not been able to manage much gain, as the underlying medium-term bias remains firmly towards more depreciation. After tomorrow’s FOMC meeting, there could be some more INR appreciation if FOMC sticks to a script as expected by the market. The evolution of inflation and growth data over the next month or two would set the tone for the next leg of the move in most risk assets including the Rupee, just as the liquidity withdrawal picks up pace.

INR stable ahead of the FOMC week. Dollar trading firm.

(25th July 2022, 7:00 AM)

INR likely to open around 79.90

Dollar is firm as markets await the FOMC decision this week. Friday saw withdrawal in equities in the US, as growth fears compounded the inflation concerns. DOW closed 0.4% lower, while NASDAQ slumped 1.9%. Dollar Index is now at 106.65 with EUR at 1.0190, GBP at 1.1975, and JPY at 136.40. US 10y is lower at 2.79%, as bond yields seem to suggest a tussle between the inflation concerns/rate hike activity and the recession/growth fears. Indian equities had a good week last week, and the frontline indices ended Friday 0.7% up.

INR has not been able to capture any upside due to the stabilization of risk appetite. Dollar continues to hold strong, and this week could provide further direction to the Rupee post the FOMC and then the PCE inflation data. FOMC is on Wednesday, and while a 75 bp hike is expected, the tone and tenor of the statement and press conference could provide further insight. USDINR could trade sideways for the next couple of days until the FOMC.

INR remains range-bound. ECB delivers rate hike as expected.

(22nd July 2022, 7:00 AM)

INR likely to open around 80.00

Dollar traded slightly lower yesterday and equity markets continued to rise. Dollar Index is at 106.70, with EUR around 1.02, GBP at 1.1980 and JPY at 137.30. DOW ended 0.5% higher, aided by a 1.35% move in NASDAQ. Indian indices rose 0.5% as global equities seem to be in a mini bear market rally.

EUR popped higher after the ECB delivered a 50 bp hike yesterday but reversed the gains later. In addition to the inflation threat, the ECB seems to recognize that the large deficits of countries such as Italy can be back in focus when rates rise in the region and lead to a potential crisis. Even as the asset purchase (money printing) program ends, the ECB announced a separate facility to enable its intervention in purchasing assets (bonds) of any country as and when needed to stave off any crisis. Such an action would mean more liquidity – contrary to what they need to achieve to tame inflation. The next few months are going to be interesting times in European markets.

INR remains in a zone and has not been able to benefit at all from the recent Dollar weakness trend and increasing risk appetite. The Rupee could meander along for a few more days and wait for some direction post the 26th FOMC.

INR remains vulnerable, even as global risk appetite is stable.

(21st July 2022, 7:30 AM)

INR likely to open around 79.90/80.00

Dollar partly reversed its losses yesterday, and Dollar index is close to 106.90 now. EUR is at 1.0190, GBP is at 1.1970 and JPY is at 138.40. US yields continue to move higher, with the 10y back above 3%. US equities managed another day of green, with the DOW ending 0.15% higher, helped by a 1.5%+ jump in the tech index. Indian equity indices rose 1%+ on the positive vibes from the previous day’s US equities.

INR is not able to gain much on days of positive risk appetite and has been under pressure irrespective of the daily swings in the global sentiment. INR would continue to be tentative until the next major event, which is the FOMC meeting on the 26th. The trend of depreciation in the Rupee could remain intact for the foreseeable future.

INR in a range amidst a strong risk appetite in global markets. ECB decision in a couple of days.

(20th July 2022, 7:00 AM)

INR likely to open around 79.80

Dollar retreated and US equities jumped as risk appetite returned to markets yesterday. US corporate earnings gave a fillip to US equities overnight, while the EU CPI data helped expectations of an ECB rate hike and hence EUR strength. Dollar index is now at 106.45, with EUR higher at 1.0240, GBP at 1.2015 and JPY at 138.25. Asia has opened positive owing to the overnight performance of US indices. DOW ended 2.4% higher and NASDAQ jumped 3.1%. Indian indices moved higher by 0.4%.

INR is not able to enjoy the Dollar retreat as much as the global majors. The structural issues such as the high trade deficit would keep INR a relative underperformer in any Dollar weakness phase. The fact that the Rupee has just depreciated 7.5% odd compared to 15-20% depreciation of other currencies implies that any appreciation move due to global Dollar weakness could also be less prominent for the Rupee. USDINR might continue in a tight range for a few more days until the next Fed meeting.

INR remains vulnerable amidst a quiet day on the data front.

(19th July 2022, 7:30 AM)

INR likely to open around 79.95/80.00

Markets overnight could not sustain the risk appetite of the previous day. Dollar is slightly stronger. Dollar Index is at 107.40, with EUR at 1.0130, GBP at 1.1935 and JPY at 138.30. Brent is higher, on news that the US has failed to extract promises from Saudi Arabia regarding enhanced oil production. Brent is at 106 now – a negative for the Rupee.

Markets are awaiting the developments in the EU region. INR would remain in a range, given the lack of US data this week. The next big event remains the 26th FOMC outcome.

INR is stable after a tumultuous last week. ECB and Russia-EU Gas dynamics in focus.

(18th July 2022, 7:30 AM)

INR likely to open around 79.80

After tearing through most of last week USD retreated mildly on Friday, as risk appetite came back to markets. Dollar Index is now at 107.60, with EUR above 1.01, GBP at 1.19 and JPY at 138.15. US equities had a solid day on Friday, with the DOW seeing a 2%+ jump. Asia has opened with optimism that the FOMC would hike only 75 bp instead of the 100 bp feared by markets.

This week is relatively light on the US data, and hence some sense of calm and slight INR strength might be visible. But the EU would be tense this week, as Russia is slated to resume gas supply to Germany. This event risk along with the ECB meeting, where they are expected to hike 25 bp, would keep EUR tentative. There are fault lines appearing in the EU area, especially in Italy, where rising yields and potential political turmoil is bringing focus to the large deficits and untenable fiscal situation.

INR could benefit slightly this week, given there is no market-moving data out of the US. The next Fed meeting on 26th could bring back the focus to the reality of inflation and the Fed’s hawkishness despite the comments from the Fed speakers. EU risks remain important for the Rupee as well, since the tail risk event of large country default impacting the global economy could emanate out of the EU. BOJ also has the policy scheduled this week, where they are expected to stick to the zero-rate policy and cause JPY more harm. While the JPY fall is not an immediate threat to the Rupee, it is a matter of time, such depreciation in JPY puts CNY and other Asian peers including the Rupee under significant pressure.

For now, INR could see some days of stability.

Rupee remains under pressure, FOMC in focus.

(15th July 2022, 7:30 AM)

INR likely to open around 79.90/80.00

Dollar pulled back slightly, and overnight equities managed to stave off more losses after Fed speakers made dovish comments regarding the next FOMC meeting. Markets have reduced the odds of a 100 bp hike after a couple of Fed officials indicated that such a decision cannot be made just after one inflation data point. Dollar Index is at 108.40, with EUR at 1.0030, GBP at 1.1840 and JPY at 138.85. DOW ended 0.45% lower and the US 10y is higher by 3 bp, at 2.95%. Indian indices ended marginally lower and are set for cautious open today. Today’s retail sales data can ruffle some feathers if too different from expectations. Odds of a 100 bp hike in the next FOMC meeting this 27th are down to 50% now from almost 100% before the comments from the Fed governors.

As for the Rupee, there is not much to look forward to for currency in the coming days. While the general direction for USDINR is towards more Rupee depreciation, there could be some days of relatively range-bound moves until the next FOMC meeting. The domestic situation is not amenable to the flows into India anytime soon. The RBI would continue the rate hike cycle in zest, given that the latest CPI print showed persistent inflation. The risk of a growth slowdown in India remains tangible given the rate hikes, though the latest economic data shows stability for now. The fall in Oil is a silver lining for the Rupee, but not enough to structurally change the fate of the Rupee.

US CPI higher than expected. No respite for INR.

(14th July 2022, 7:00 AM)

INR likely to open around 79.70

Dollar is rock steady after US inflation beat all expectations yesterday. The CPI came in at 9.1% and even the core CPI was higher. The inflation report solidified expectations of a 75 bp hike in the coming FOMC meeting. US 10y fell 5 bp on risk aversion and expectation of an eventual rate cut cycle in the coming years. Brent is lower on recession fears.

Dollar Index is at 108.15, with EUR at 1.0025, GBP at 1.1860 and JPY at 137.90. DOW ended 0.65% lower. Indian indices also ended 0.7% odd lower. Brent is trading just below 100. US 10y is at 2.93%.

INR has no real support now to hold on to, except maybe the fall in Oil. The CPI data shows that the FOMC must be very aggressive irrespective of the recession scenario. It seems more and more unlikely that the central banks of the world would be able to soft-land their respective economies while bringing inflation under control. It could ultimately be a deep recession which would bring down inflation in the coming year or so. USDINR is firmly on the way up, but the magnitude and the intensity of the move are dependent upon the risk aversion dynamics in markets.

INR remains at risk. US CPI is due today.

(13th July 2022, 7:30 AM)

INR likely to open around 79.50

Dollar held on to its gains, and EUR briefly slipped below parity yesterday ahead of the important US CPI data due today. Dollar Index is at 108.10, with EUR at 1.0025, GBP at 1.1890 and JPY and 137.10. US 10y is at 2.98%. The US yield curve has been inverting indicating a recession ahead. US equities had yet another negative day, with S&P 500 falling 0.9%. Indian indices also tracked global markets and fell close to 1%.

INR remains vulnerable as the global scenario of risk aversion and recession possibility along with the inflation issue is a perfect recipe for long-drawn pessimism. Today’s US CPI is expected to top the last month’s print and bring back inflation worries to the fore. The short-term up move in USDINR is expected to remain on track, though the pace of Rupee depreciation could vary depending on the incoming data.

At this juncture, we must keep one eye on the possibility of a large tail risk event. Once recession and high yields become entrenched, the majority of the governments would again attempt to prop up their economies through doles to citizens and large fiscal spending. Given that there are no central bank bond purchases to backstop the large deficits already in place, there is a slight possibility of large country defaults/concerns of defaults in the coming year to two years. While this scenario is not a base case one, the outside chance of such an event is building in the background as the excesses of the past 14 years (post-2008) could come home to roost.

INR continues to weaken as Dollar strength rages on. US CPI is due tomorrow.

(12th July 2022, 7:30 AM)

INR likely to open around 79.40/50

Dollar rampage continued yesterday, and EUR is just a whisker away from parity with the Dollar. Dollar Index is at 108.15 now, with EUR at 1.0025, GBP at 1.1880 and JPY at 137.10. The post-payroll USD strength continued into yesterday’s session and equities in the US had a negative day. NASDAQ fell 2.2% , dragging S&P 500 by 1.1%. US 10y fell sharply again to the 2.95% level, indicating the risk aversion and safe-haven demand for USD are strong. Indian indices managed a flattish close, but Asian markets are cautious today over overnight market moves.

INR continues to be under pressure though large jumps, characteristic of a panic situation, are absent. There is a steady but sure depreciation of the Rupee. RBI has been trying to relieve some pressure through some regulatory relaxations. RBI has opened up international trade and invoicing in the Rupee, probably aimed at the oil invoicing from countries such as Russia. Over some months, there could be some invoicing in INR, reducing pressure on the trade deficit-related Dollar demand. But any such development is some time away, and the global situation is dicey enough for the Rupee to remain vulnerable in the coming months. The next stop for the markets is the US CPI data release due tomorrow.

INR under pressure on good US jobs data. US CPI is due this week.

(11th July 2022, 7:30 AM)

INR likely to open around 79.30

Dollar is strong, and Asian markets are tentative as the week opens ahead. Friday saw US yields rising again, as inflation fears got fanned more by the good US jobs and wage growth data. The US payroll data showed 372k jobs added against an expectation of 270k. While wage growth is lower than the previous month, it still is above 5%. Dollar Index is now at 107.15, with EUR at 1.0140, GBP at 1.1990 and JPY at 137. US 10y is higher at 3.1%. US equities ended Friday flattish, and Indian indices had a 0.5% kind of a day.

This week has the all-important US inflation data, expected to show a continuing pressure on prices. Also important are US retail sales data in the period of a potential recessionary scenario. US jobs data showed that the labor market is healthy still, and retail sales could show how consumption in the US economy is doing. The Fed’s hawkishness and the relative performance of the US economy against the other global regions such as the EU has created a ground for further Dollar strength, especially against the EUR.

INR remains in a zone of pressure as US inflation dynamics and the contributing factors refuse to die down anytime soon. Risk assets managed a quiet week last week, but any bounce in markets is a dead-cat bounce at this point. Structural and fundamental factors continue to be against the Rupee and it is a matter of time before the next bout of sharp Rupee depreciation and risk asset fall is due.

Structural pressure on the Rupee remains very much intact.

(8th July 2022, 7:30 AM)

INR likely to open around 79.10/15

Dollar held on to its gains as markets now await the US jobs data today. Dollar Index is at 106.80, with EUR at 1.0175, GBP at 1.2040 and JPY at 136. Equity markets have been having a mini recovery over the past few days. DOW closed 1.1% yesterday and the NASDAQ ended 2%+. Indian indices also had a solid 0.9% jump.

INR has been buffered from more depreciation due to the news of some pro-Rupee measures from the RBI such as removing CRR requirements for FCNR deposits and such. More than the real impact of such moves, the sentiment that the RBI wants to control INR depreciation helped the Rupee a bit. With Oil also down from the recent highs, the pressure on the Rupee has abated mildly. But the structural pressure on the Rupee remains very much intact. The global scenario is still very tentative and a volatile phase in markets is just an official comment or a data event away. Any dip in USDINR would be a good buy.

INR stable amid Dollar surge.

(7th July 2022, 7:00 AM)

INR likely to open around 79.10

INR was able to hold a range despite the raging Dollar yesterday. Dollar surged yesterday against most currencies, especially the EUR and GBP. Dollar Index is now at 106.90 with EUR at 1.1185, GBP at 1.1925 and JPY at 135.85. US equities managed a positive day with around a 0.3% gain. Indian indices had a good day with 1.2% jump. US yields are slightly higher, and the 10y is close to 2.9%. US ISM services data came in better than expected, but the employment component of the data is suggesting ebbing demand for labor. FOMC minutes were in line with expectations. The data did not lead to any change in the market calibration of recession and Fed actions.

Oil is finally reacting to the global recession fears and potential demand drop. Brent fell more almost 9% yesterday and is now trading just around 100. This factor is a positive for the Rupee, plagued by a high trade deficit and oil import and can help INR from a sharp depreciation in the immediate term. USDINR could now be expected to be back into the new range between 78.80 and 79.30 for a few more days. The next important data point is the US jobs report on Friday.

USD surges as recession fears pick up. Rupee is very vulnerable.

(6th July 2022, 7:30 AM)

INR likely to open around 79.30/40

Dollar rampage moved into a new gear yesterday on safe-haven demand for Dollars and after bad data out of the EU region hurt the EUR. Dollar Index is sharply higher at 106.30, with EUR down to 1.0265, GBP at 1.1960 and JPY at 13570. US long-term yields continue to fall and even the 2-5 segment of the yield curve is now inverted. The yield curve is indicating a recession and the potential for rate cuts in the coming years. US equities managed a positive day, driven by tech stocks. Indian indices ended mildly lower (by 0.2%). US 10y is at 2.8%. Oil fell sharply after the Saudi news, and Brent is now at 105.20.

The EU PMI data triggered a sharp correction in the EUR yesterday as the data suggested that the EU is also heading into recession potentially leading to lower inflation and a less aggressive ECB later. The fact remains that a global recession has already started, even as central banks are at the initial stage of the rate hike cycle. The medium-term consideration for the markets would be whether risk aversion due to potential recession dominates or whether the comfort around the peak in inflation and less aggressive central bank action provides comfort.

USDINR has broken its recent range and is now headed higher, as the global Dollar strength refuses to abate. The biggest risk for the Rupee in the coming months is a scenario of stagflation, wherein inflation settles at a high enough level for central banks to worry and an economic slump hurts markets. For now, INR remains very vulnerable to continuing Dollar strength and risk aversion.

INR remains range-bound. Trade deficit highlights structural problems for the Rupee.

(5th July 2022, 7:00 AM)

INR likely to open around 78.95

Dollar is slightly stronger, and the US yields are mildly higher as inflation and Fed action remain the primary focal points for the markets. Yesterday, being a US holiday, was relatively event free. Indian Indices closed in the positive zone. Nifty ended 0.6% higher. Dollar Index is currently at 104.90, with EUR at 1.0430, GBP at 1.2115 and JPY at 135.95.

USDINR has settled into a new range, but the underlying pressure on INR has not yet dissipated at all. The latest India trade deficit at 25+ billion only goes to show the structural pressure on the Rupee, at a time when there are significant outflows on the FII front. The short-term behavior of the Rupee is difficult to predict and could be range-bound, waiting for the next data points such as FOMC minutes, US ISM and then the jobs data. The medium-term direction, though, is clearer for the Rupee and a move towards the 80+ mark is on the cards in the next few months.

INR stable, for now, data heavy week ahead.

(4th July 2022, 7:00 AM)

INR likely to open around 78.95

Dollar remains strong and Asian markets have opened cautiously ahead of an important data-filled week. Dow futures are down, Dollar Index is at 104.80, with EUR at 1.0430, GBP at 1.2105, and JPY at 134.95. US 10y continues to trade lower, now at 2.88% as recession fears increase the safe-haven demand for US treasuries.

This week has some important data releases culminating in the US non-farm payroll data on Friday. The minutes of the last FOMC minutes are also due this week, along with ISM data. Atlanta Fed’s GDP now is forecasting a negative GDP growth for Q2 implying that the US is already in a technical recession. Markets have already started to factor in rate cuts in 2023 by the Fed, as the recession forces the Fed to cut down on their aggression. On the other hand, persistent inflation means more rate hikes this year, and more importantly, continuing liquidity withdrawal.

INR remains vulnerable, though the momentum which took USDINR to 79 has stalled for now. While the medium-term direction remains towards more Rupee depreciation, the short-term moves are data-driven. This week could see more volatility in the Rupee and markets as important data points shape the tug-of-war between recession and inflation fears. One point which can be made with reasonable certainty is that there is not much upside for the Rupee left anymore. Indian trade deficit data, due today, is also expected to put the spotlight back on the structural problems affecting the Rupee.

INR holding on, but the global environment is not amenable.

(1st July 2022, 7:00 AM)

INR likely to open around 78.95

Dollar is slightly higher, US 10y lower, and equity markets are jittery as recession fears and inflation concerns continue to dominate market sentiment. Dollar Index is at 104.75, with EUR at 1.0470, GBP at 1.2155 and JPY at 135.95. US 10y has fallen below 3% as inflation and Fed hike fears are negated by recession and a potential rate cut possibility in the future. DOW ended the quarter on a negative note, with a 0.8% draw. Indian equities ended flat and are set to see more caution today.

The US PCE inflation data showed that inflation is in the process of peaking. But, given the sheer gap between the current inflation and the Fed’s target, the FOMC would continue to be aggressive on inflation. The US economy is on the verge of a recession, going by the latest GDP, PMI, retail and personal spending data. The question for the coming months is whether the Fed would blink on their rate hike strategy once the recessionary scenario becomes more apparent.

USDINR is holding on to the zone just below 79. Given the global backdrop and economic slowdown fears, any meaningful appreciation in the Rupee is unlikely from here. The short-term might see sideways movement as the incoming data is not disruptive enough. The coming US jobs data and then the US CPI report could trigger more moves. That said, as the global environment is one of risk aversion and fear, outsized moves in markets can occur on any given day without any palpable trigger and we must be wary of that fact always.

INR remains vulnerable. US PCE inflation ahead.

(30th June 2022, 7:30 AM)

INR likely to open around 78.90

Dollar traded higher after Powell spoke hawkish yesterday on the need to curb inflation even at the cost of causing slower growth. Dollar Index is at 104.65, with EUR at 1.0445, GBP at 1.2130 and JPY at a new high of 136.60. US 10y continues to be subdued as recession fears keep long-term rate expectations managed. US equities ended the day flattish, but the undertone remains that of cautiousness. DOW ended 0.3% higher, and S&P 500 ended flat. Indian equity indices closed moderately lower, by around 0.3%.

INR has managed to hold below 79 for now, but the writing on the wall is clear for the Rupee. Today’s US PCE inflation might trigger a minor move in currencies tomorrow. But, Powell’s comments show that the Fed is willing to cause a recession to fight inflation. Most markets are not prepared for long-drawn recessionary conditions and many structural problems such as ballooning fiscal deficits across the world would come to the fore sooner than later. INR might hold on for a while in the short term, but a sharp-up move in USDINR is always on the horizon.

INR is under pressure. Structural problems catching up with the Rupee.

(29th June 2022, 6:30 AM)

INR likely to open around 79

Rupee saw a sharp fall yesterday, as continuing risk aversion, outflows and high crude prices finally have found their way into the USDINR level. The overnight Dollar strength and fall in equities have ensured that USDINR trades above 79 in the NDF market. Dollar Index is at 104.25, with EUR at 1.0525, GBP at 1.2190 and JPY at 135.15. DOW ended 1.6% lower, and NASDAQ crashed 3%, as inflation and recession fears continue to simmer in the background. Indian indices managed a flattish close yesterday, but are set for some losses today.

USDINR has gotten a new momentum and the Rupee is finally reacting to the underlying factors in a decisive way. For the past few weeks, the Rupee could not manage any benefit despite the global Dollar stability and return of risk appetite in equity markets. Now even the momentum has shifted firmly towards depreciation, and the coming US PCE inflation and then the trade deficit data could add more reasons for further Rupee weakness. USDINR could not move towards 79.50 to 80 soon unless there is a sharp reversal today/tomorrow.

INR remains under pressure despite global stability. More focus on PCE & Trade Deficit data this week.

(28th June 2022, 7:00 AM)

INR likely to open around 78.40

Rupee remains under pressure despite the favorable global market situation and mild weakness in the Dollar. Dollar Index is flat at 103.70, with EUR at 1.0580, GBP at 1.2280 and JPY at 135.40. US 10y remains subdued, now trading at 3.2%. US equities broke the winning streak and ended lower, with DOW down by 0.2% and NASDAQ lower by 0.7%. Indian equity indices closed higher by 0.8%.

USDINR is not able to break below the 78 mark, despite stability in the Dollar. Unlike the earlier phases where even slight positivity or lack of negative global developments used to lead to INR strength, the current move is reflective of the general cautiousness around EM currencies and the problems around the domestic trade deficit. The bias remains towards more INR depreciation, and this week’s data on PCE and then trade deficit becomes critical.

INR stable. US PCE inflation this week.

(27th June 2022, 7:00 AM)

INR likely to open around 78.25

Dollar is stable at Asia open and US equity futures are slightly lower, after having closed well on Friday. Dollar Index is lower at 103.75, with EUR at 1.0565, GBP at 1.2285 and JPY at 134.70. US 10y is at 3.13%. DOW ended Friday with a solid 2.7% jump, and NASDAQ surged 3.35%. Indian indices had a good day on Friday at 0.9%, with a positive start expected today.

USDINR is slowly inching up, waiting for the next set of data points from the US. This week’s US PCE inflation is expected to provide an indication of whether the inflation has peaked. INR remains under pressure, but the short-term outlook is stable for now.

INR stable amidst calm global markets. Recession scenario is back in focus.

(24th June 2022, 8:00 AM)

INR likely to open around 78.10

Dollar is stable, but equities had a good day yesterday as markets weigh in potential recession concerns against inflation concerns and fed action. Powell reiterated that the Fed is committed to inflation control and that the Fed’s balance sheet size can potentially be reduced by 2 to 3 trillion USD. While markets downplayed the statement, it remains to be seen if such a large reduction in liquidity can be tolerated by markets eventually. US PMI numbers came in sharply lower, indicating a significant slowdown in the US. There are now two opposing views being played out: a. recession leading to a sharp fall in demand and then inflation which stops Fed hikes b. recession leading to a crash in earnings and market panic more than the benefit of lowering the inflation. Each day, depending on which view is dominant, markets would behave accordingly.

Dollar Index is at 104.10, with EUR at 1.0530, GBP at 1.2270, and JPY at 134.85. US yields are lower as recession odds increase. US 10y is at 3.1%. DOW ended 0.65% higher, and Nifty rose 0.9%. USDINR continues to be in a narrow range. While there is some calm in markets for now, more would depend on the next inflation data points along with the GDP/recession-related data. For now, a range-bound USDINR is a base-case scenario.

USDINR in limbo. Fed’s Powell signals a hawkish stance to continue.

(23rd June 2022, 7:30 AM)

INR likely to open around 78.10/20

Dollar is stable and equities are cautious after Powell’s testimony in the US Congress made it clear that the Fed would be aggressive to fight inflation. He also said that the US economy can withstand higher rates, though he did mention that a recession might be a possibility due to rate hikes. Dollar Index is lower, at 104. EUR is trading at 1.0560, GBP is at 1.2240 and JPY is at 135.85. US 10y is lower at 3.16%. DOW ended 0.15% lower and Indian Nifty ended down 1.4%.

There is not much to write about on USDINR these days. Currencies have settled into a range as has the Rupee. As markets come to terms with the Fed rate hike cycle and the balance sheet reduction, there is always that chance of a sudden crash, as the impact of the liquidity withdrawal is finally realized one day. The timing of the next surge in USDINR is difficult to point out, but it could be triggered by a data point or just technical aspects in the markets. The new range above 78 is solidifying and the possibility of an appreciation move down is minimal. We must just wait for the next leg of the Rupee evolution higher, though the timing of the move is difficult to assess.

INR stable as risk appetite improves.

(22nd June 2022, 7:30 AM)

INR likely to open around 78

Risk appetite made a comeback yesterday in equities, but Dollar traded fairly strong. Dollar Index is now at 104.40, with EUR at 1.0505, GBP at 1.2250 and JPY at 136.10. The move in the Yen continues unabated as the BOJ refuses to budge from their interest rate policy stance. Equities had a solid day yesterday with the DOW registering a 2.15% jump and Indian indices seeing a rise of 1.8-2%.

With no real data or events on the horizon for this week, markets seem to milk the calm period for some gains. Dollar might see slight weakness if the risk appetite holds for the next few days. INR has not benefited much as yet and remains stable around the 78 mark. Since structurally INR remains very vulnerable, the potential upside to the Rupee is anyway minimal and any dip in USDINR is always a good buy.

INR is stable and range-bound. Global markets await the next clues on inflation.

(21st June 2022, 7:30 AM)

INR likely to open around 77.95/78

Markets, in general, were range-y yesterday and overnight trading was muted as yesterday was a US holiday. Dollar is slightly weaker, and equities are mildly higher. Dollar Index is at 104.10, with EUR at 1.0530, GBP at 1.2265 and JPY at 135.10. US 10y is at 3.3%. Indian indices closed 0.5% higher. Oil is in its range, with Brent at 115 handle.

INR is waiting for direction, which could come from the month-end’s US PCE numbers. While there is a lull in the markets for now, focusing back on the US inflation could stir things up for markets. USDINR could move in a tight range and the Rupee might even appreciate a bit in the next few days. The longer-term structural picture of the Rupee remains shaky.

INR stable. Markets await direction from the next cycle of data points.

(20th June 2022, 7:00 AM)

INR likely to open around 78

Friday marked the end of the FOMC week, with muted moves in currencies. Dollar Index is at 104.45, with EUR at 1.0495, GBP at 1.2225 and JPY at 135.25. US equities ended Friday on a positive note, though the rally is meek in comparison to the falls seen earlier. US 10y is at 3.25%. USDJPY shot up higher, as the BOJ reiterated its commitment to the zero-interest-rate policy. Indian indices ended lower by 0.25%.

INR managed to hold on to the new range above 78 despite the Dollar strength and aggressive Fed. Sharp market panic and risk aversion are yet to hit markets as there is still some hope that the Fed might not push the economy into a recession. But dark clouds are circling the world economy and if the inflation measures do not move down quick enough, there is a clear danger of sharp market panic. In the short-term, the upward momentum of USDINR has stalled and the moves from here would be based on Fed comments and risk appetite changes until the month end’s US PCE inflation report.

USDINR stable amidst global equity crash. Dollar weak on falling US yields.

(17th June 2022, 7:00 AM)

INR likely to open around 78

While equity markets continued to panic on recession fears, Dollar reversed its strength as US yields crashed overnight. The US 10y fell to 3.25%. DOW fell 2.4% while S&P 500 fell 3.2% and NASDAQ by 4.1%. Dollar fell sharply and the Dollar index has ended below 104. EUR is at 1.0530, GBP is at 1.2320 and JPY is at 133.25. The fall in US yields is due to a recalibration of recession and hence potentially rate cut/QE possibility in the coming years.

The interesting phenomenon happening now is that Dollar weakness, despite the risk-off sentiment, is primarily due to the shrinking of the yield gap with the major currencies. This might not apply to EM currencies yet due to the environment of risk aversion. As we keep reiterating, EM currencies and INR remain very vulnerable to the coming wave of market panic as every major central bank in the world starts hiking into a global recession. As for crosses, we must wait to see how long this reversal in the Dollar will continue. Structurally though, Dollar remains strong across the board still.

USDINR remains biased upwards, but it has avoided the large moves typical of risk-off sentiment. One cannot put a timeline to the eventual move higher as yet. USDINR could continue to meander along in a range for now and each day is a new day for markets in the current scenario.

Fed hikes 75 bp. INR is stable but vulnerable.

(16th June 2022, 7:00 AM)

INR likely to open around 78

Dollar traded slightly lower and US yields fell after the FOMC delivered a 75 bp hike, as predicted by market prices. Powell said in the press conference that the recent inflation print led them towards a 75 bp hike. The dot plot of the FOMC projects significantly higher rates than the previous dot plot in the March meeting. The FOMC projects a median Fed funds rate of 3.4% by 2022 implying another 7 hikes by the year-end. Powell said that he would expect 50-75 bp hikes in the next couple of meetings. Markets are pricing in 7-8 hikes by Feb 2023. Powell commented that they are committed to move until inflation shows signs of decrease.

Markets had a relief rally after the Fed hike announcement that it is not a 100 bp hike. DOW jumped by 1% and NASDAQ by 2.5%. Dollar index is lower at 104.65, with EUR at 1.0455, GBP at 1.2175 and JPY at 134.50. US 10y fell by 10 bp, now at 3.35%. Indian indices were lower by 0.3% odd but can be expected to open steady today.

Despite yesterday’s relief rally, the fact remains that the US economy is moving towards negative GDP this quarter. The retail sales data of yesterday came in lower than expected and in the negative territory. While the Fed is committed to a 50-75 bp hike, the broader question is about how the FOMC would handle the recession and potential market panic in the coming months.

USDINR could continue in a new zone, as the market reaction to the Fed hike has been along expected lines. We must wait for a couple of days to see if there is a delayed reaction to the Fed hike. For now, there is no runaway depreciation visible in the Rupee over the next few days. The structural long-term depreciation bias is very much alive though.

FOMC today. USDINR in a new range.

(15th June 2022, 6:30 AM)

INR likely to open around 78/78.20

An uneasy calm prevailed in markets ahead of the Fed decision today. Dollar is slightly weaker, but the US 10y has surged higher and the US yield curve has flattened, signaling impending recession. DOW ended 0.5% lower, US 10y is at 3.45%, the Dollar Index is at 105.10 with EUR at 1.0440, GBP at 1.2015 and JPY at 135.20. Markets now expect a 75 bp hike and a total of 11-12 hikes are priced in by Feb/March 2023. The big question now is how far the Fed will move before recession hits and markets crash.

INR is now in a new zone and could meander along waiting for the Fed decision. As we reiterate, unless there is a sense of panic in markets and a fall in US 10y (due to safe-haven buying) USDINR would not see that volatile surge, but rather would go through a slow grind higher. Today’s FOMC can provide some direction to the next leg. On the domestic front, India’s CPI came in lower than last month’s, at 7.04%. The print would not make much difference to the currency markets, as the WPI continues to be high (15.9%) suggesting future CPI inflation. INR is now primarily driven by global central bank activity.

Inflation fears wreak havoc. INR remains under pressure.

(14th June 2022, 7:00 AM)

INR likely to open around 78.10/15

Dollar continued to hold strong and equity markets crashed worldwide for yet another day yesterday. The latest red hot inflation report has now led to fears that the Fed would hike 75 bp in tomorrow’s policy decision. US yields continue to move higher, and the yield curve is flattening fast. US 10y continues its relentless surge, now at 3.38%. Dollar Index is around 105, with EUR at 1.0420, GBP at 1.2150 and JPY at 134.00. US equities fell sharply yesterday. The DOW fell 2.8%, S&P 500 by 3.9% and NASDAQ by 4.7%. Indian indices bore the full brunt of the global inflation panic, with the frontline indices falling 2.7%.

INR has depreciated into a new zone now, and the next leg depends on the FOMC meeting tomorrow. In addition to the inflation and the Fed policy, INR and Asian FX have another potential risk factor to face – the Japanese monetary policy and a disruptive crash in JPY. JPY has borne the brunt of the BOJ policy of keeping rates at zero and continuing the excessive money printing to hold bond yields down. The risk of a super-large money printing exercise leading to a drastic loss of confidence in JPY in the coming months is one risk factor for China and Asia flows to watch. For now, inflation and the Fed remain the dominant themes for all asset classes including INR.

If the FOMC does go for a 75 bp hike, they would have contradicted their own statements that 50 bp orderly hikes are the default. As of now, markets are pricing in a 90%+ probability of a 75 bp hike. INR is clearly in trouble, just that the quantum of the move is the moot point. We have to wait now for the FOMC policy tomorrow.

USDINR up on high US Inflation. FOMC this week.

(13th June 2022, 6:30 AM)

INR likely to open around 78.10/15

Dollar surged and equities and bonds sold off after the US inflation rose more than expected last month, per the data released on Friday. US CPI rose 8.6% – a 40-year high. Core CPI also jumped more than expected. DOW fell 2.8%, and NASDAQ crashed 3.5%. Dollar Index has jumped to 104.15, with EUR close to 1.05, GBP at 1.2290 and JPY at 134.70. US 10y rose to 3.16%. The rise in US 10y and the steady USDJPY level indicate that markets still are not yet in a risk-aversion mode and the market fall is primarily due to expectations of more rate hikes. Indian indices also fell 1.7% odd and more could be expected today.

USDINR would breach 78 today but given that the market situation is yet to turn into an all-out panic, we have to watch if USDINR would settle into a new range rather than run towards 80. This is an FOMC week, and the latest inflation data complicates matters for them. Markets have already started to consider the possibility of a 75 bp hike at this meeting. The next key aspect to note would be if the previous bout of market panic as happened last month can repeat post the FOMC or not. While INR continues to be under pressure, the magnitude of the coming move is yet uncertain and can be clearer post FOMC on the 15th.

USDINR drifting up slowly. Critical US inflation data today.

(10th June 2022, 7:30 AM)

INR likely to open around 77.80

Dollar is higher ahead of the crucial US CPI release today. US equities fell sharply as fears of persistent inflation remain the dominant theme in markets. US yields continue to be high, with the 10y at 3.05%. Dollar Index is at 103.30, with EUR at 1.0620, GBP at 1.2485 and JPY at 134.25. Indian indices ended 0.8%+ higher yesterday but are set to give up the gains back today.

INR has been gradually weakening but through almost imperceptible moves. As we mentioned earlier, the market reaction to the Fed cycle can be divided into two phases. The first phase is characterized by gradual market fall, rising long-term US yields and weak JPY as the risk aversion theme is dominated by the fact of yield differential with the US. In this phase, EM currencies such as INR tend to fall moderately. We are still in this phase as markets still seem to think there is the hope of soft-landing of the global economy.

The second phase is typically the panic phase wherein US yields fall due to risk-aversion and safe-haven buying and equities show continuing panic and volatile behavior. Markets seemed to get into this mode a month ago but reverted to phase 1. The risk now is that USDINR would move up gradually until it does not. Once panic hits the markets, there could be a very quick depreciation move towards 80 levels. The timing of the move is still moot. For now, the short-term Rupee might still be stable for a few weeks possibly if the next FOMC turns out to be as expected.

INR stable post-RBI hike. Tom’s US CPI is next.

(9th June 2022, 7:00 AM)

INR likely to open around 77.75

Dollar is stronger primarily against JPY, and is muted against other majors. USDJPY has shot through 134, as the BOJ is now faced with a hard choice of letting JPY go or to temper down their insistence on zero rates. Dollar Index is at 102.60, EUR is at 1.0715 and GBP is at 1.2530. DOW fell 0.8% yesterday as equity markets continue to hover in a range with no incentive to move much higher. ECB meeting is awaited today, to see if yet another central bank is set to move towards tighter rates.

INR is fairly stable, after the RBI hiked rates by 50 bp, more or less as expected. The policy was hawkish as they upped their annual inflation forecast higher by 1%. We can expect continuing rate hikes in the next few meetings. Indian equity indices fell 0.3% odd after the policy. The aggressive stance from the RBI is not in Rupee’s favor as the economic impact of the move would keep equities jittery and the rate hike cycle leads to higher yields resulting in potential outflows.

Markets are awaiting the all-important US CPI number tomorrow. USDINR could remain in its tight range until that data. But the longer the range-y behavior of the Rupee drags on, the sharper would be the next surge, likely towards INR depreciation.

USDINR stable amidst stable risk sentiment. RBI policy today.

(8th June 2022, 7:00 AM)

INR likely to open stable at 77.70

Dollar remains bid and equities positive as markets wait for the US inflation data this weekend. Dollar Index is higher as USDJPY continues to surge higher since the BOJ is the only major central bank adamant about continuing the low-interest-rate policy. Dollar Index is at 102.50, EUR is at 1.0690, GBP is at 1.2580 and JPY is at 133. The weakness in JPY would have implications for markets and the Bank of Japan can potentially intervene soon. The move in JPY could put more pressure on China to devalue their currency more and in that eventuality, there could be some more risk aversion sentiment setting in markets.

DOW ended higher by 0.8%, aided by tech stocks. Indian indices though fell yesterday by 1%. INR is stable ahead of the RBI monetary policy decision today. More important than the rate hike would be the narrative set by the RBI on the global market situation and the domestic inflation situation. Unless there is a drastic deviation seen in the policy, INR might not see much impact. USDINR is set to remain in its range for a few more days and the magnitude of the next move would depend on whether there is a resurgence of risk-off sentiment after the inflation data and the next FOMC meeting.

USDINR in range. US yields sharply higher.

(7th June 2022, 7:00 AM)

INR likely to open around 77.75

Dollar is strong and US yields are sharply higher, as inflation fears pick up steam. US equities ended moderately high, and the move up in USDJPY is indicative of the fact that market panic has subsided a bit despite the inflation threat. The panic stage is yet to solidify in markets, and one can say that equities are going through a small bear market rally in most geographies. Dollar strength remains firm, though the magnitude of the move against EUR and GBP is smaller than the previous move still. JPY is suffering due to the yield differential between the US and Japan, and the risk aversion dynamics (which usually strengthen JPY) are yet to be seen.

Dollar Index is above 102.60, with EUR at 1.0675, GBP at 1.2510 and JPY weaker at 132.60. US 10y has crossed 3% again and is now at 3.05%. DOW ended flat while NASDAQ and S&P 500 had gained around 0.3%-0.4% overnight. Indian equity indices fell marginally yesterday. Brent remains high, around the 120 $ mark.

INR is still in its range. Irrespective of the global Dollar dynamics at play, Rupee is always on the backfoot now. If risk appetite remains fine in markets, US 10y would move higher, putting at risk EM assets including the Rupee. On the other hand, risk aversion can lead to more Dollar strength due to safe-haven buying and hurt EM assets. The second scenario is more dangerous to the Rupee due to the potential for a more volatile move. For now, USDINR could remain in the range, and wait for the US inflation data on Friday.

INR is tentative but stable in a range. US CPI data this week.

(6th June 2022, 6:00 AM)

INR likely to open around 77.60

Dollar traded higher on Friday after a better-than-expected US nonfarm payroll data release showed a solid jobs market there. The data came in at 390k against 325k expected job additions last month. DOW ended 1% lower while NASDAQ fell 2.5%. Dollar Index is above 102, with EUR at 1.0730, GBP at 1.2500 and JPY at 130.70. US 10y inched higher, trading now at 2.94%. The rise in 10y and weakness in JPY indicate that risk-aversion is yet to take hold of markets. Indian equities ended flattish. Brent continues to surge and has breached 120 per barrel now, after Saudi Arabia has raised crude prices. High oil prices are set to worsen India’s trade deficit even more. Last month’s deficit came in at 23 billion and a sustained deficit at this level would be very difficult to handle for the RBI eventually.

INR remains biased towards more depreciation, though the lack of short-term risk-aversion sentiment is keeping the Rupee stable. Structurally, the high trade deficit eventually would lead to a meaningful depreciation in the Rupee. For now, USDINR could meander along in the current range waiting for the critical US inflation data due Friday. RBI monetary policy is due on Wednesday. A hawkish commentary and a rate hike from the RBI are expected. Any significant deviation from the expected policy stance could induce some movement in the Rupee, though the US CPI and then the next FOMC meeting (15th June) remain the decisive events for the immediate future.

USDINR range-bound, US NFP data awaited.

(3rd June 2022, 7:00 AM)

INR likely to open around 77.40/50

Dollar traded lower and equities higher as risk-on sentiment prevailed in markets yesterday. Dollar Index is now at 101.75, EUR is trading at 1.0755, GBP is at 1.2575 and JPY is at 129.70. S&P 500 ended 1.85% higher, supported by the surge in tech stocks (NASDAQ +2.7%). US 10y is stable at 2.91%. Indian indices closed 0.8% up and are set for more gains today.

Markets await US jobs data today. A weak payroll data would be bullish for markets, while higher than expected jobs number and/or wage growth numbers could lead to risk aversion due to renewed fear of Fed action. INR remains in a range as the ongoing risk-aversion is not persistent enough to cause the Rupee to break the range. The next critical data point for the Rupee is the next week’s US CPI release. For now, USDINR can be expected to meander along in a range.

Dollar strength resumes, but global risk appetite holding Rupee for now.

(2nd June 2022, 7:00 AM)

INR likely to open around 77.60

Dollar has started to regain some strength on the back of rising US yields. The current reversal is not due to panic in markets, but due to expectations of higher yields. There is an interesting phenomenon happening with respect to INR and USD. During market panic and Dollar strength due to risk aversion, INR is sharply depreciating against the USD. When there is relative calm in markets accompanied by rising US yields, the Dollar strength is not being felt as strongly as the Rupee. While the general direction for the Rupee is towards more depreciation, the pace of the move is higher in periods of strong risk aversion.

DOW ended lower by 0.5% odd yesterday. Dollar Index is higher at 102.60, with EUR at 1.0650, GBP at 1.2485 and JPY at 130. US 10y is higher, at 2.91%. American ISM and PMI data was slightly lower than expected, but not enough to move the needle on rate hike expectations. Indian indices closed lower yesterday by around 0.3%. India Q4 FY 22 GDP came in at 4.1% – as per expectations.

European CPI came in at 8%+ – indicating that the inflation problem is entrenched globally now, and hence most monetary policies would align towards more aggression in coming months. The short-term behavior of the Rupee could be muted, but the medium-term storm clouds are gathering fast for EM and INR. Continuing Dollar strength, inflation focus across the world, sagging global growth because of aggressive central banks, high trade deficit, and geopolitical conflicts are all detrimental to the Rupee. There is more to go for USDINR, but just the timing of the move is not yet clear.

INR is under pressure as global markets are in mild risk-off mode.

(1st June 2022, 7:30 AM)

INR likely to open around 77.80/90

US equities ended lower, and Dollar gained mildly yesterday after inflation became the focus of markets. A Fed governor made hawkish comments that the Fed must do 50 bp hikes every meeting until inflation is curbed. DOW ended lower by 0.7% and Dollar Index is close to 102. EUR is at 1.0715, GBP is at 1.2600 and JPY is at 129.15. Brent rose after EU leaders agreed to a phased ban on Russian oil imports. Indian equity indices ended down 0.65% odd.

INR is under pressure as the global Dollar weakness trend has stalled owing to higher oil prices and inflation focus. Since the Rupee could not really benefit from the recent Dollar weakness, it seems that even small changes to global Dollar trends and risk appetite dynamics can weaken the Rupee quickly. Further, focus on higher oil prices is also a negative factor for the Rupee. From now on, we would wait to see if there is a resurgence of risk aversion again in global markets, in which case, INR could depreciate quickly. But, if equities reverse today and remain in a bullish mode for a few more days, USDINR could remain below 78 and drift mildly lower. This month’s inflation data and the FOMC meeting next are the critical events for the Rupee.

INR is stable. Global risk-on sentiment holds.

(31st May 2022, 6:00 AM)

INR likely to open around 77.50

Markets are stable, and Dollar is weak as risk appetite is holding well in global markets. Yesterday was a US holiday. Dollar Index is at 101.40 with EUR at 1.0775, GBP at 1.2645, and JPY is at 127.80. US 10y is higher, at 2.8%, on lack of any risk-aversion led to safe-haven buying. Indian markets had a solid day, with the frontline indices registering a 1.9%+ rise.

While risk appetite remains firm, Rupee is not able to benefit fully yet. Despite the softer narrative that the Fed might not be as hawkish as feared, the reality is that inflation remains sticky and very high and markets would focus on the reality closer to the inflation data and then the FOMC meeting next month. For now, if the strong risk-on sentiment continues for a few more days, USDINR might drift towards 77.00, though any upside to the Rupee is going to be limited and short-term. Given the volatility, a sudden reversal in market sentiment is always on the cards in an unpredictable fashion.

USDINR remains range-bound, US inflation is in the topping-out process.

(30th May 2022, 6:00 AM)

INR likely to open around 77.50/60

Markets ended on a high on Friday and Dollar remained weak after the US PCE inflation data came along on expected lines and induced hopes that inflation might have peaked in April. There is a subtle shift building in the narrative- that even though inflation would remain high for some more time, the month-on-month price jumps would now remain low, and we have reached peak inflation. US core PCE inflation printed at 4.9%.

Dollar remains subdued, with the Dollar Index at 110.70, EUR at 1.0730, GBP at 1.2630 and JPY at 127.30. US equities ended sharply higher – S&P 500 gained 2.5% and NASDAQ ended 3.35% higher. Indian indices jumped 1.2% odd. There is a resurgence of risk appetite in equities for the moment, though it remains to be seen if the current move is durable enough to sustain the long-term fed action.

INR has not been able to benefit at all from the reversal in Dollar strength. At least, the resurgence in global risk appetite would ensure that there is no run-away depreciation in the Rupee for now. This week’s non-farm payroll data could create some flutter in markets leading up to the inflation data and then to the FOMC meeting. USDINR could remain in a tight range with a slight bias towards the downside until the next data triggers a meaningful move.

INR remains stable, risk-on sentiment prevails for now.

(27th May 2022, 6:30 AM)

INR likely to open around 77.50

Dollar remained subdued yesterday as risk appetite held well in equities. Dollar Index is lower at 101.70, with EUR trading at 1.0735, GBP at 1.2615 and JPY at 127.00. DOW ended higher by 1.6% and NASDAQ registered yet another 2.5%+ growth. Indian indices also had a green day with a jump of 0.9%. US 10y is stable at 2.75%. Brent continues to be elevated, now at 114.15.

US GDP came in slightly worse than expected due to a higher trade deficit, but the consumption part of the economy is still robust. Today’s PCE inflation data is more important for the Fed. INR remains vulnerable but stable for now. The next big moves would most likely be possible closer to the next month’s CPI and then the FOMC meeting. For now, the current range in USDINR might continue for a few days.

USDINR in range. FOMC minutes on expected lines.

(26th May 2022, 7:00 AM)

INR likely to open around 77.45/50

USD is slightly higher, US equities closed in the green, US 10y is stable and global markets are calm after the Fed minutes of the previous meeting released yesterday was along expected lines. Dollar Index is at 102, EUR is at 1.07, GBP at 1.26 and JPY is at 127.35. S&P 500 jumped by 0.9%, driven by a 1.5%+ move in NASDAQ after the FOMC minutes suggested that the Fed members are keen to front-load the rate hikes as expected by 50 bp in the next two meetings.

Today’s US GDP and tomorrow’s PCE inflation would provide more data for markets to assess if the economy is cooling off already due to tight financial conditions and if inflation has peaked. The hope is that the inflation itself would tame the economy further causing lower price gains later.

INR continues in the current range for yet another day. Unless the PCE inflation provides a further jolt to the markets, one can expect that USDINR would retain the current behavior until the next inflation data and then the Fed meeting. Equity markets have settled down after the sharp dips over the past couple of weeks, indicating that the sharp depreciation cycle for risk assets is yet to begin in a big way. For now, range-y INR remains the base case.

INR sticky despite global Dollar weakness. Risk-off undercurrent remains.

(25th May 2022, 7:00 AM)

INR likely to open around 77.40/50

Dollar is retreating fast, and Dollar index has fallen below 102 now. EUR is at 1.0725, GBP is at 1.2530 and JPY is at 126.95. US long-term yields fell yesterday and the 10y is now sharply lower at 2.75% indicating that risk aversion remains the underlying theme, and the Dollar fall against currencies such as EUR and GBP is just a recognition of the converging monetary policy stance across the globe. JPY is getting stronger despite the monetary policy divergence between the Fed and the BOJ, indicating that risk aversion is very much the dominant theme still. US equities could not manage gains yesterday after the Monday rise, and NASDAQ ended 2.35% lower, dragging S&P 500 down by 0.8%. Indian equities also ended lower by 0.5% odd.

INR is keeping in the range despite the Dollar weakness and hence there is a sudden jump in cross-INR rates, providing good opportunities for exporters. The retracement in the global currencies is not reflected in EM currencies as much, and this phenomenon could be temporary until inflation and other data come back to focus next month. The underlying risk-off sentiment could keep the Rupee hanging in the range above 77.00 for the next few days. Thursday’s US PCE inflation data can also disrupt markets if above/below expectations. For now, the Rupee remains vulnerable but stable.

INR stable as Dollar weakness continues.

(24th May 2022, 7:00 AM)

INR likely to open around 77.50/55

Dollar slipped yesterday against most global currencies as the trend of reversal in Dollar strength continues. Dollar Index has fallen to 102.25, with EUR at 1.0670, GBP at 1.2560 and JPY at 127.65. US equities managed a good start to the week, and the DOW rose almost 2% yesterday. Asia has opened muted, and US equity futures are down today morning. Indian indices ended flattish, and are set to open fairly cautiously today. US 10y is slightly higher at 2.84%, though not enough to indicate that risk aversion is receding.

INR has not managed to benefit much from the ongoing trend of weakness in the Dollar and hence the cross-INR rates have shot up higher in the past week or so. As more countries embark on inflation fighting stance, the Dollar strength due to monetary policy divergence would reverse until such time that a market panic and risk aversion would cause Dollar to again strengthen. There may be some more legs to the current strength in currencies such as EUR and GBP, but there could be a resurgence of Dollar strength depending on market risk appetite.

USDINR remains in the new range above 77.00 and is likely to remain there until the new set of macro data points create the narrative for the next move. The medium-term outlook for the Rupee remains unshaken – that of sharp depreciation potential.

INR in a range-bound amid stable risk appetite.

(23rd May 2022, 7:00 AM)

INR likely to open around 77.70

Dollar is mildly weak as the week opens to a stable risk appetite. DOW futures are up and Asia has opened calm. Dollar Index is at 102.80, with EUR at 1.0590, GBP at 1.2540 and JPY at 127.70. US 10y remains subdued at 2.81%. Equities closed last week on a positive tone, with the surge. DOW managed a flat close on Friday after the sharp Thursday jump and Indian indices managed a raging rally on Friday, with a 2.7% jump. The big question is if markets can sustain the same momentum this week or not. Given that the next set of market-moving data points is due the next month, markets might try and squeeze some more rallies this week.

INR has not benefitted much from the Friday equity revival and remains in a vulnerable zone. Structurally, the Rupee does not have much to look forward to over the coming months. For the next few days, INR could depend on the changing risk appetite day-on-day.

USDINR manages stability, but risk-off remains the base case.

(20th May 2022, 7:00 AM)

INR likely to open around 77.40

The Rupee managed to stay stable yesterday helped by the reversal in Dollar trend despite the raging risk aversion in equity markets. Dollar index is now below 103 with EUR at 1.0580, GBP at 1.2460 and JPY at 127.95. US 10y is at 2.86%. DOW fell 0.75% yesterday, but NASDAQ managed to hold on with a 0.25% cut. Indian indices bore the brunt of the previous day’s US equity crash and ended lower by 2.5%+. Brent remains elevated around 112.00.

Despite the strong risk-off sentiment in equities, currencies have managed to hold well against the Dollar for now. EUR is helped by expectations that ECB would start with a rate hike soon, thus reducing the policy divergence with the Fed. But the fact is that as all central banks across the world turn hawkish, risk assets would take a large hit sooner than later due to recession possibility. INR managed to reverse from the 77.80 levels for now, but continuing risk aversion would dent any prospect of sustained appreciation. We expect that the longer the Rupee manages to hold, the faster the ensuing depreciation could be, as eventually, INR has to catch up to the global inflation and rate hike dynamics in the coming months.

Rupee is under stress due to the risk-off wave. Equities starting to crack.

(19th May 2022, 7:00 AM)

INR likely to open around 77.80/90

US equity markets nosedived overnight with the DOW registering the worst day since the 2020 Covid period and the tech rout deepening with each day. Dollar reversed some of the losses of the previous couple of days and US long-term yields fell due to the risk-off flows into treasuries. Dollar Index is at 103.80, with EUR at 1.0490, GBP at 1.2350 and JPY at 128.50. US 10y yield fell 10 bp to 2.88%. DOW fell 3.6% and NASDAQ cracked 4.75%. Indian indices closed marginally lower by 0.2% yesterday but are set to open deeply in the red today due to the overnight risk aversion.

INR could not retain any significant gains yesterday despite a weak Dollar, indicating the inherent weakness in the Rupee now. The overnight risk-off wave could take INR above 78 also today. Structurally, the risk aversion phase seems to be solidifying in global markets, and hence INR is now on a secular depreciation trend. Unlike the previous hike cycles, this sharp market reaction has come much earlier in the cycle. And this time around, the Fed is not in a mood to heed to market tantrums and is set to push ahead with its inflation-fighting agenda. USDINR is set to go higher from here, the only question being whether 80.00 would be a possibility in this move or if a short-term reversal would happen. Either way, the medium-term outlook remains grim for the Rupee.

INR stable amidst Risk-on trade. Powell reiterates the inflation-righting strategy.

(18th May 2022, 7:00 AM)

INR likely to open around 77.35/40

Dollar fell sharply yesterday as risk appetite returned to markets. Dollar Index has fallen to 103.30, with EUR at 1.0550, GBP at 1.2490 and JPY at 129.20. US 10y moved higher to 2.98% in line with the increase in risk appetite. S&P 500 jumped 2% and NASDAQ by 2.75%. China’s moves around relaxing clampdown on their tech sector helped markets yesterday. Indian indices had a good day yesterday, with a 2.6%+ rise.

Powell reiterated that inflation is the bedrock of the economy, and the Fed would keep going with rate hikes until there is a clear sign of inflation falling. This statement is very hawkish in that he acknowledged that there would be some pain to the labor markets and the economy, but inflation remains the primary goal now. Yesterday’s move in risk assets could be simply a rebound rally due to the sharp correction of the last few weeks, and one must wait to see if there are any more legs to the current rally.

INR has benefited yesterday by 40 paise odd but has moved lower than the crosses. Given the overnight positivity, today’s markets could be stable. Powell’s statement goes to show that both the balance sheet reduction and the rate hike strategy would be pursued aggressively and the FOMC might risk some market panic in the process. In that context, we reiterate that any short-term rise in risk assets including INR is an opportunity to sell those assets. USDINR remains a buy-on-dip currency pair.

INR vulnerable. Risk aversion persists in global markets.

(17th May 2022, 7:00 AM)

INR likely to open around 77.80

Dollar traded stable to mildly lower while US equities ended yesterday weak. China’s economic data was a drag on markets yesterday. Dollar Index is at 104.15, EUR is at 1.0450, GBP is at 1.2330 and JPY is at 129.10. US 10y is muted, at 2.89%, as risk aversion continues to be the dominant theme in the market. Even though last Friday saw a sharp jump in US equities, this week has started on a subdued note and we have to watch how the markets will behave in the next couple of weeks before judging whether this is a long drawn market rout or just a temporary blip. Brent has shot back above 114, aided by news that Shanghai might open back soon. Indian indices traded slightly higher by 0.3% odd the previous day.

Even though there is some pause in the Dollar strength, INR remains vulnerable to the ongoing concern that central banks’ activities would bring about a global recession. With Brent also on the higher side, INR has little to look forward to in the coming months. The only question that remains with regard to the Rupee is whether the current move would sustain for longer period towards 79+ or whether there would be a temporary withdrawal back to below 77. The question could be answered by the next inflation data and then the FOMC meeting outcome. For the next few days, the Rupee’s behavior could be primarily driven by the day-on-day moves in equities and risk appetite changes.

USDINR is stable for now, but inflation fears abound.

(13th May 2022, 7:00 AM)

INR likely to open around 77.40

Dollar continues to surge ahead on concerns around the hawkish Fed. Dollar Index is at 104.82 now, with EUR at 1.0385, and GBP at 1.2205. USDJPY fell to 127.75 overnight but is now back above 129 now in line with market revival intra-day yesterday. The stability/fall in USDJPY despite Dollar strength is indicating that the current market environment is one of caution and potentially even panic. DOW ended the day in slight red after regaining most of the intra-day losses. DOW is down 0.3%, Nifty ended 2.2% in the Red, though today can see some stability. Brent is sharply higher – at 109.00. US 10y remained subdued throughout yesterday but managed to move higher during the later part of yesterday’s overnight session, now at 2.9%.

USDINR might stabilize in a new range above 77.00 until the next leg of the move becomes apparent. While there is a sense of apprehension in markets, it is yet to turn into an all-out panic. Powell reiterated yesterday that the Fed would continue to fight inflation and that there could be some pain in the process and indicated that two 50 bp hikes in the next two months is a done deal. On the domestic front, India’s CPI came in at 7.79% – an 8-year high. The high inflation is set to lead the RBI into a rate-hike mode and reduce the attractiveness of India for debt flows. INR is vulnerable now for a sharp move anytime and volatility could be the primary feature of markets now. There could be some blips in the form of appreciation of the Rupee and such blips can be used to buy USDINR for a higher level later.

US CPI is persistently high, Rupee remains vulnerable.

(12th May 2022, 7:00 AM)

INR likely to open around 77.40

Dollar remains strong, and risk aversion has deepened after the US CPI data yesterday showed persistently high inflation. The US CPI printed at 8.3% as against an expectation of 8.1%. While the number is lower than the previous month’s, markets felt that inflation would be sticky for a longer time at higher levels forcing the Fed to act more aggressively. US long-term yields fell on risk aversion led to safe-haven buying. US equities seemed like holding gains for the most part of the day, only to completely reverse into significant red by the end of the session (EU equities closed well in the green tracking the initial US market reaction).

Dollar Index is at 103.99, EUR is at 1.0520, GBP is at 1.2235 and JPY is lower at 129.75. The fall in USDJPY is indicative of the risk aversion sweeping markets. The US 10y fell 9 bp and is now at 2.89%. S&P 500 ended 1.65% down and NASDAQ closed -3.2%. Nifty was down by 0.5% yesterday and is set for more losses today on overnight US equity reaction.

INR is now under more pressure as the US CPI data suggests that the Fed has a long way to go before taming the inflation. There are clear signs of reversal in risk appetite now. Continuous day-on-day weakness in equities could fully reflect in USDINR in the coming weeks. With a high domestic trade deficit, India needs significant flows to keep INR stable, and as the flows also reverse, RBI has its task cut out in how the FX reserves would be used to stabilize the Rupee. We expect that the RBI would be fine with INR depreciation as long as it is in line with its global counterparts and is not excessively volatile. The march upwards of USDINR is now the base case scenario.

INR stable ahead of the all-important US CPI data.

(11th May 2022, 7:00 AM)

INR likely to open around 77.30

Rupee had a day of reprieve yesterday after a few days of sharp depreciation. Equity markets, especially in the US, tried to stage a comeback but faltered again yesterday and ended in slight red. DOW reversed a 500-point intra-day gain to end 0.3% negative. Dollar strengthened mildly, with Dollar Index back above 103.90. EUR is at 1.0530, GBP is at 1.2315 and JPY is at 130.40. US 10y bond yield continues to be below 3% on strong risk aversion. Indian equities managed a reasonably quiet day with around a 0.2% fall on frontline indices. Brent crude continues to give ground due to concerns around global growth in the coming months due to the ongoing rate hikes across the world. Brent is at 102.60.

The general rise in volatility across both equity and commodity markets is a risk factor in itself. This phenomenon is typical of the beginning of a risk aversion phase. The next few days would determine whether we are in for a long-drawn bear market or if the current phase is just a blip.

Markets are awaiting today’s US CPI data. Any positivity from the data, such as a lower-than-expected print, can lead to a short-term relief rally and potentially some appreciation in the Rupee. But any disappointment in the data can lead to a sharp, sweeping risk aversion. Today is a critical day for the short-term market outlook until the next Fed meeting in June. The broad theme, though, remains that of depreciation.

INR now cracking under pressure, risk aversion sweeping markets.

(10th May 2022, 7:00 AM)

INR likely to open around 77.40

USDINR has finally reacted to the relentless Dollar strength sweeping markets. Yesterday saw a deep fall in US equities, and US 10y fell sharply, indicating that the current move in risk assets is risk-aversion driven. Dollar in fact weakened mildly against some of the global currencies yesterday, as indicated by a lower Dollar Index, but the Rupee caught up to some of the past Dollar strength. Dollar Index is at 103.75, EUR is at 1.0560, GBP is at 1.2330 and JPY is at 130.05. The stability in USDJPY also indicates that the current theme is now risk aversion in markets. US 10y has fallen below 3% now, after being at 3.15% a day ago. US equities, especially the tech stocks, crashed yesterday. NASDAQ fell 4.3%, dragging S&P 500 lower by 3.3% while the DOW managed a 2% fall. Brent is lower, at 105.05, on worries of sagging global growth in the coming months.

USDINR is now catching up with the global Dollar phenomenon. Indian equities are slowly giving up ground, though not in a panicky mode. Nifty fell another 1% yesterday. Emerging markets have now started to crack slightly and are more at risk now as the risk aversion phase of the move is starting. Typically, the initial phase of a Fed hike cycle is about a rise in US yields across the board and potentially weakness in risk assets across the globe. The next phase is then driven by risk aversion, with a correction in US yields and a sharp fall in risk assets such as equities and EM currencies. The large depreciation of the Rupee in the past two days indicates that the second phase could be starting. The pace of the depreciation could decelerate sooner or later, but the general direction would remain intact.

INR is now firmly biased towards depreciation. US yield surge persists.

(9th May 2022, 7:00 AM)

INR likely to open around 77.05

Friday saw a sharp reversal in USDINR in line with the reversal in the US 10y yield and the re-emergence of risk aversion. DOW ended the day negative as did most equity markets. Indian indices fell 1.6%. Dollar remains strong, with the Dollar Index at 103.95, EUR at 1.0520, GBP at 1.2305 and JPY at 130.85. US 10y has reached 3.15% now, and the surge does not seem like stopping anytime soon. The rise in the long-term US yields remains the biggest risk factor for markets and the Rupee.

The week opened with markets in red across the board and Dollar continuing to surge. The US inflation data due this week could prove to be critical for the Fed’s thought process. While the headline number is expected to be lower (8.1%) than the previous 8.5% print, the risk to markets could intensify if the print comes in even slightly higher than expected.

The quick reversal in risk appetite and the long-term US yields just one day after the FOMC relief rally shows the underlying fault lines in markets. Friday’s US jobs data showed a robust jobs market with the addition of 428k jobs last month and a solid wage growth. In the backdrop of surging inflation, the Fed would be encouraged to stay hawkish as long as the wage growth is good and the jobs market is stable. As such, INR is struggling with a large trade deficit and a lack of inflows in the country. Any news/event which worsens the inflation picture is a negative for the Rupee and in that context, any good US data release is bad for the Rupee.

INR now has given up all its gains and the positive factors do not seem to have much to offer anymore. The bias has clearly shifted to weakness in the Rupee.

INR is back under pressure. Sharp rise in US yields.

(6th May 2022, 7:00 AM)

INR likely to open around 76.50

In a complete U-turn, the relief rally of the FOMC day reversed into a sharp fall in US equities due to a reversal in yields accompanied by solid Dollar strength yesterday. Dollar Index is above 103.60, with EUR at 1.0545, GBP at 1.2365, and JPY at 130.40. The short-term US yields have reversed the FOMC gains and rose by 10 bp and rate hike odds are back to the pre-FOMC level for 2022. The US 10y shot up to 3.1% yesterday, and currently is at 3.06%. S&P 500 fell 3.5% and NASDAQ cracked 5%. Indian equities had a flattish day yesterday but are expected to see some losses today. Brent rose yesterday, now at 110.30.

The complete reversal yesterday, though unexpected in such a short time, shows the risks underlying global markets. The start of balance sheet reduction would result in a lack of long-term bond demand in the face of a large fiscal deficit of the US government. Markets were comfortable with the 10y around 3%, but given the continuing rise, they are now spooked about how far the 10y would go.

INR could enjoy some stability for just a day but is back to being under pressure due to the rising US yields. Today’s US jobs data could also add to some risk for the Rupee if the print comes better than expected. The continuing rise in the 10y is now the primary factor to watch out for.

Relief after FOMC outcome, INR in a stable zone.

(5th May 2022, 7:00 AM)

INR likely to open around 76.05/10

Markets saw a massive relief rally and weakness in the Dollar after the FOMC decision yesterday. The FOMC raised rates by 50 bp as expected, and mentioned their intention to fight inflation. The balance sheet reduction plan is announced to start on 1st June, with a 45 billion run-off to start with, reaching a maximum of 95 billion per month. Powell assured markets in the press conference that FOMC would not hike more than 50 bp in a meeting and a 75 bp hike is off the table. Markets were relieved that the Fed would be gradual and no unexpected hikes would occur, triggering a large relief rally. The Fed pointed out that the monthly inflation data is stabilizing, indicating that there is some hope of stability on that front.

DOW jumped 2.8%, and S&P 500 rose 3%. Dollar fell sharply, with the Dollar Index trading close to 102.50. EUR is at 1.0625, GBP is at 1.2620 and JPY is at 128.80. Short-term US yields fell 10 bp, while long-term yields remained the same. Rate hike bets are now tempered down with more gradual hikes priced in than previously.

INR is now in a favorable position in the short term. RBI surprised markets with a 40 bp hike yesterday, ahead of the FOMC meeting. Indian inflation has also been running higher than the RBI’s comfort zone. The RBI seems keen that the interest rate gap with the US does not shrink too drastically causing large foreign outflows, given the large current account deficit. It seems that the RBI has chosen to keep the currency less volatile rather than keep rates low. The short-term boost to the Rupee due to the RBI hike would be temporary as the reality of continuing deficits and lack of inflows would come back to focus sooner or later. Indian equities reacted sharply with a 2.3% fall in frontline indices and any attempt by the RBI to keep pace with the Fed could lead to sharp outflows from equity markets and defeat the purpose of currency stability.

The FOMC decision was greeted yesterday in a very familiar manner, in that during the last cycles also, the initial hikes were welcomed with a relief rally only to be followed by market panic a few hikes down the line. The balance sheet reduction plan also proved to be one of relief to markets, as FOMC indicated that the maximum pace of reduction would be 95 billion.

With the LIC IPO being a positive factor, and not-too-aggressive Fed helping, the Rupee could remain in a comfortable zone for the next few weeks and some appreciation could also be possible in this period. Inflation remains sticky, especially with the China lockdown adding to supply woes and hence the medium to long-term prognosis remains the same for the Rupee. This FOMC presents a good opportunity for importers to accumulate hedges and for exporters to lighten some hedges through utilization.

INR stable ahead of FOMC today, LIC IPO also opens.

(4th May 2022, 7:30 AM)

INR likely to open around 76.40/45

Rupee and markets, in general, are stable ahead of the all-important FOMC meeting outcome today. INR is also helped by the potential flows expected due to the LIC IPO, though the extant of the benefit could be capped by the FOMC-related constraints. Dollar Index is at 103.42, EUR is at 1.0530, GBP is at 1.2500 and JPY at 130.10. US 10y yield continues to be high, around 2.98%. US equities ended higher yesterday, but equities would be tentative today ahead of the FOMC statement.

Markets expect two hikes today at least but would be keener on the FOMC’s plan on the balance sheet reduction. As of now, the expectation is that the balance sheet reduction would start soon at the stated pace of around 95 billion a month. Depending on the tone and tenor of the statement and Powell’s press conference, markets would try and decipher if the FOMC wants to be more aggressive than the current plan on the balance sheet reduction.

INR has managed to stay stable despite the rampaging Dollar. Most global currencies have fallen 10-15% in the recent few months, while INR fell just 2-3%. As FOMC continues its fight against inflation, a few months of aggressive hikes and reduction in liquidity can trigger the next leg of the INR move. The timing of the move though is moot.

INR remains in a range. Awaiting for the crucial FOMC this week.

(2nd May 2022, 7:30 AM)

INR likely to open around 76.50

Dollar is slightly lower despite the economic data on Friday showing persistent inflation. The strong PCE inflation report indicates that the US inflation remains very stubborn, and adding to concerns is the US consumer spending data which showed strong consumption. While the Dollar came off from a multi-year peak, US equities ended April with a sharp fall. S&P 500 fell 3.6%, and NASDAQ fell 4.2%, primarily due to a 14% crash in Amazon shares.

Dollar Index is at 103.40 now, with EUR at 1.0525, GBP at 1.2560 and JPY at 130.10. The JPY weakness indicates that widespread risk aversion and panic are yet to set in. US 10y is sharply higher, at 2.94% now, indicating that the fall in US equities was due to inflation concerns and not due to systemic panic. Indian indices fell 0.8% on Friday and are set for more weakness today. Markets would be focused on the May 4th FOMC meeting outcome and hope that the FOMC would opt for a softer hike and balance sheet reduction stance.

USDINR could continue the range-y behavior for the next two days until the FOMC outcome provides some direction. The medium-term risk factors continue to develop in the background, as long as inflation data shows persistence.

INR steady on improving risk appetite, global Dollar strength intact.

(29th April 2022, 6:30 AM)

INR likely to open around 76.60

Rupee has managed stability despite the sharp Dollar move of the past couple of days, and yesterday was also one such day. Dollar rose against most currencies, and especially against JPY where 130 on USDJPY was convincingly breached. Dollar Index is at 103.60, with EUR at 1.0510, GBP at 1.2485 and JPY at 130.75. USDJPY move was a result of the Bank of Japan’s policy of holding on to the zero yield strategy despite the rate hike stance of most other central banks. US equities enjoyed a sharp reversal in risk appetite, with S&P 500 registering a 2.5% jump. Indian indices also had a solid day and ended 1.2% higher. US 10y is steady at around 2.82%.

Risk appetite has steadied well, and the fear of an equity market panic has now abated in the short-term. In our view, it is only a matter of time before another bout of panic sets in. Conditions are not favorable for sustained positivity in equities and other risk assets. For now, INR seems to be getting into a comfortable position, aided by the LIC IPO news and general revival in risk appetite, until at least the next major event – the FOMC meeting.

INR manages some stability on IPO news, global Dollar remains strong.

(28th April 2022, 7:00 AM)

INR likely to open around 76.50

Risk appetite returned somewhat, USD continued to strengthen, and US yields were up slightly yesterday. Dollar Index is at 103.10, with EUR at 1.0550, GBP at 1.2535 and JPY at 128.75. DOW managed a positive close with a gain of 0.2%. US 10y has risen to 2.81% due to the stabilizing risk appetite. Indian indices fell 0.95%, influenced by the previous day’s US markets. Brent is higher at 104.60.

INR has managed to stay afloat, despite a shaky risk appetite for now. The announcement of the LIC IPO dates has helped the Rupee to buck the Dollar strength trend. Lowering of the price band from the earlier range has also helped optimism that the attractiveness of the IPO could draw some flows. There could be some divergence between the global currency behavior and USDINR behavior for the next few weeks due to the IPO. The potential benefit to INR could be fairly limited in the current environment, though. The medium-term risks for the Rupee are gathering in full steam and would asset themselves sooner rather than later.

INR is weak on strong risk aversion. Equities under pressure.

(27th April 2022, 7:00 AM)

INR likely to open around 76.80

Dollar was on a rampage yesterday due to the strong risk aversion and safe-haven demand. US equities fell sharply, with S&P 500 declining 2.8% and NASDAQ 3.95%. Dollar Index surged to 102.35, with EUR crashing to 1.0640 and GBP at 1.2585. JPY remained steady at 127.50 level despite the Dollar strength, indicating that the overnight move has been due to strong risk aversion and is not yield-driven. The US 10y yield fell due to safe-haven demand, now trading at 2.74%. Indian indices had a positive day yesterday, with a 1.4%+ jump, but are likely to reverse all those gains today due to the overnight US bloodbath.

USDINR breached 77 in the NDF market overnight but has now settled slightly lower. There are two mechanisms of impact for USDINR – (a) high US yields driving the Dollar stronger and (b) risk aversion dragging all risk assets, including INR down. The second route tends to bring the long-term US yields lower and make JPY stronger/stable and tends to create sharper moves. Until now, INR was under pressure due to higher US yields, but risk appetite was stable. Now that US equities are seeing outsized moves, the critical question to ask would be if this is the starting point for a panic-led crash in risk assets. It is early days to determine this aspect with certainty. INR would remain under more pressure, and one might see large day-on-day moves from hereon.

INR remains shaky amidst cracking risk appetite.

(26th April 2022, 7:00 AM)

INR likely to open around 76.55/60

Dollar remained firm yesterday on shaky risk appetite across global markets. While most equity markets fell sharply through the day, US equities managed a positive close despite Fed rate hike fear. Dollar Index is at 101.60, EUR is at 1.0725 and GBP is at 1.2740. JPY managed to buck the trend and appreciated to 127.40, indicating some seeping risk aversion. DOW ended higher by 0.7%, aided by tech stocks. Indian indices fell 1.1%. US 10y is stable at around 2.8%. Brent is trading subdued at 102.40, on continuing China slowdown fears.

INR remains vulnerable to a sharp move anytime now, given the global environment of uncertainty. Even though INR seems to be under pressure, the fact remains that the movement in the Rupee is nowhere close to the large moves seen in other major currencies. Most of the positives about India and its economy are already factored into the Rupee. Fed’s interest rate action remains the key variable for the future. We continue to reiterate that the May-June period could be the defining period for the medium to the long-term direction of the Rupee as Fed’s balance sheet reduction plan is set into motion.

INR is under pressure on sagging risk appetite.

(25th April 2022, 7:30 AM)

INR likely to open around 76.60

Despite a stable Dollar and quieter US yields, US equities ended Friday sharply lower, setting up an environment of risk aversion for Asia today. Dollar Index is now at 101.20, with EUR at 1.0780, GBP at 1.2810 and JPY at 128.60. US 10y is at 2.87%. The DOW fell 2.8% on Friday, while Indian indices fell 1.2%. The theme of interest rate divergence between the US and EU/Japan remains the primary driver for global currencies. Equities seem to be getting into a state of persistent risk aversion as we move closer to the Fed meeting. Oil is down on fears of demand outlook with the Shanghai lockdown, and Brent is at 103.20.

USDINR remains in a range, but the bias continues to be towards more INR depreciation. The Fed meeting on May 4th would set the stage for the coming rate hikes and liquidity reduction depending on how aggressive the Fed positions itself. This week is relatively light on market-moving data. INR could move in a range unless sharp risk aversion sweeps through markets over the next few days, continuing from the Friday US move.

USDINR is stable for now. Fed gearing up for rate hikes in May.

(22nd April 2022, 7:00 AM)

INR likely to open around 76.25

Dollar remained firm yesterday after Powell indicated that 50 bp rate hike is on the table for the May meeting. Dollar Index is at 100.60, with EUR at 1.0840, GBP at 1.3030 and JPY weaker at 128.55. US 10y shot up post comments from Powell, now back at 2.95%. It seems only a matter of time before the 10y yield breaks the 3% mark. DOW fell sharply after Powell’s comments which reminded markets that the Fed would continue to be aggressive in pursuing rate hikes. DOW fell 1% dragged by tech stocks (NASDAQ -2%). Indian indices had a good day yesterday with a 1.5%+ jump, following the cues from the previous day’s US markets. The overnight negativity in the US markets would lead to some drawdown in Indian indices today. Brent is stable at 107.50 level.

USDINR continues to be in a tight range, as any INR appreciation potential is capped due to strong US yields. The Rupee continues to be very vulnerable to the coming rate hikes and balance sheet reductions. Real risk-aversion-led panic is yet to happen in equity markets and once such panic starts, we could see sharp moves in USDINR and other risk assets. Until the Fed meeting on May 3rd-4th, there could be range-y moves in markets, waiting for the broader direction.

Lower US yields help relieve some pressure on INR temporarily.

(21st April 2022, 7:00 AM)

INR likely to open around 76.20/25

Dollar relented a bit yesterday and settled lower. Dollar Index is at 100.45, with EUR at 1.0840, GBP at 1.3060 and JPY at 128.30. US 10y backtracked yesterday and is now at 2.85% and this yield move helped bring the Dollar down a bit. DOW ended 0.7% higher, despite a sharp 30%+ fall in Netflix. Indian indices also jumped 1%+ on stable risk appetite.

INR could enjoy some respite today, supported by a fall in US yields. Fed officials continue to comment that sharp rate rises are needed. It is just a matter of time before the yields resume their up move as the Fed’s balance sheet reduction plans coupled with large US fiscal borrowing requirements ensure that there is pressure on treasury prices. USDINR would continue to move in tandem with US interest rates, for now, waiting for the larger direction in the coming weeks ahead of the Fed meeting.

US yields pressure INR, US 10y yield eying 3%.

(20th April 2022, 7:00 AM)

INR likely to open around 76.55/60

US yields surged yesterday, supported by hawkish comments from Fed officials on the need to tame inflation. Dollar is well propped up by the rising yields, and the Dollar Index has reached 101. The US 10y yield is at 2.97% and is set to cross 3% soon. EUR is at 1.0790, GBP is at 1.3010, and JPY has sharply weakened to 129.10. USDJPY is now reflecting the sharp contrast between the two central banks on the monetary policy. US equities moved higher by 1.5% odd despite the surge in yields. Indian equity indices fell 1.2%. Brent is trading sharply lower, at 107.

INR remains under pressure amidst the surging US yields. Since the short-term rate hike trajectory is well expected, the long-term yield move is the primary driver for the Rupee now. As we keep reiterating, the movement in long-term US yields, which itself reflects the Fed’s balance sheet reduction plan, would eventually cause market panic sooner rather than later and cause a significant move in INR. For now, risk appetite in markets is still holding, and JPY is reflecting that fact in its weakness. How large a move in the US 10y would the market be able to take before cracking, would determine the fate of INR in the coming month or two. We expect meaningful moves in USDINR as the Fed moves on its strategies in the May and June meetings.

INR remains under pressure, waiting for long-term direction.

(19th April 2022, 7:00 AM)

INR likely to open around 76.25/30

Dollar continues to go from strength to strength each day, supported by strong US yields. The Dollar index is now at 100.85, with EUR below 1.08, GBP at 1.30 and JPY at 127.40. US 10y is at 2.85%. US equities ended the day slightly in the red, while Indian indices saw a sharp fall of 1.6%. Brent remains elevated, trading at 112.90.

Yesterday saw a very muted range-y trading in USDINR, on lack of any market-moving event or data. There is no change to the long-term prognosis for the Rupee, which would be driven by rising US yields and inflation and increasing Dollar demand on the domestic front due to the current account.

INR remains under pressure. US yields remain elevated.

(18th April 2022, 7:00 AM)

INR likely to open around 76.25

Dollar is solid, aided by rising US yields and uncertainty around the Ukraine crisis. Dollar Index is at 100.50, with EUR close to 1.08, GBP at 1.3050 and JPY at 126.40. The ECB, in its monetary policy meeting, decided to end their fresh purchases of bonds (liquidity) only by the third quarter and then prepare for rate hikes. The relative dovishness of the ECB has led to a fall in the EUR. US 10y is at 2.84% as the looming rate hikes and Fed balance sheet reduction keep long term yields on an upward trajectory. US equities ended last week lower on rising yields. Oil moved higher on deteriorating Ukraine war situation. Brent is at 113 now.

With no significant data slated for this week, markets would continue to gyrate to the incoming news and events. INR remains vulnerable to the rising US yields and oil prices. The short-term positivity due to the stability in the war situation is not materializing enough for the Rupee. The LIC IPO might provide some relief, but the medium-term trend remains that of more pressure on the Rupee.

INR remains vulnerable. US CPI data indicates continuing inflation pain.

(13th April 2022, 7:00 AM)

INR likely to open around 76.05

Dollar continued its strength yesterday after the headline CPI inflation in the US came in more than expected, at 8.5%. But US yields remained subdued as the core inflation printed lower than expected, providing relief to markets. Dollar Index is at 100.30, EUR is at 1.0830, GBP at 1.3010 and JPY at 125.60. US 10y is at 2.75%. US equities ended it the red by 0.3%. Indian equities managed a positive day. Putin’s statement that talks with Ukraine have reached a stalemate has led to some risk aversion. Brent is higher at 104+ level.

Yesterday’s US CPI data indicates that that there would be no respite to the surging inflation unless the Fed acts on cooling the economy off. The lower-than-expected core inflation did provide some hope that may be the top for US inflation is close. Whatever the current data is, the fact remains that the FOMC must embark on sharp rate hikes and balance sheet reduction to bring the inflation into a reasonable range.

The issue is that inflation is just not specific to the US and is a problem for most countries. There is a significant supply side element and geopolitical aspects to controlling the inflation. The central banks would try and control the demand side of the inflation equation by trying to soft-land economies without crashing market panic. In our view, this scenario is not possible since markets are addicted to easy liquidity conditions for several years.

India CPI also came in at a 17-month high of 6.95%, driven by high food prices. With Crude remaining above 100, inflation in India is also slated to increase. RBI did mention the inflation issue in the April 8^th policy meeting. If the RBI starts to act on the inflation, Rupee would be impacted through two different channels. First is the effect on India yields which could lead to potential FII outflows from debt markets. Second effect would be the reluctance of RBI to keep too much INR liquidity and might therefore prefer to reduce FX reserves and mop up Rupee liquidity. The first channel would be negative for the Rupee while the second effect could be positive in case where there are large outflows.

In all, INR remains very vulnerable to the upcoming period of sharp rate increases.

Pressure on Rupee remains. US inflation data are critical.

(12th April 2022, 7:00 AM)

INR likely to open around 75.95

Dollar remains well bid amidst rising US yields. Dollar Index is above 100, EUR at 1.0870, GBP at 1.30 and JPY at 125.50. US 10y continues its relentless rise, now at 2.82%. US equities fell sharply yesterday on rising yields, with S&P 500 falling 1.7%. Sensex also fell 0.7%. Brent remained mellow and traded below 100.

The sharp rise in the US yields reflects the market’s apprehension about how the US government would fund its humongous borrowing without the assistance of the Fed buying. The yield curve has steepened significantly in the past few days due to the expectation of a sharp withdrawal of the Federal Reserve balance sheet in the coming months. This is the single most important factor for the Rupee now. Once the 10y crosses 3%, markets would focus more on the fact that the risk-free rate has sharply increased and recalibrate the attractiveness of risk assets across the globe.

INR has remained range-bound despite the sharp rise in the US yields. Such behavior cannot be held for long especially when the Fed is going to talk and act more hawkish in the coming meetings. The short-term positive factors such as falling oil prices, no flare-up in the war situation and potential LIC IPO flows, etc. are keeping the Rupee tethered to some stability. Both US and India CPI are slated for today. US CPI is expected to print at 8.4%. Such numbers only point to more pain for the Rupee in the coming months.

INR under pressure on rampaging US yields, US Inflation data this week.

(11th April 2022, 8:00 AM)

INR likely to open around 75.95

Dollar remains strong with Dollar index touching 100 in Friday night trading. EUR is at 1.0880 and could be volatile this week due to the upcoming ECB policy meeting. GBP is at 1.3010 and JPY is at 124.92. The US 10y continues to rampage higher on one of the sharpest yield moves in history. It is now at 2.74%. US equities were lower on Friday. Indian indices managed a positive close on Friday. Brent is lower, hovering around 100.

Markets and INR are awaiting the US inflation data this week. Expectations are that it will print above 8% and thus solidify the expectation of sharp rate hikes by the Fed. INR is under pressure due to rising yields in the US. The Ukraine War remains in a state or limbo with no real progress to help markets. The next 2 to 3 months are critical for the Rupee as the May and June FOMC meetings get underway. We are entering into a period of hawkish central banks, especially the Fed and the ECB. Given that markets are yet to see a sharp correction until now, the primary risk for INR would be a panic move in equities and risk assets as the Fed starts to remove liquidity and a fast enough pace.

INR remains under pressure on rising US yields.

(8th April 2022, 7:00 AM)

INR likely to open around 75.90

Dollar continued to strengthen yesterday on the back of hawkish Fed, supported by rise in US yields. Dollar Index is now at 99.80, with EUR at 1.0865, GBP at 1.3070 and JPY back around 124.00. US 10y has risen to 2.64% as expectations of the Fed balance sheet reduction continue to keep US yields high. S&P 500 managed a positive close of 0.4% overnight, despite the rise in yields. Indian indices closed in the red by around 1%, following the previous day’s US equity performance. Brent continued its pullback yesterday and is now at 101.

INR remains under mild pressure due to the persistent rise in US yields. Short-term factors such as lower oil prices, LIC IPO possibility, and potential for de-escalation in the war, continue to be positive for the Rupee. But the longer the Rupee refuses to react to the global Dollar strength and rising US yields, the more disruptive would be the eventual INR depreciation.

INR is under slight pressure after hawkish FOMC minutes.

(7th April 2022, 7:00 AM)

INR likely to open around 75.90

Dollar traded strongly on the back of hawkish FOMC minutes yesterday. The minutes clearly indicated that the Fed could start balance sheet reduction (liquidity withdrawal) as early as the May meeting itself, at the rate of around 90 billion a month. The members discussed that 50 bp hikes may be needed in one or more meetings as against market expectations of a 50 bp hike in almost all meetings. This fact was slightly dovish from a market perspective and led to a slight fall in short-term yields. But the liquidity withdrawal at that pace is very hawkish and can potentially damage the markets so used to the drug of continuous money printing. Long-term US yields reacted to the Fed minutes and rose higher.

Dollar Index is at 99.60, EUR is at 1.0905, GBP is at 1.3070 and JPY is at 123.70. US equities fell on hawkish Fed, with S&P 500 registering a 1% fall. Indian indices fell around 0.8%. US 10y yield crossed 2.6% after hawkish Fed minutes. On the war front, it was the status quo in peace talks. Brent fell sharply yesterday and is now trading at 102.90.

INR is not able to hold on to the gains of the past few days, as the global environment mandates a persistently strong Dollar. Our view remains that markets are not taking the balance sheet reduction aspect of the Fed policy too seriously. The last time around, the Fed could manage a reduction of just 800 billion in liquidity before markets panicked. Given the sheer size of the Fed balance sheet this time, we can expect that they would want the balance sheet to shrink more meaningfully to impact inflation. Markets and INR are not prepared for the long-term impact of large liquidity reduction. In the short term, INR would still remain in a zone, as long as there is no further escalation in the war.

USDINR is stable, but long-term risks remain.

(6th April 2022, 7:00 AM)

INR likely to open around 75.55/60

Dollar is higher on surging US yields after Fed officials talked up the possibility of more aggressive action in the coming months. Equity markets in the US fell on rising yields ahead of today’s release of the minutes of the last FOMC meeting. Dollar Index is at 99.50, with EUR at 1.0900, GBP at 1.3070 and JPY at 123.80. US 10y has surged 15+ bp and is now at 2.58%. DOW is down 0.8% while S&P 500 is down 1.25% due to a sharp fall in tech stocks. Indian indices also fell 0.7% odd. Brent is trading lower than yesterday’s and is now at 105.90. There was no major news on the Ukraine war front, and markets focused on FOMC and macro.

Fed officials commented that they would be aggressive about rate hikes and would not shy away from fast balance sheet reduction if need be. They indicated that the balance sheet reduction can start as early as May. Today’s FOMC minutes would be important to gauge the Fed’s thinking on how they would want to withdraw this liquidity and reduce their balance sheet to fight inflation. We reiterate our view that as more rate hikes occur and as the actual balance sheet reduction starts, markets could see some panic set in and see another bout of risk aversion in the next few months.

INR has benefited from the quiet global scene and the hope of de-escalation of the war. The LIC IPO seems to be slated for May and that positivity might carry INR for some more time. But, the sharp rise in US yields would eventually hurt the Rupee and our long-term prognosis for INR remains very bearish.

INR benefiting from good risk appetite and equity market euphoria.

(5th April 2022, 7:00 AM)

INR likely to open around 75.50

Even as the Dollar remained stable, INR has benefited from positivity around potential war de-escalation, reasonably stable oil prices, lower trade deficit and equity market exuberance after the HDFC-HDFC bank merger announcement. Dollar Index is trading around 98.95, with EUR lower at 1.0975, GBP at 1.3120 and JPY at 122.50. US equities ended higher, with S&P 500 up by 0.8%, on hopes of de-escalation of the war. Indian indices were solidly up, with the Nifty registering a 2.2% rise and Bank Nifty jumping 4%. The merger announcement of HDFC limited and HDFC Bank (both having large Index weights), led to market euphoria.

USDINR is now firmly outside the 76-77 range and now 76 becomes a good resistance for the pair. The short-term hope of some good news on the war front (Putin-Zelensky potential meeting) has had a good impact on the Rupee. Simultaneously, the FOMC expectations have been going up, with the market now pricing in 8 more hikes this year. We reiterate our view that the market reaction function to the FOMC hike cycle would change after a few hikes very quickly. The 10-2 spread has already inverted implying a potential recession in coming years. With markets at high P/E multiples, any firm expectations of a firm recession could trigger market panic. This aspect remains the biggest risk for INR in the coming months. The short-term outlook remains positive for the Rupee though.

USDINR is stable for now. War situation still in limbo.

(4th April 2022, 7:00 AM)

INR likely to open around 76

Markets are steady ahead of a new week of news-driven, volatile conditions on the war front. The macro data of last week did not rattle markets much, and the focus is back on the war headlines. Dollar Index is at 98.60, EUR is at 1.1050, GBP is at 1.31 and JPY is at 122.60. Brent is lower after some positive news from the Middle East and reports of countries such as the US releasing oil from their strategic reserves to meet demand. Brent is around 103.50. US equity markets ended in the green. Indian indices also closed Friday with 1.1%+ gains.

US non-farm payroll on Friday showed lower-than-expected 430k jobs, but the previous month’s number got revised higher. The unemployment rate fell to 3.6%, giving the Fed more room for rate hikes. The wage growth printed higher than expectations, at 5.6%. The jobs report was more or less on expected lines and failed to produce any durable moves in the market. Markets continue to price 8 hikes this year in line with the Fed’s projections but diverge from the Fed projections for next year. The 10-2 yield spread has turned negative and is close to -8 bp now. Yield curve inversion has been a very solid indicator of a future recession. Historically, the curve inverts after a few months into the rate hike cycle, unlike the current cycle in which it took just weeks to invert. Markets are suggesting that the Fed would cause a recession in the coming years leading to lower rates.

USDINR remains in a range, waiting for the next trigger for a broader move. Trade deficit for last month stood at 18.7 billion, lower than the previous month despite sharply higher oil prices. Exports grew well last month and one has to wait to see if the lower trade deficit is due to the year-end effect or is it durable.

There is no immediate trigger for a sharp move in USDINR, except on the war front. One can expect to see INR drifting along depending on the news of the day.

INR remains stable. Macro data to be in focus from tomorrow.

(31st March 2022, 7:00 AM)

INR likely to open around 75.80

Dollar traded slightly weaker overnight despite news of the Russian bombing on the outskirts of the Ukrainian capital. Dollar Index is below 98, EUR is higher at 1.1175, GBP is at 1.3135 and JPY is at 122.30. US 10y is lower at 2.33%. S&P 500 ended lower by 0.6% odd. Indian equity indices did well yesterday, and the Nifty jumped 1.3%.

USDINR is now trying to stabilize below 76. Tomorrow’s data could induce some movement in the Rupee. US jobs data is slated for release tomorrow, being the 1st Friday of April. Also expected tomorrow is the India trade deficit for March. USDINR is in a stable zone for now unless there is a major escalation on the war front. The Fed’s aggression on rate hikes could take more time to impact markets. The short-term remains news-driven for the Rupee.

INR helped by hopes of war de-escalation.

(30th March 2022, 7:00 AM)

INR likely to open around 75.70

Hopes of progress in the Russia-Ukraine talks spurred some relief in markets. Russia announced that they will scale down military operations around the Ukrainian capital city until the peace talks are going on. Dollar fell on the news and INR saw some positivity in the overnight NDF trade. Dollar Index is at 98.24 with EUR at 1.11, GBP at 1.31 and JPY stronger at 122.05. Brent remains stable around the 108 mark. US equities ended higher by 1%+. Indian indices had a positive day yesterday with around a 0.6% rise.

US yield curve is close to inversion, and the 10-2 spread is very close to 0 bp. Fed’s hawkish stance has raised the prospect of a recession in the coming years. Yield curve inversion has been a good barometer of a future recession. The current yield behavior is giving a signal that the Fed’s front-loaded rate hikes this year could lead to lower rates in the future. Our view remains that the Fed action this year, would lead to a sharp fall in markets first, and eventually lead to a slower growth in the economy, forcing them to hold for 2023. Given that the past 2-3 years have seen a humungous liquidity-driven rally, markets would find it difficult to cope with liquidity withdrawal which the Fed is sure to embark on once a certain number of rate hikes are achieved.

USDINR is now out of the recent range owing to the war-related news. The medium-term implications of the Fed rate cycle are yet to appear in USDINR. There could be some more upside to the Rupee if the war further de-escalates and from then on, the LIC IPO positivity could bring about more stability to the Rupee in the short term. The temporary fall in USDINR is a good opportunity for importers to buy as the structural factors affecting the Rupee are very much alive and could assert their influence soon.

INR is stable amidst falling Oil and no Escalation in the War situation.

(29th March 2022, 7:00 AM)

INR likely to open around 76

Dollar remains strong, buoyed by higher US yields. The yield difference between JPY and USD has led to a sharp jump in USDJPY, indicating that the current move in currencies is driven by the general Dollar strength due to Fed hike expectations and not due to any risk aversion. Dollar Index is at 99.20 with EUR at 1.0975, GBP at 1.3090 and JPY at 123.95 (was at 125 briefly). US 10y yield is at 2.47% after being as high as 2.55% intra-day. S&P 500 ended 0.7%+ higher and Nifty ended 0.4% higher after being sharply down during the day yesterday.

The war negotiations continue, but the primary focus of the markets remains on the Fed. USDINR remains in the 76-77 range, but the lack of any adverse news is good news for the Rupee. Oil is sharply down on worries of sagging Chinese demand due to Covid lockdowns, helping the Rupee stability. Brent is now at 108.60 but can be volatile depending on the war negotiations and situation. As we approach the beginning of next month, the market’s focus would be back on the trade deficit, US jobs data and then the inflation data. Eight hikes for the year with two hikes each in May and June meetings are already priced in. Hence the language around how the Fed would want to draw back the Dollar liquidity would be the key for the market outlook in the coming months. USDINR remains in a stable zone and can even potentially break the 76-77 zone today as long as there is no adverse news on the war front.

USDINR stable. Global markets biding time.

(28th March 2022, 7:00 AM)

INR likely to open around 76.30

Dollar opened strong today on continuing war, Fed hike potential and fears that Shanghai Covid lockdown could hurt global supply chains and can add to inflationary pressures. Dollar Index is above 99, EUR is at 1.0960, GBP is at 1.3160. JPY has no respite due to the large monetary policy divergence between the Fed and the BOJ. USDJPY has reached 122.75. Despite the current situation, markets have seen some retracement of the recent losses and as a result, the risk aversion trade has taken a backseat for now and is reflected in JPY weakness. US equities ended Friday stable. Indian equity indices ended Friday in the red by around 0.4% and are expected to open muted today. Brent fell after the Shanghai lockdown news, now at 133.30.

USDINR remains in its current range, due to the lack of any fresh triggers on either side. Markets have, for now, taken the expected Fed hikes in their stride. The real impact on the markets would be felt when the Fed discusses balance sheet reduction (liquidity tightening) in the coming months. The war is no longer a big market mover unless it escalates further. USDINR could remain moving in the current range between 76 and 77 for a few more days until the next inflation data hits the wires.

USDINR stable. No major developments to upset the status quo.

(25th March 2022, 7:00 AM)

INR likely to open around 76.25

Dollar is steady, US yields are stable, equities are higher, and oil is lower. Dollar Index is at 98.65 with EUR at 1.1020, GBP at 1.32 and JPY at 121.90. US 10y is at 2.35%. S&P 500 ended higher by 1.4%. Brent is trading around 118. Nifty ended slightly in the red but is set to open positive today. Risk appetite is steady despite no real progress on the war negotiations.

It is status quo on USDINR, which is just reacting to the day-to-day news and global market behavior. The trend is set to continue for a few more days until the next set of data points on US jobs and inflation come into focus.

INR under pressure on oil prices and rising inflation threat.

(24th March 2022, 7:00 AM)

INR likely to open around 76.50

Markets were jittery overnight, on rising oil prices and worries about a potential growth hit over the longer term. Dollar Index is at 98.55, EUR is just around 1.10, GBP is at 1.3190 and JPY at 121. US 10y fell to 2.34% on worries that the front-ended Fed rate hikes could create a situation for slow growth and lower rates in the future. Brent is sharply higher, at 122.80 and oil prices are back in focus as one of the causes for a rise in inflation and slower growth in the coming months. Indian equity indices ended lower by 0.5% odd.

USDINR remains in a range, but rising oil prices pose an increasing threat to the Rupee. Fed expectations indicate around 8 hikes this year and the rate hike odds for 2023 are slowly beginning to retreat due to the fears that the Fed might cause growth to stall. INR remains vulnerable to both the rising oil and to the Fed hikes. Historically, a sharp depreciation in risk assets generally started after the first few initial hikes in a Fed-rate-hike cycle. Markets are pricing in 50 bp hike each in May and June meetings and hence we expect a sharp move around that time if the war situation does not cause a jerky move now.

USDINR remains in the current range in tune with changes in global risk aversion and oil prices.

(23rd March 2022, 6:30 AM)

INR likely to open around 76.10/20

Some positivity returned to markets despite the hawkish Fed and ongoing war. Dollar is trading mixed overnight. Dollar Index is at 98.50, EUR is at 1.1025, GBP is at 1.3250. USDJPY is sharply higher at 121.10. The movement in JPY indicates that the current strength in USD is due to a sharp rise in US yields and not due to panic/risk aversion. US 10y is now at 2.41% indicating the market’s opinion that the Fed would be forced to be more aggressive in hikes. US equities ended higher with S&P 500 up by 1.15%. Indian indices also were up by 1.1%+. Brent softened somewhat from the previous day’s level, now at 115.

USDINR remains in the current range in tune with changes in global risk aversion and oil prices. Given that there is no market-moving data due for the next few days, the market would be news-driven. A lack of negative news for a day could be considered positive for the day. The fundamental picture has not changed and has gotten more threatening to the Rupee, especially with the rise in US yields. The current phase could see Rupee stabilize in the current zone and see some positivity due to LIC IPO and such flows, but the medium-term move remains towards more depreciation.

INR under slight pressure, Oil surges.

(22nd March 2022, 6:00 AM)

INR likely to open around 76.25/30

Dollar remained well bid and equity markets overnight were cautious after Powell’s hawkish remarks in a speech. Dollar Index is at 98.60, EUR is at 1.10, GBP is at 1.3160 and JPY is at 119.75. S&P 500 ended flattish while the DOW fell 0.6%. Nifty fell 1% and could not hold on to the previous week’s positivity as the war continues to escalate in Ukraine. Brent is sharply up, now at 118.

USDINR remains in a range gyrating to expectations about the war and in reaction to the Oil price movement. With Fed remaining hawkish, INR has a natural reason to depreciate, but as we keep reiterating, the short-term is completely event-driven and difficult to predict.

INR is stable for now, but structural issues remain lurking.

(21st March 2022, 7:00 AM)

INR likely to open around 76.00

Dollar is subdued at the start of the week, and markets are stable even as the Ukraine war continues to rage on. Dollar index is at 98.30, EUR is at 1.1045, GBP is at 1.3155, and JPY is at 119.20. S&P 500 ended 1.15% higher on Friday, as the post-FOMC positivity continued. Ukraine’s situation remains uncertain as the fighting rages on even as talks happen simultaneously. Oil is again higher, and Brent is back at 111 after being below 100 last week.

INR recovered to trade below 76 on Friday, as risk appetite strengthened post the FOMC. Given the structural issues for the Rupee, the long-term prognosis continues to be negative. The RBI seems to be buffering some INR depreciation amidst a high trade deficit and outflows on the FII front. The forex reserves have fallen by 9 odd billion. In the short-term, given the recovery in risk appetite, INR could enjoy some stability, also aided by the fact that the LIC IPO could be initiated soon. Oil prices could prove to be a drag on the Rupee, but the short-term pressure on the currency seems to have eased for now.

INR stable after the Fed rate hike. Long-term risks increases.

(17th March 2022, 7:00 AM)

INR likely to open around 76.30/40

Markets took the FOMC meeting outcome in their stride and reacted favorably to the Fed communication of potentially 7 hikes this year. The FOMC started the rate hike cycle, with a 25 bp hike yesterday and is projecting 7 hikes in 2022 catching up to market projections. The Fed dot plot also shows more hikes in 2023, higher than even the market projects at this point. Economic projections show that the Fed expects 4.3% inflation for 2022 and has reduced the growth projections down from December estimates. Powell, in his press conference, tried to be dovish in tone and said that he is confident that the economy would be able to take the hikes with no disruptions to the labor market. Powell threw a surprise that the FOMC is in the process of finalizing the balance sheet reduction plan (liquidity withdrawal) which could be unveiled as early as May.

Markets estimate that the Fed would not be able to move on their hikes much after 2023 without causing a recession. The yield curve is flattening, indicating that the markets expect a recession over the next few years. Equities are showing the classic behavior of optimism around the first hike in a cycle, in a hope that the Fed will be able to manage the hikes well and not crash markets.

After the Powell press conference, equities shot up higher and Dollar was steady. US 10y is slightly higher. Dollar Index is at 98.40, with EUR at 1.1040, GBP at 1.3160 and JPY at 119. S&P 500 ended 2.2% higher. Indian indices also ended higher by 1.8%.

USDINR remains in a range, and the FOMC outcome is unlikely to influence the short-term in any significant way. The medium-term implication of the hawkish Fed stance for the Rupee is plenty. Typically, markets throw a tantrum after a few hikes are done and the Fed continues to be hawkish and that would be the time INR would react adversely. In the short-term Rupee is stable in the current range and is more dependent on how the war negotiations play out. But the medium-term risks for the Rupee are piling up with each Fed rate hike.

Rupee stable as Oil falls. FOMC outcome awaited.

(16th March 2022, 7:00 AM)

INR likely to open around 76.30

Dollar is slightly weaker and equity markets are stable ahead of the Fed meeting outcome today. Dollar Index is at 98.90 with EUR at 1.0965, GBP at 1.3045 and JPY at 118.30. US equities saw a reversal of the previous day’s losses and ended sharply higher. S&P 500 jumped 2.1%+ aided by tech stocks. Indian indices fell 1.2%+ yesterday, but are likely to recover today, in line with US equity performance. US 10y is slightly lower at 2.13%. Brent continued its freefall yesterday and is now trading below 100.

There are no further developments on the war negotiation front. The battle continues to rage close to the Ukrainian capital even as peace talks are being organized. Today’s FOMC outcome is keenly awaited by the markets. Specifically, markets would focus on the tone of the statement and the press conference and how the Fed would handle the rising inflation from hereon. Going by the ECB’s stance last week, it is likely that the Fed would remain hawkish in their tone and press on the need for more rate hikes.

USDINR remains in a range and is meandering along based on the general direction of risk appetite in markets. The crash in oil prices is helping the Rupee, but the structural trade deficit issue would remain a thorn for the Rupee in the medium term. For now, USDINR could trade in a range unless FOMC is very hawkish or too dovish compared to market expectations.

INR is stable, for now, the FOMC meeting gets underway today.

(15th March 2022, 6:30 AM)

INR likely to open around 76.50

Dollar is higher, and equities are mildly jittery ahead of the FOMC meeting starting today. Dollar Index is higher than 99, with EUR at 1.0950, GBP at 1.3015 and JPY weaker at 118.20. US 10y is higher at 2.14% on hawkish FOMC expectations. Global tech stocks continue to fall and drag frontline indices down. NASDAQ fell 2% and S&P 0.75% (DOW ended flat). Indian equities had a good day yesterday, and Nifty registered a 1.5% jump. Brent continues its downward trend as war escalation fears ease and is now at 104.50.

USDINR is now in a range, looking for direction from the FOMC meeting outcome tomorrow. Ukraine war is still a threat and can lead to sharp price inflation in the coming months. Markets would be focused on how the Fed would see the inflation risk due to the war. For now, the current range below 77 is the most likely range for the Rupee.

INR remains under pressure, volatility persists as the war continues.

(14th March 2022, 7:00 AM)

INR likely to open around 76.70

Dollar momentum is back in force as the war drags on and peace talks flounder. While Russia claims that there is progress in the talks, its actions around asking China for help, and such, seem to indicate a more protracted battle. Dollar Index is back above 99, with EUR at 1.0925, GBP at 1.3040 and JPY at 117.60. The last week’s inflation data is supporting the Dollar well via a sharp rise in the US yields. US 10y is now at 2.05%. Oil continues to cool off from highs – Brent now at 110.80.

This week’s Fed meeting could see the first rate-hike for this cycle. While this hike is fully expected, markets would focus on the tone and tenor of the statement and the press conference. With inflation continuing to rage, it is unlikely that the Fed would be dovish and show too much concern about the war’s impact on markets.

USDINR remains in a range below 77, gyrating with the incoming news on the war. FOMC meeting outcome is due on 16th night India time. USDINR could see the next leg of the move shaping up post the FOMC meeting, depending on the outcome and the Fed’s stance on inflation. Given Oil has stabilized, it is unlikely that USDINR would see very large moves in the coming day or two leading up to the FOMC meeting.

USDINR volatile amid changing war scenario, inflation data shows underlying pressures.

(11th March 2022, 7:00 AM)

INR likely to open around 76.40/50

Dollar regained some of the previous day’s losses after the Russia-Ukraine talks ended in a stalemate and US inflation printed high. Dollar Index is at 98.50, EUR managed to hold above 1.10 after the ECB meeting, GBP fell below 1.31 and JPY is at 111.30. S& 500 ended 0.4% odd lower even after managing to cut some intra-day losses. Nifty had a good day yesterday with 1.5%+ gains, but today could see some reversal due to the war-related and inflation news. Brent continues to come off with each day and is now at 110 level.

US inflation came in at 7.9%, as expected by markets. But fears of further rise in prices in the future due to the higher oil and commodity prices are keeping markets jittery. ECB turned out to be more hawkish in their commentary as they said they would phase out their QE purchases by the third quarter of this year. The ECB’s stance shows that central banks are more worried about the inflation issue than the war. The Fed could start with one rate hike in the coming meeting, but if inflation remains persistent for some more time, a return to more aggressive Fed action cannot be ruled out. The Fed has a difficult task in its hand – to manage rate hikes in such a manner as to not disrupt markets in a significant way.

USDINR remains in a range for now and is gyrating with the war-related news. The high US inflation has led to a sharp jump in US yields (10y traded above 2%) and has negatively impacted the Rupee. But, as long as there is no escalation in the war, INR could remain within the 77 mark for now. Given the circumstances, it is still a news-driven market, and it is unwise to predict the day on day moves in the Rupee. The broad range seems to be between 76 and 77 for now, and the range could move either way if the war escalates or if there is progress in the talks. Until then the volatility would persist.

INR relief rally for now in hopes of war de-escalation.

(10th March 2022, 7:00 AM)

INR likely to open around 76.20

Yesterday saw a sharp rebound in global markets on hopes of a diplomatic solution to the ongoing war. USD fell sharply, with Dollar Index crashing below 98, EUR above 1.1050, GBP at 1.3175 and JPY at 115.90. US 10y shot up higher, now at 1.94%, as risk appetite improved. S&P 500 ended 2.5%+ higher. Brent crashed yesterday, currently trading at 112.50. The fall in crude and commodity prices helped the general revival of risk appetite. Nifty ended 2%+ higher.

As risk appetite improves, INR is benefiting from the sharp correction in oil prices. Ukraine’s statement that it is willing to be neutral (not joining NATO) is helping the hope rally for now. Though there is hope, any truce is a long way away and each day is a new day in the current environment. While the entire focus is currently on the direction of the war, today’s US inflation data release could bring back attention to the structural problem of run-away prices facing the US. Today’s inflation release is expected to print close to 8%. With the current jump in oil and commodity prices, next month’s number could be even higher.

Our view remains that any appreciation in INR is temporary and that once the Fed starts to act on the inflation issue, there could be another bout of strong risk aversion in global markets and another leg of INR depreciation. In addition to the hopes around peace talks, the coming LIC IPO could be another positive factor for the Rupee in the short term. But the medium-term risks of high inflation, hawkish Fed and high trade deficit remain very much in play for the Rupee and the currency remains vulnerable in the longer term.

INR continues to be under pressure on higher crude prices.

(9th March 2022, 7:00 AM)

INR likely to open around 76.90/77

Dollar is steady despite the news that the US and the UK have banned imports of Russian oil. Dollar Index is at 99.01, EUR is higher at 1.0910, GBP at 1.3110 and JPY at 115.90. US equities fell after the oil ban news and ended around 0.7% odd lower (S&P 500). Indian equities managed a positive day with a 1%+ rise yesterday. Yesterday’s talks between Russia and Ukraine did not yield much, and markets continue to be edgy around oil prices. The jitteriness would only increase with each passing day that the war rages on. Brent is higher after the oil ban news and is now at 129.70.

INR remains vulnerable in the short term until the war is sorted out. The medium-term inflation impact of the oil bans and the potential need for the Fed to again escalate their hawkish strategy are worries for markets in the coming months. But any let-up in the war would be a short-term positive and can see some rollback in USDINR. At the same time, more escalations in the war can take USDINR even higher from here. The situation is highly volatile and difficult to predict. The pressure, for now, remains towards more depreciation of the Rupee.

INR remains under relentless pressure on Oil shock fears.

(8th March 2022, 7:00 AM)

INR is likely to open around 77.10 (but very volatile now)

Yet another day of panic saw Dollar higher, and equity markets slump on fears of an inflationary shock to the global economy. Dollar Index is now at 99.25, with EUR at 1.0855, GBP at 1.31 and JPY at 115.40. US equities fell sharply overnight, with S&P registering a 3% fall. US 10y is higher at 1.75%, indicating a tussle between the inflation trade and the safe-haven trade. Brent oil has stabilized around the 125 mark. Indian equity markets saw a sharp fall yesterday. Nifty fell 2.3%.

We are now in the middle of full-blown war-related panic trade and each day is a new day for markets. The next major risk event for markets is an official embargo on Russian oil exports. The shock to oil prices on such a move could shake major economies and hence markets are very much focused on that event.

USDINR is in unchartered waters now. While the RBI would try to stabilize the volatility in markets, it is unlikely that they would step in to arrest the move, given it is a global phenomenon. The depreciation pressure on the Rupee is set to continue until some positive resolution to the war situation is on the horizon.

INR under relentless pressure as Ukraine-Russia pushes the world towards stagflation.

(7th March 2022, 7:00 AM)

INR likely to open around 76.75/85

With the Ukraine war intensifying, the direct impact of Russia sanctions is getting reflected in the global oil price shock and the relentless Dollar strength. Oil opened 10% higher today, amidst the possibility of a complete ban on Russian oil exports by western nations. Brent is at 127 now and was even higher than 130 at the open. Dollar Index has breached 99, with EUR falling sharply below 1.0850. GBP is at 1.32 and JPY is at 115. US 10y is sharply lower, below 1.7%. Euro is particularly hit as markets worry about Europe’s dependence on Russian gas and the potential for a dual inflationary and growth shock.

Equity markets remain very jittery. Friday saw a 0.7% odd fall in US indices and the futures are pointing to a sharp cut of another 1.5% odd. Nifty closed 1.5% lower on Friday and is set for more pain today. The broader Indian market has been seeing more drawdowns than the quantum the frontline indices indicate. While Russia is asking Ukraine to surrender and is calling this a special army operation with no intention of occupation, the longer the war drags, the higher the potential for a major event in financial markets.

INR continues to be very vulnerable now on the back of an already-high trade deficit. While the pace of Rupee depreciation is much slower than the global majors such as EUR, fundamentals continue to point to a structural issue with the Rupee on the trade deficit front. Despite the solid move in USDINR until now, there has been a sense of relative stability in the form of manageable day-on-day moves. But it now seems that the magnitude of the close-to-open moves is increasing, indicating higher volatility and panic. It is futile to predict the endpoint of the current move, but the broad direction remains towards more Rupee depreciation.

INR depreciation continues amidst war escalation. US jobs data awaited.

(4th March 2022, 7:00 AM)

INR likely to open around 76/76.10

Markets continue to be jittery amidst the Ukraine war headlines. DOW reversed some of the initial gains and ended lower, and Dollar continued its march higher yesterday. Oil surge is not helping inflation fears and even as the market expects Fed to act slower, the structural inflation increase in the longer term is keeping markets on edge.

Dollar Index has breached 98. EUR is at 1.1025, GBP is at 1.3325, and JPY is at 115.40. DOW ended lower by 0.3%. Indian indices continue to bleed each day, and yesterday saw another 1.65% cut in the Nifty. US 10y fell below 1.75% on sharp risk aversion and safe-haven buying. Reports of Russia shelling near Ukraine’s nuclear plant have not helped the situation. Brent remains elevated, though lower than yesterday’s high – now at 113.10.

On the macro front, US jobs data is due today. Unless very different from expectations, markets would not be too focused on the data in the current situation. INR remains vulnerable to news headlines. LIC IPO is likely to be postponed due to the market volatility. All domestic positive factors such as the IPO, elections are now relegated to the background and the primary trade is the Russian war trade. It is difficult to predict day-to-day moves now given the news-driven nature of the market. The medium-term pressure points such as increasing global inflation, high trade deficit and lack of strong inflows are likely to keep the Rupee under pressure and in a depreciation trend over the coming months. The short-term, though, is very volatile and unpredictable.

INR remains under pressure but buffered for now by changing Fed expectations.

(3rd March 2022, 6:30 AM)

INR likely to open around 75.60

Risk appetite staged a comeback overnight after Powell assuaged fears of large interest rate hikes in his testimony to US Congress. Dollar reversed some of its intra-day gains and is now at similar levels as the previous day. EUR is lower at 1.11, GBP is higher at 1.3380 and JPY is weaker at 115.50. US 10y yield shot up 15 bp intra-day on improving risk appetite, now at 1.85%. S&P 500 jumped 1.85%. While Indian indices fell around 1.4%, they might see some stability today taking cues from the overnight US markets. Brent continues its surge on fears that Russian oil supply disruptions can take meaningful oil supplies out of the market. Brent is trading at 114.60 now.

Powell said in his testimony that inflation-fighting remains an important goal but hinted that the Ukraine-Russia situation would need to be considered. He further hinted of only a 25 bp hike in March, bolstering market expectations.

Rupee has been under some pressure due to the ongoing Ukraine war but could be helped temporarily by the changing Fed rate hike dynamics. But countering the Fed positivity, the trade deficit for the last month came in at 21.3 billion. The structural pressure on the Rupee is now high as the current account deficit could widen to 100-120 billion at this rate of trade deficit. The flow situation is such that FII flows would not be able to sustain the large deficit and it would be up to the RBI to buffer the Dollar demand. The medium-term risk factors for the Rupee are increasing in the background while the focus is on the ongoing Ukraine war. The short-term volatility in markets would remain high as day-to-day news headlines would influence markets.

INR is under pressure as Oil soars and Ukraine tensions escalate.

(2nd March 2022, 7:00 AM)

INR likely to open around 75.80

Dollar continues its surge along with Oil, and equity markets remain under high pressure, as Russia intensified the Ukraine conflict overnight by shelling Ukraine’s second-largest city. Even as there was news on talks between the two countries providing some potential relief to markets, yesterday’s escalation took the wind out of the sails of any hopes of stability. Dollar Index is at 97.36, EUR is at 1.1130, GBP at 1.3330 and JPY at 115. Oil surged more than 7% yesterday, with Brent now trading at 107.70. Indian indices are slated to open in red as risk aversion continues to be the order of the day.

Markets would look forward to Biden’s state of the Union speech and then to Powell’s testimony to the US Congress. Expectations around the FOMC hikes have already been tempered down, with just 1 hike priced in March and another 3 for this year. But the long-term impact of tight oil prices and Russian sanctions is that inflation would remain more sticky and difficult to fight.

USDINR would remain biased towards the upside, and the soaring oil prices would add more pressure on the Rupee, though falling FOMC expectations provide some relief. Initial expectations that Ukraine would give up soon or that even if they don’t, Russia would not escalate, have gone out of the window. The current environment is highly uncertain and there could be moves, either way, depending on headlines, though the bias is for USDINR to move above 76 at least, before settling down.

INR is under pressure, but volatility to persist.

(28th February 2022, 7:30 AM)

INR likely to open around 75.55/60

Dollar has strengthened on safe-haven demand as the Ukraine-Russia situation intensified over the weekend. Dollar Index is above 97.10, with EUR at 1.1180, GBP at 1.3370 and JPY at 115.56. Co-ordinated international sanctions on Russia including barring some banks from the SWIFT payment system has led to fears of a potential escalation in tensions. Ukraine has been able to ward off Russian forces for more time than expected, frustrating Russia. As a probable response to international sanctions, Putin has ordered Russia’s nuclear deterrence on high alert. Brent has moved higher, now at 99 and can be expected to breach 100 again soon.

US futures are down sharply after the relief rally on Friday. Asian markets are quiet on open, but unlikely to be so for a long time given the general sense of risk aversion. 10y US bond yield is lower at 1.9%. INR enjoyed some reversal on Friday on recovering risk appetite but is expected to give up those gains today.

The situation is very fluid, and the major fear is how would Russia retaliate to the devastating trade and financial sanctions in the medium-term. While Ukraine has agreed to talks with Russia, the end game is not yet clear. USDINR could move either way from here, and each day is a new day in the current scenario.

INR under pressure on Ukraine situation. The market would be highly volatile in short term.

(25th February 2022, 7:00 AM)

INR likely to open around 75.45/50

The sharp flare-up in the Ukraine situation led to a strong risk aversion wave and collapsed all the equity markets and led to a Dollar surge initially. But US markets managed a sharp reversal from 3%+ lows to close in the green. Dollar Index is above 97, EUR is at just above 1.12 after being down to as low as 1.1110, GBP is at 1.3385 and JPY is at 115.40. These rates are posted the reversal from the lows after the Biden speech on Ukraine. Brent managed to fall back to 97.80 after being higher than 100 yesterday. Nifty was down 4.75%+ yesterday during the initial risk aversion wave but should regain some of those losses today in line with US equities.

As we write, it is likely that Russia could take over the Ukraine capital soon as there seems to be no real resistance to Russian forces and hence the actual war is likely to be swift. There have been sanctions on Russia from the UK, EU and the US and that’s where markets expect the response of the west to end. There are no expectations of any armed conflict with Russia and even the sanctions fell short as per markets’ reading. EU’s refusal to remove Russia from the SWIFT payment system is seen as a big relief. Further, the critical impact of the war could be felt on gas prices and less so on crude.

From the Rupee’s perspective, the Ukraine situation is a mixed bag, in that, the more the escalation of the war, the lesser the chances of aggressive Fed action. The Fed funds futures have already tapered down rate hike expectations from almost 2 hikes in March to barely 1 hike and even have some probability of a cut in 2023, indicating a stagflationary scenario building up. The overnight action indicates some reprieve for now for the Rupee, but any more flare-up in Ukraine situation could lead to 76.50 levels possibly in the short term. But the medium-term stress on the Rupee could settle down as Fed might not be as hawkish as initially expected. Expect very volatile moves in the next few days.

USDINR range continues, but volatility is around the corner.

(24th February 2022, 7:00 AM)

INR likely to open around 74.70

Dollar is stronger and US equities fell sharply overnight on fears of escalating Ukraine situation. Dollar index is at 96.35, EUR is below 1.13, GBP is at 1.3534 and JPY is at 114.95. S&P 500 was down by 1.8%+ on continuing risk aversion. Brent is higher at 94.85. US 10y is at 1.95%.

USDINR has been holding in range despite global headwinds, primarily due to the expectation of large flows during the LIC IPO. Based on fundamentals – the trade deficit, global liquidity tightening, and aggressive Fed forced to fight inflation, the Rupee has no business to be this strong. But the expectation of large flows is keeping the currency range-bound for the time being and once that cover goes away there is a chance that USDINR would make up for the current stability.

Historically, markets always took the initial narrative about rate hikes well but then began to throw tantrums as the hike cycle progressed. The current behavior of markets and the Rupee is following this trend. Once the realization dawns that the easy liquidity is officially over and the FOMC language increases in its intensity about rate hikes, market behavior could quickly change into one of panic. This is the major risk factor for the Rupee. Any upside to the Rupee due to temporary flow-related positivity presents a good chance to accumulate USDINR for an eventual up move. The short-term would remain volatile based on geopolitical headlines at least until the second week of march when inflation data comes out.

USDINR remains range-y. Ukraine and PCE inflation data key.

(23rd February 2022, 7:30 AM)

INR likely to open around 74.65/70

Dollar is stable and equities are jittery on the possibility of sanctions on Russia due to the Ukraine conflict. INR managed to reverse some of the losses despite the lack of risk appetite and has settled back to 75.60 levels from 75+ intra-day. Dollar index is at 96, EUR is at 1.1340, GBP is at 1.36 and JPY is at 115. DOW closed sharply lower at 1.4%, and Nifty ended lower by 0.65%.

With the Ukraine issue continuing to be volatile, USDINR would also move in a volatile fashion based on headlines. Friday’s US PCE inflation is another data point of focus to be mindful of. Going into the next month, inflation data and then the FOMC meetings become critical for the medium-term outlook on the Rupee. The positive factor for the Rupee is the expectation of large flows due to the LIC IPO and India’s inclusion in global bond indices. In all, the range-y behavior of the Rupee could continue for the next few days.

USDINR remains stable amid the volatile Ukraine situation.

(22nd February 2022, 8:30 AM)

INR likely to open around 74.65/70

Markets continue to be jittery about the Ukraine situation. DOW is down 0.7%. Dollar is mildly stronger with Dollar Index above 96.10. EUR is at 1.13, GBP is at 1.3590 and JPY is at 11460. US 10y is lower on the simmering risk aversion due to the Ukraine issue, now at 1.86%. Indian indices continue to drift lower, and the Nifty fell 0.4% yesterday.

There is no change in the day-on-day prognosis for the Rupee. The broad direction remains towards 76-77 in the medium-term when the FOMC actions take effect on the markets. In the short-term, Ukraine-related news could dominate, and this Friday’s PCE inflation could move the needle again on the Fed expectations. The range-y behavior of USDINR could continue for a few more days.

USDINR stable. Ukraine conflict continues to be in focus.

(21st February 2022, 7:00 AM)

INR likely to open around 74.70

Last week’s reversal in concerns about the Ukraine conflict helped INR, as did the expectations of large inflows during the upcoming LIC IPO. Now with fresh news about more escalation in the Russia-Ukraine issue, markets again are slightly jittery. Friday saw a negative close to US indices, with the DOW falling 0.7%. Nifty ended slightly in the red. Dollar is trading sideways but is slightly stronger. EUR is at 1.1330, GBP is at 1.3600 and JPY is at 115. US yields are stable, with the 10y at 1.93%. Oil is higher on Ukraine news, at 92.50.

This week would be driven by the ever-changing narrative on Ukraine, and Friday’s PCE inflation data, which is the Fed’s favorite indicator of inflation. USDINR continues to be in a range, but March could bring in fresh volatility amid new inflation data and the all-important FOMC meeting. Until then, the pair could drift along and be influenced by Ukraine news headlines.

INR remains stable, Ukraine situation remains key.

(18th February 2022, 7:30 AM)

INR likely to open around 75.10

Markets were again under pressure on Ukraine tensions, but Dollar could not manage any meaningful strength. Dollar index is at 95.85, EUR is at 1.1360, GBP is at 1.3610 and JPY is at 115.15. US yields are slightly lower on risk aversion, and the 10y is down 1.98%. US equities were sharply down – by around 2% odd. Indian indices ended marginally lower by 0.2% but can be expected to be subdued today due to overnight risk aversion. Oil is down due to Iran deal hopes – Brent is at 92.50.

USDINR benefitted from the easing of Ukraine tensions, but the issue remains relevant still. For now, unless there is a flare-up in Ukraine’s situation USDINR could remain subdued for a few more days until the next inflation print.

INR stability continues, Ukraine tensions ease, Fed minutes along expected lines.

(17th February 2022, 7:30 AM)

INR likely to open around 75.00

USD is slightly down on easing Ukraine tensions, and as Fed minutes of the last meeting were in line with expectations. US equities were sightly down as were Indian indices. Dollar Index is at 95.80, EUR is at 1.1380, GBP is at 1.3590 and JPY is at 115.50. DOW is down by 0.15% and Nifty is lower by 0.2%. Brent is low on hopes of the Iran deal, down to 92 handle. US 10y continues to be above 2.03%.

INR is back to stability as risk aversion has eased globally. But the inflation dynamic is very much in play and the data-driven moves can be expected again during the first week of next month. LIC IPO euphoria could lead to some appreciation in the Rupee but could be countered by the US inflation print in the run-up to the all-important Fed meeting next month. In all, USDINR could remain range-bound for the coming couple of weeks, reacting to the incoming news/data.

INR stable amid easing Ukraine tensions.

(16th February 2022, 7:00 AM)

INR likely to open around 75.20

The safe-haven trade faded yesterday after Ukraine tensions eased a bit. US equities had a solid 1.5% jump, and Dollar remained subdued. Dollar Index is at 96, EUR at 1.1350, GBP at 1.3540 and JPY is weaker on receding risk aversion, at 115.70. US 10y is back above 2%, trading at 2.03% as the inflation dynamic is back to dominance. Indian equities surged 3%+ in a relief rally.

USDINR now has a temporary reprieve for the coming few days, especially if the Ukraine issue is resolved without any more escalations. The medium-term risk of stubborn inflation-driven risk of FOMC hikes and balance sheet reductions is very much intact, and the trendline continues to be towards INR depreciation over the coming months. A lot depends on the next Fed meeting in March which can set the tone for the pace of rate hikes. For now, INR is in a stable zone.

INR remains under pressure. Ukraine conflict is now in focus in addition to inflation.

(15th February 2022, 7:30 AM)

INR likely to open around 75.60

Ukraine tensions sparked another bout of risk aversion in emerging markets yesterday. Indian indices fell 3%+, but Dollar just did not manage to gain too much. The overnight US equities fell slightly, by around 0.3%. Dollar is marginally higher, and the Dollar Index is 96.22 now. EUR is at 1.1313, GBP at 1.3538 and JPY is weaker at 115.30. Oil continues to be strong amid the Ukraine-Russia tensions, now trading at 96.

While yesterday saw some cooling-off of risk aversion, as evidenced by weakness in JPY and rise in the 10y by 3-4 bp, the overarching fear on the Ukraine crisis remains intact. USDINR managed to be fairly stable despite the ongoing risk aversion but wound not be able to take many more days of fear in the markets. USDINR is on its way higher, though the next month or so can provide some relief to INR due to the LIC IPO and such events. As for Crosses EUR is not looking strong anymore as the post-ECB bump is being eclipsed by risk aversion. If the Ukraine conflict settles soon, EUR can have some legs to move towards 1.1450 levels, but the medium-term outlook remains bearish for crosses. As such, INR might not depreciate against crosses, as much as it would against USD. But, INR might depreciate against JPY in the coming months in line with its depreciation against USD, since JPY is due to a period of strength due to panic/risk aversion in markets.

USDINR remains on its path higher, and the next milestone is the previous all-time high. While the path seems certain there would be wiggles around the trendline in the form of stability and even INR appreciation due to flow dynamics. Inflation, geopolitical crisis and trade deficit combined with oil prices are all set to move USDINR higher.

INR is under pressure as the Ukraine situation rattles markets.

(14th February 2022, 7:30 AM)

INR likely to open around 75.55/60

Markets were confounded with the Ukraine conflict, which piled on to the already shaky situation on US inflation. Dollar is stronger, and the Dollar index is close to 96. EUR is at 1.1354, GBP at 1.3550, but JPY down to 115.30 indicating risk aversion. S&P 500 fell 1.9% and NASDAQ fell 2.8%. Indian equity indices also cracked by 1.3%. US 10y fell due to safe-haven buying demand on the back of Ukrain concerns – down to 1.94% from 2.03% the previous day. Oil is high on geopolitical concerns, and Brent is close to 95.65.

Markets are pricing even 6 hikes with some probability this year, going by the inflation dynamics and Fed member comments. There was a talk of an intra-meeting hike before March but has since subsided when the FOMC’s bond-buying schedule was in line with the expected taper timelines. With the potential Ukraine-Russia conflict on the radar, markets would on tenterhooks. The Rupee has been under pressure due to the Fed impact, but any flare-up of the Ukraine situation would add a risk-aversion driven fall in equities and USDINR fall. With important macro data out of the way for the month, news on Ukraine could drive markets for the coming few days. The medium-term risks are piking up for the Rupee, but positive factors like the large LIC IPO could help for some time to contain the potentially large depreciation. Over the medium term, the natural direction of the Rupee is clearly towards depreciation, the question is just of the magnitude.

INR under pressure, US Inflation stokes rate hike fears.

(11th February 2022, 7:00 AM)

INR likely to open around 75.30/40

Markets were rattled by the sharply higher US inflation data yesterday, and comments from a Fed member that the Fed should hike rates by 1% by July. Dollar is higher, with the Dollar index trading around 95.85, EUR at 1.1400, GBP at 1.3545 and JPY above 116. The US 10y yield surged higher breaching the 2% mark and is now trading at 2.03%. US equities fell, with the DOW registering a 1.5% cut and S&P down by 1.8%.

US CPI came in at 7.5% YoY- higher than the most aggressive market expectation. Core CPI also was higher and touched 6% YoY. In a sign that the Fed is worried about inflation, Bullard (a Fed official) said that the Fed should hike by 1% by the July meeting and even supported a hike between meetings. Despite the rise in inflation, markets as of now are expecting gradual steps of 25 bp in each meeting starting March and are not prepared for a surprise of 50 bp+ in any meeting.

On the domestic front, the RBI policy had minimal impact on the currency market. The status quo policy kept the rates unchanged and maintained the stance as accommodative. The inflation and GDP projections were in line with market expectations.

USDINR is now catapulted higher by the US inflation. While equity markets have reacted negatively so far, they are not yet in a state of panic, and risk aversion has not yet set in. USDJPY being higher indicates that the current move is driven by US yields and strong Dollar, and not by risk aversion. USDINR could now drift higher from here but runs the risk of a sharp-up move if panic sets in markets. We would watch out for signs of change in risk aversion by keeping an eye on JPY to gauge the magnitude of this move.

INR is under slight pressure ahead of US CPI today.

(10th February 2022, 7:30 AM)

INR likely to open around 74.80

Dollar is slightly firm ahead of the US CPI data due today. EUR is at 1.1420, GBP is at 1.3530 and JPY is at 115.50. US yields are firm, with the 10y at 1.93%. US equities rose well yesterday aided by the good rise in tech stocks. The DOW ended higher by 0.85% and NASDAQ rose 2.1%. Indian equity indices also did well, with the Nifty jumping 1%+. Brent is steady at 91.5 level.

Today’s US CPI data is an important release for the markets, given the aggressive FOMC. RBI’s monetary policy is due today but is not expected to shake USDINR much. There are expectations that while the Repo rate might be kept unchanged, the reverse repo rate might be increased to reduce the band between the two rates.

USDINR could be volatile today and tomorrow based on the CPI release. The medium-term direction remains towards Rupee depreciation, and risk factors for the Rupee remain intact.

USDINR remains stable, US inflation tomorrow.

(9th February 2022, 7:00 AM)

INR likely to open around 74.70

Markets are stable despite the continuing rise in US yields. Dollar is slightly higher than yesterday. The Dollar Index is at 95.58, EUR is at 1.1420, GBP is at 1.3550 and JPY is at 115.45. US 10y is now at 1.945% and is moving towards the 2% mark. US equities managed a good day, and the DOW ended 1%+ higher. Nifty was up by 0.3%, but the broader market did not do well. Brent fell yesterday on hopes of a potential supply resumption from Iran post the lifting of sanctions – now at 91.10.

The US CPI due tomorrow is now the focus of the markets. USDINR has remained stuck in a range waiting for the next move. The US economy seems to be fine from an employment perspective, and the inflation surge is the primary concern for the Fed. The next Fed meeting on March 15-16 would be a seminal one and until then there are two more inflation data points to contend with. For the next few days, USDINR could be fairly range-bound and drift along depending on data and headlines. We are watching the US 10y yield, for any sharp-up move there can affect the Rupee in the short term.

USDINR is stable but headwinds piling up.

(8th February 2022, 7:00 AM)

INR likely to open around 74.65

Even as equity markets continue to react to macro data and news in a volatile fashion, currencies have been docile over the past couple of days. Friday’s US jobs data printed at 467k – significantly higher than forecasts, and the previous month’s number was also revised sharply higher. One would have expected a surge in the Dollar post the data, but USD could not manage a large move. Currently, Dollar Index is at 95.40, EUR at 1.1440, GBP at 1.3530 and JPY at 115.30. US yields surged higher after the payroll data, and the 10y is now at 1.92%. Brent also is higher, at 93 now per barrel. US equities closed in the red yesterday. Indian indices remain vulnerable with yet another 1%+ loss yesterday.

INR has been holding steady for now, but headwinds are building up fast. The sharp jump in US yields does not bode well for the Rupee in general. The next important event is the release of the US CPI data on Thursday. Given that the US economy is doing well on the jobs front, a sharp CPI would bolster the rise in yields and can create problems for the Rupee. Oil price is also a headwind for the Rupee pressured by an already high trade deficit.

USDINR could remain range-y in the short-term, but the medium-term picture is becoming clearer by the day and markets are due for a good correction sometime this year.

USDINR weakened ahead of the US jobs data today.

(4th February 2022, 7:00 AM)

INR likely to open around 74.65/70

Dollar is weak ahead of the US jobs data, and the Dollar index has crashed to 95.35 now. EUR shot up yesterday and is holding at 1.1440 now, GBP is at 1.3605 and JPY is at 114.95. The move higher in the EUR is despite the sharp correction in US equities. US indices fell sharply, driven by the historic collapse in Facebook (Meta) stock of more than 25%. NASDAQ was down 3.75% while the DOW was down 1.45%. Indian indices also fell 1.3% odd yesterday.

Both ECB and the BOE turned out to be hawkish on rates and inflation outlook. EUR shot up despite status quo policy from the ECB since they acknowledged that the risks to inflation have risen from the time of the last ECB meeting. Market now expects a rate hike from them by this year-end. The whole correction in EUR has been due to the monetary policy divergence between the ECB and the Fed, and now that the ECB is talking rate hikes, one might be tempted to look for a large reversal in EUR. But our view remains that the Fed would be more aggressive than even markets think it would be and this divergence would again be apparent again. The current move is just a short-covering move.

BOE’s rate hike was also on expected lines but helped the GBP somewhat. The Dollar weakness is a temporary phenomenon and could change course on a durable basis closer to the March FOMC meeting. As for the Rupee, today’s US jobs data is critical to assess the impact on USDINR for the next few days. If the jobs data turns out to be bad, there could be a tug between Dollar strength due to risk aversion and Dollar weakness due to weak US employment. But a strong print is likely to lead to sharp Dollar strength. For the Rupee, the medium-term scenario remains unchanged, and inflation continues to be the primary risk factor going forward.

INR under slight pressure post-budget. US jobs data this week.

(3rd February 2022, 7:00 AM)

INR likely to open around 74.80

Even as the USD is mildly weaker against most global majors, Rupee has been under pressure after the budget. Indian yields rose again yesterday, with the 10y now at 6.88%, on worries about higher inflation and rising fiscal deficit. INR seems to be impacted by this concern and hence is not able to capitalize on the temporary reversal in the Dollar strength.

Dollar Index is below 96, EUR is at 1.13, GBP at 1.3560 and JPY at 114.40. US 10y continues to fall, now at 1.76%. US equities managed a positive day of 0.5-0.9% growth, but futures are down, post the cash market close. Indian equities continued their positive run yesterday with another 1%+ rise. Brent is stable at 89.30.

USDINR is pushing mildly higher each day, but the real move is still not apparent. The global scenario has stabilized, and this week’s US jobs data could be the next trigger. There are views that the data would indicate significantly lower jobs-added, and if so, the market would worry about a stagflation situation. The medium-term impact of such an eventuality is that equity markets could panic due to downgrades in earnings and exacerbate the Fed’s problem. On the other hand, a weakening economy can be interpreted to mean that the FOMC might not choose to be too aggressive in the fight against inflation. Time will tell as to which path would the markets take.

In the short term, USDNR remains range-bound with a slight upward bias. But, as we reiterate every morning, the medium-term risks are piling up for the Rupee.

USDINR up post-budget, back to global cues.

(2nd February 2022, 7:00 AM)

INR likely to open around 74.75

Even as USD retreated against most majors, the Rupee gave off some of its gains post the budget. The global environment remains positive for risk assets, with a weaker Dollar over the previous day. Dollar Index is at 96.25, EUR is at 1.1275, GBP is trading at 1.3525 and JPY is at 114.65. US equities had yet another positive day, with around 0.75% gains. Indian indices managed a good 1.35% odd gains, helped by the global equity performance, and supported by a fiscally aggressive budget. Brent remains around 89.50.

The union budget was fiscally expansionary, with large CAPEX projected next year. The CAPEX increase to 7.5 lac crores was taken well by equity markets, but the bond markets considered the inflationary pressures of fiscal spending more. The fiscal deficit projected next year was in line with expectations set in the last year’s budget about the normalization timeline for the deficit. Indian yields moved higher and the 10y ended 15 bp up, at 6.82%. Higher potential inflation and higher yields are a concern for debt flow into the country, and this worry is reflected in slightly higher USDINR.

This week has an important data point in the form of US jobs data. The domestic scene has become slightly amenable to the Rupee, as the latest trade deficit printed slightly lower – around 18 billion. We need to watch whether this trend in the trade deficit would continue next month.

USDINR is in a range, given the amenable global environment in the short term. With the budget out of the way, there is not much to support the Rupee in the medium-term but for a reversal in global sentiment. We continue to reiterate the vulnerability of the Rupee in the coming weeks, to the Fed action.

Rupee was helped by positive global cues. Union Budget today.

(1st February 2022, 7:00 AM)

INR likely to open around 74.50/55

Friday’s sharp reversal of equity market losses continued yesterday, and the Dollar also reversed some of its gains. Dollar Index is down to 96.60, EUR is at 1.1220, GBP is at 1.3430 and JPY is at 115.15. US equities surged higher with S&P up by 1.9% and NASDAQ higher by 3.4%. Indian indices also had a good day yesterday and jumped 1.4%+ on the back of the global rally and hopes around the union budget today.

Despite noises from Fed members that aggressive action would be needed, and with some even saying a 50 bp hike might also be warranted in March, markets have managed to reverse some of the post-FOMC negativity for now. As we have been mentioning, the short-term could see some stability in the Rupee before more pain could come in later in the year. Today’s union budget is not expected to make a large impact on the currency. The economic survey, published yesterday, painted a rosy picture of the economy with an 8.5% growth projected next fiscal, but assumes that the oil price would reverse to 70 $ a barrel. The survey warns about imported inflation being a potential concern and it is a risk for the Rupee as well since, in that scenario, the trade deficit would also soar.

USDINR is in a good place for now as the short-term pressure has eased well. But, our view continues to be that any short-term strength in the Rupee is a buying opportunity for medium-term play, since the impact of the Fed action and incoming inflation releases would lead to pressure on flows into the country sooner or later.

USDINR stable on global cues. Union Budget next.

(31st January 2022, 7:00 AM)

INR likely to open around 75.05

Risk appetite came back into markets on Friday, after the post-FOMC fall. USD managed to close flat on Friday, but US equities surged 2.5%+. Currently, Dollar Index is at 97.20, EUR is at 1.1140, GBP at 1.3395, and JPY is at 115.35. US yields continued to come off from the post-FOMC highs, and the 10y is now at 1.77%. Nifty ended Friday flattish and can be expected to open positive given Friday’s US equity market performance. Brent remains high, now close to 89.50.

USDINR could find some stability today and going into the union budget tomorrow. While the budget might not impact the Rupee over the medium-term, any lasting measures to attract flows into the country, such as bond index inclusion announcements or any international borrowing program from the government/RBI, etc. can help the Rupee. The medium-term picture for the Rupee remains unchanged – that of strong Dollar, aggressive Fed, high inflation, and high trade deficit.

INR remains stressed, FOMC hangover continues.

(28th January 2022, 7:00 AM)

INR likely to open around 75.20

Dollar continued its surge into the second day after the FOMC decision. Equity markets remain very tentative, again giving back all the intra-day gains, indicating strong risk aversion seeping in. Dollar Index is at 97.20, EUR is lower at 1.1145, GBP at 1.3390, and JPY is at 115.45. US yields are slightly lower but enough to support a strong Dollar. S&P 500 ended the day lower by 0.5% after being in the positive territory intra-day. Indian equities fell close to 1%, tracking the previous day’s US moves, and given the performance of US indices overnight, one can expect a muted start today. Brent is higher, close to 89 now – another negative for the Rupee.

The relentless Dollar strength has led to some movement higher in USDINR, though relatively much smaller than what global currencies saw. As we keep reiterating, risks are piling up for INR, but some positive factors continue to keep Rupee from a runaway move. The expected increase in bond flows due to the potential inclusion of India into global bond indices, UP elections and budget are some of the factors which are influencing the Rupee in the short-term. USDINR would be volatile for the next few weeks, but the medium-term pressure is very much apparent. FOMC has rattled markets and come March, their language around the balance sheet reduction could again bring about yet another bout of panic. USDINR remains in a secular uptrend, though some short-term blips can occur along the way.