Daily Morning Update: Global Markets and USDINR

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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 8th 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.


USDINR under pressure, FOMC hawkish.

(27th January 2022, 7:00 AM)

INR likely to open around 74.90

Dollar is stronger and equity markets jittery after a hawkish FOMC and Powell raised concerns for the market on the rate hikes and liquidity tightening. FOMC statement was on expected lines, in which the committee stated that rate hikes are needed to fight inflation and labor market is strong. The balance sheet tapering is now on schedule to end in March and the market expects a rate hike in the March meeting. While equities were sharply higher going into the FOMC statement release, they gave up all the gains during Powell’s press conference.

Powell’s statement that there is a lot of room for rate hikes before any impact on the labor market can be felt spooked markets. Further, Powell said that the balance sheet reduction could be done sooner and faster if needed, and markets interpreted to mean that both rate hikes and balance sheet reduction can occur simultaneously. Powell could not give any sense to markets that the rate hikes would be gradual and with a 25 bp increment. In all, the press conference now confirms that the FOMC is now worried about the inflation a lot and can move much faster than the market initially anticipated.

Dollar shot up post the FOMC, and the Dollar Index is at 96.45. EUR is at 1.1235, GBP at 1.3455 and JPY at 114.75. US yields are higher, with the 10y back to 1.85%. S&P 500 ended lower by 0.15%, after being as high as 2% intra-day. NASDAQ gave up 3%+ intra-day gains. Despite the Dollar strength, Brent is higher, at 88.50. Indian indices had a good 0.6%+ kind of a day yesterday, but the reversal in US equities means a subdued start for Indian markets today.

The FOMC has sounded the bugle now on aggressive action. There is no guarantee that they would hike in only 25 bp increments nor there is an assurance that the balance sheet reduction would be slow and gradual. USDINR would be now under pressure over the next few months as the FOMC stance can potentially reverse flows. With oil also high, the trade deficit presents a double whammy for the Rupee. In the short-term, the market might as well try and bounce back and lead to stability in the Rupee, but it is now clear that the natural direction of the Rupee is towards more depreciation.

USDINR creeping up, markets jittery as FOMC meeting begins.

(25th January 2022, 7:00 AM)

INR likely to open around 74.65

On the face of it, the overnight US session has ended up yielding a mildly stronger Dollar, and slightly higher US equity indices. Dollar Index is at 95.88, EUR at 1.1320, GBP at 1.3490 and JPY at 114. DOW ended 0.3% higher. But, the DOW was down 1000 points (3%+) intra-day and NASDAQ was down 5% intra-day before late buying reversed the losses. While the equity volatility index (VIX) remains fairly unchanged, the intra-day volatility is indicating a jitteriness not seen in markets for a while. Indian indices closed sharply lower – by 2.65%, but the late reversal in US markets would help for a better start today.

FOMC meeting is starting today, and the statement is due tomorrow. Markets have been very uncertain as to how aggressive the Fed would be in its communication. The increased volatility is a sign that equities are no longer comfortable with the position they are in. In addition to the FOMC risk, the Ukraine situation could pose a threat to risk appetite and must be kept in mind. USDINR has been moving up gradually, but still not fully in line with the risk factors affecting it. A sense of the medium-term direction might be possible post the FOMC result, and until such time, USDINR could be meandering in a range.

USDINR stable, markets jittery ahead of FOMC.

(24th January 2022, 7:00 AM)

INR likely to open around 74.45

Dollar is flattish ahead of an important week for the markets. The FOMC meeting is set to start today, and the statement is due tomorrow night. Dollar Index is at 95.60, EUR is at 1.1340, GBP at 1.3550 and JPY at 113.75. Last week saw jittery equity markets, with Friday marking yet another fall in US indices. S&P fell1.9%, primarily driven by tech stock rout (NASDAQ down 2.7% with Netflix down 20%+). Indian indices also fell 0.8% and can be expected to open subdued following Friday’s US cues. US yields are steady ahead of the FOMC meeting, and Brent is stable at around 87.70.

FOMC would need to walk a very tight rope tomorrow and make sure that markets are not too rattled by their hawkishness while, at the same time, keeping inflation-fighting focus steady. Equities are clearly showing signs of giving back some of the liquidity-driven excesses of the past few years. For USDINR, the medium-term risks are piling up fast, especially the risk around an equity market panic driven by tight Fed policies.

The current situation is like the 2013 taper tantrum period to some extent, when the Indian trade deficit compounded the outflow problem. The difference this time, though, is that India is placed well in terms of growth and RBI FX reserves. As such, one might not see the kind of drastic moves which happened in 2013 again, but there could be meaningful depreciation of the Rupee if equity market panic intensifies. But, for the next few days, while the bias remains towards INR depreciation, USDINR could be volatile depending on the specifics of the FOMC statement.

USDINR is biased upwards on risk aversion.

(21st January 2022, 7:00 AM)

INR likely to open around 74.55/60

Risk aversion held sway over markets yesterday, and as a result, US equities saw yet another day of 1%+ fall, and Dollar strengthened against most currencies except JPY. Dollar Index is higher at 95.82, EUR is at 1.1305, GBP is at 1.3585, but JPY is stronger at 113.80. S&P fell 1%+ after being higher intra-day, showing the tendency of markets to sell at even small highs. Indian indices also fell 1% due to the jitters around the hawkish FOMC meeting this month-end. Brent is at 86.30 and US 10y has fallen sharply to 1.77%, indicating strong risk aversion.

Until now Dollar strength was a result of Fed expectations as evidenced by JPY weakness against the Dollar and rise in the US 10y yield. But risk aversion in markets has added another dimension now and could influence the Rupee faster. The falling 10y yield and more importantly, falling USDJPY is a barometer to measure this risk aversion. As the Fed embarks on rate hikes, market tantrums could force them to be not as aggressive as they want to be and the tight rope walk, they must engage in to pacify markets and fight inflation would be the defining factor in the coming months. For now, USDINR still remains in a range, but the depreciation bias in Rupee is becoming more apparent.

USDINR stable, but risk appetite shaky.

(20th January 2022, 7:00 AM)

INR likely to open around 74.45

The Dollar is stable, but equity markets have been shaky for the past few days as we approach closer to the FOMC meeting this month-end. Dollar Index is at 95.60, EUR is at 1.1345, GBP at 1.3615 and JPY at 114.40. DOW fell 1% as did Nifty. US 10y fell slightly, at 1.86% now. Brent is down on inventory data, at 87.70.

USDINR has found a new range in the 74.25-74.60 zone as it waits for the FOMC decision and statement. Equity markets are showing signs of worry despite the end of the Omicron scare. At the end of the day, this is the first time from the 2008 period that inflation has been worrying markets and the standard templates of small rate hikes might not apply to this scenario as we go further into the year. The medium-term risks remain strong for USDINR, though the short-term movement could be range-bound.

USDINR on the up move. Inflation concerns take the front seat.

(19th January 2022, 7:00 AM)

INR likely to open around 74.65

Markets finally started to react yesterday to the potential Fed rate hike moves and balance sheet reduction. US equities fell sharply on inflation concerns, US yields strengthened as did the Dollar. DOW ended 1.5% lower, and NASDAQ fell 2.6%. Dollar index is higher now at 95.70, EUR is trading at 1.1320, GBP at 1.3595 and JPY at 114.70. US 10y has risen 8 bp and is at 1.88%, pushing towards 1.9%+. Indian equities also fell by around 0.9%. Brent jumped higher, now at 88.50.

USDINR managed almost a month of stability, aided by inflows and year-end dynamics. Just as the pair were settling down, the global environment is changing to align with the increasing risk of tight liquidity and rate hikes. The bias has shifted suddenly towards more INR depreciation. Further, rising Brent prices would make things worse for the Rupee, as the domestic trade deficit could end up being a vulnerability when global flows change direction. The next few days are critical and can determine whether this reversal in USDINR is temporary or would be more severe.

USDINR steady amidst the data-light period.

(18th January 2022, 7:00 AM)

INR likely to open around 74.25

The Dollar remained stable yesterday, being a US holiday. Dollar Index is at 95.20, EUR is at 1.1420, GBP at 1.3660 and JPY at 114.50. US 10y is higher at 1.81%. Brent remains elevated, at 86.50. Indian equity indices traded higher by around 0.2%.

USDINR has moved up above 74.00 after being pushed lower by bond inflows and a strong risk appetite. The fundamental picture remains the same – that of a strong Dollar, rising US yields and a high Indian trade deficit. Some activity around the global inflation could resume closer to the month-end Fed meeting. For the next few days, USDINR could drift along in a range without significant moves on either side.

INR is stable for now, but the fundamental picture is shaky.

(17th January 2022, 7:00 AM)

INR likely to open around 74.20

Dollar ended Friday higher, while US equities traded weak. Dollar Index is back above 95, now trading at 95.25. EUR is at 1.14, GBP at 1.3670 and JPY is at 114.50. Dow closed 0.5% down, and S&P ended the day flat. Indian indices also traded nearly flat on Friday. US yields are higher, but the 10y is finding resistance around the 1.8% level. Brent continues its upward trend and is currently at 86.50.

With the major data points for the month done away with, this week is fairly muted on the data front. Markets are estimating aggressive fed with a 90% probability of the first hike priced in by the March meeting. There is an 80% chance of four hikes this year as per futures. As Powell pointed out in the congressional hearing, there could even be a balance sheet reduction starting towards the year-end. The bottom line is that we are heading into a period of tight Dollar liquidity and inflation-fighting Fed. USDINR has benefited from the near-term flows this month, but the fundamental picture, both in terms of global liquidity and the current account deficit, is against the Rupee. The longer the calm, the higher the force of the coming storm.

INR stable amidst flows, but aggressive Fed a major risk.

(14th January 2022, 7:00 AM)

INR likely to open around 73.90

The calm demeanor of US markets after the inflation data was shaken yesterday, after comments from some Fed officials that 4 or more hikes might be needed this year rattled markets. S&P 500 fell 1.4%, driven by tech stock fall. But the Dollar fell slightly, with the Dollar index at 94.80, EUR at 1.1465, GBP at 1.3720 and JPY at 113.90. US 10y fell again, trading at 1.72% now. Indian indices managed a 0.25% odd rise but could see some caution today. Brent continues to remain elevated, now at 84.25.

There is growing consensus within the Fed that aggressive rate actions are needed to curb inflation. Markets showed a glimpse of potential reaction to a potential Fed action yesterday, as even mere comments from the Fed officials rattled equities somewhat. Once the aggressive taper and potential plans for balance sheet reduction (liquidity withdrawal) are discussed in the January FOMC meeting, markets might start reacting more to the reality.

USDINR remains in a sweet spot, well supported by expected flows in the short term. But, risks are clearly building up for the Rupee and the general landscape of financial markets. The next major stop is the Jan end FOMC.

Markets shrug off high US CPI, medium-term risks building for INR.

(13th January 2022, 7:00 AM)

INR is likely to open around 73.80.

Despite a sharp rise in the headline US CPI for December, US equity markets managed a positive close and the Dollar fell against most currencies. The US CPI rose 7% last month, the highest in 40 years. The core CPI also jumped 5.5% – slightly higher than expected. Markets took this CPI print in their stride, probably since some of the service sector prices showed signs of slowing down. The Dollar fell sharply, and the Dollar Index is currently trading below 95. EUR is at 1.1440, GBP is at 1.37 and JPY is at 114.60. US yields fell slightly with the 10y at 1.75%. US equities ended higher by around 0.2-0.3%. Brent moved higher on the back of weak Dollar and oil inventory data – now at 84.85.

On the domestic front, Indian equity indices continued their positivity for yet another day yesterday – with a 0.9% odd rise. The continuing risk appetite, along with bond inflows, have held INR well over the past few weeks. India December CPI printed higher – at 5.6% due to base effect. Though the CPI is higher than last month’s data, the quarter’s average is within the RBI projections and this data release is not expected to be of much significance for the Rupee.

Even as the US CPI remains at historical highs, markets seem to bet that the FOMC would successfully manage the taper and rate hikes in the least disruptive way. In our opinion, the initial market expectations at the beginning of the rate cycle are always found to be too optimistic as the cycle moves along and this time the situation is no different. While the Dollar has given up some of the past gains yesterday, it is unlikely that this move is durable given that the Fed has achieved both its inflation and employment objectives and is ready to act. In addition to the aggressive Fed, INR must contend with the surging trade deficit, and the surge in oil is not going to help the deficit any better. Our view remains that the longer the period of positivity, more the potential for a sharp Rupee depreciation in the coming months.

INR positivity continues, but medium-term risks remain.

(12th January 2022, 7:00 AM)

INR likely to open around 73.80/90

The Rupee had yet another day of strength amidst a good risk appetite. Dollar fell yesterday after Powell managed a balancing act in his testimony, between inflation concerns and the Fed’s sensitivity towards risk assets and growth. Markets liked his statement that any balance sheet reduction from the Fed can be put off until the year-end. Powell also said that the taper would again be discussed in the January meeting. The Dollar fell after the speech and US equities ended higher.

Dollar index is at 95.57 now, EUR is at 1.1370, GBP at 1.3640 and JPY at 115.20. US 10y fell slightly to 1.73% now. S&P 500 ended higher by 0.9%. Brent rose again, now closing in towards 84 – this is a creeping risk to the Rupee. Indian indices managed a positive day, with gains of around 0.3%.

Today’s US CPI release would be an important data point for currencies. Given that the Fed is clearly in an inflation-fighting mode, any sharp rises can re-trigger the market’s worries about faster-than-expected rate hikes. But for now, at least for the next few days to a couple of weeks, INR seems to be in a goldilocks zone – a place where the macro data and Fed statements are just right to balance any concerns about inflation. It looks like the risk factors would take a while before showing up in the form of stress on the Rupee. But it is a fact that risk factors, both structural and otherwise, are consolidating against the Rupee. Trade deficit, high oil prices, and the Fed balance sheet taper and rate hikes are all real and ready to impact. It just seems that the timing is just postponed a bit.


Yet another stable day for INR, macro data risks remain in wait.

(11th January 2022, 7:00 AM)

INR likely to open around 74.10

The Rupee continued its run for yet another day, despite global Dollar stability. Dollar Index rose to 95.90, with EUR at 1.1335, GBP at 1.3580 and JPY at 115.30. US yields remain elevated ahead of the testimony by Powell to US Congress. US equities managed a flattish close after being down by almost 1%. Rupee is being helped by a strong performance from Indian equities, and yesterday saw another 1%+ rise in Nifty. Brent is slightly lower – but still at 81+ level. US 10y is hovering around 1.76%.

Markets await Powell’s testimony today and then the US CPI tomorrow. For now, the market’s risk appetite is fairly strong despite inflation concerns. This phenomenon was seen even during the last Fed rate hike cycle. The initial period of the last Fed QE taper saw positivity and muted reaction, but markets turned sharply in 2018 during the rate hike moves. Given that the past two years saw an unprecedented 4.5+ trillion in Fed liquidity, markets have become much more dependent on the QE than they were in the last cycle. In our view, risk assets are set for a potential shock – just the timing is of question. Further, we believe markets are underestimating the potential speed of rate hikes as this is the first time in more than 13 years that the Fed is trying to fight inflation. The longer the Rupee stability now, the higher is the potential for a large move later once the rate hike cycle picks up.

INR managing stability, but macro data threats rising.

(10th January 2022, 7:00 AM)

INR likely to open around 74.25/30

Friday saw Dollar weakness after the less-than-expected US jobs print, but US yields went higher implying that markets expect an FOMC rate hike sooner than later. Dollar Index is currently at 95.77, EUR at 1.1355, GBP at 1.3595 and JPY at 115.50. US 10y has shot up to 1.76%, and the odds of a rate hike by March/Apr is now almost at 90%. US equities ended in the red after the jobs data. Indian indices ended Friday higher by 0.2%+. Brent is trading at 81.60.

The US non-farm payroll release showed 199k jobs added for last month, well below the expected 400k+. But the unemployment fell to 3.9% and the wage growth shot up to 0.6% – suggesting inflationary pressures and that peak employment as per the FOMC target is more likely reached. The odds of a rate hike jumped post the data release, as the market took more cognizance of the unemployment rate rather than the headline jobs number.

Even as the Rupee continues its run of stability, the eagles are circling over it – in the form of US rates, inflation and high oil prices. Markets are still in the relief phase after the Omicron scare, but this week’s inflation data could wake up markets to the lingering threat. Powell is due for a testimony tomorrow and the US CPI release is slated for the day after tomorrow. While there is a sense of comfort in markets for now, the more the Rupee stays calm, the shaper the eventual depreciation can be given the underlying stress factors.

INR remains stable, but data indicates future stress.

(7th January 2022, 7:00 AM)

INR likely to open around 74.40

Yesterday was a quiet day in currency markets, and Dollar remained stable as markets await the US jobs data today. Dollar Index is at 96.25, EUR at 1.1295, GBP at 1.3545 and JPY at 115.90. US equities fell slightly after the sharp fall the previous day. Indian indices caught up to the US equity move the day before and fell 1% yesterday. US yields rose, and the 10y has reached 1.72% now. Brent also continued its rise higher and is now at 82.50.

All the negative risk factors for INR are becoming more prominent with each day. The rise in US 10y could lead to pressure on the EM currencies along with INR soon. Brent would put additional strain on the already stretched trade deficit. And the US jobs and inflation data could bring back the inflationary pressures into focus soon. USDINR is stable for now but can see sharp moves once there is more clarity on the medium-term risk factors.


INR is still in limbo, data pressures starting to assert.

(6th January 2022, 7:00 AM)

INR likely to open around 74.50

Dollar remained stable, but US equity markets took a hit yesterday after the release of the minutes of the last FOMC meeting. The minutes pointed to a very hawkish Fed and indicated that the FOMC is concerned about the sharp rise in inflation and could move ahead with rate hikes this year and even a reduction in balance sheet size (liquidity) if need be. It has dawned on the markets that the risks of Fed action are real. NASDAQ fell 3%+, S&P fell 2% and DOW fell 1%. Indian indices had yet another positive day with a 0.6%+ gain. But, given the overnight move in US equities, one can expect a negative opening today.

Dollar Index is at 96.22, EUR at 1.1310, GBP at 1.3545 and JPY at 115.95. US 10y moved higher after the Fed minutes, now at 1.69%. Brent continues to remain elevated, above 80. While INR has been stable over the last year-end and the beginning of this year, the FOMC stance could influence the Rupee soon. US job market is strong, as evidenced by the ADP private payrolls report yesterday which came in much higher than expected. Friday’s jobs report might bolster the Fed stance that the job market is running tight, and can add to inflationary pressures.

The next few days could set the trend for risk appetite and USDINR. Our view remains that the natural direction for the Rupee is towards more depreciation.


INR remains steady, but medium-term risks abound.

(5th January 2022, 7:00 AM)

INR likely to open around 74.50/55

Dollar is slightly higher in yesterday’s trading, with Dollar Index trading around 96.30. EUR is at 1.1290, GBP at 1.3530 and JPY at 116.10. As Omicron’s concerns fade, risk appetite has come back strong, as evidenced by the sharp fall in the Yen. Equity markets continue to hold well, though yesterday saw some correction in US tech stocks (down by 1.3%). Indian equities saw yet another 1%+ rise yesterday. Brent has breached 80 – a risk factor for the Rupee. US yields continue to move higher, and the 10y has now reached 1.65%.

USDINR is biding time ahead of the important data releases. Structurally, INR is on the backfoot as the surging trade deficit is complicated by rising inflation and potential withdrawal of flows once the Fed acts aggressively on their taper plans. The short-term positivity for the Rupee could be short-lived in our view, once markets thrust to focus on inflation concerns again. The current positive mood in markets is due to the expectation that Omicron could lead towards herd immunity and hence the pandemic could potentially end. But the flip side is that inflation concerns are only going to increase once the economies across the world are back to normal. The medium-term outlook for the Rupee remains shaky in our opinion.


INR is stable for now, but economic data points to pressure on the Rupee.

(4th January 2022, 7:00 AM)

INR likely to open around 74.40/50

USD gathered some strength yesterday, but a strong risk appetite led to stability in the Rupee. Dollar Index is higher, above 96.10. EUR is at 1.1310, GBP at 1.3480 and JPY at 115.30. The first trading day of 2022 saw positivity in US equity indices– DOW moved higher by 0.65% and NASDAQ by 1.2%. Indian indices surged higher by 1.6% indicating a solid risk appetite to start the year with. INR has benefitted from a positive outlook so far.

The risks for the Rupee continue to linger in the background. While Omicron relief has driven the risk rally, for now, inflation-related negatives are very much in play. US yields have been creeping up higher, and the 10y is now at 1.62%. As for the domestic situation, the trade deficit continues to come in at a higher than the trend despite surging exports. The December trade deficit is at 22 billion, a surge in exports was nullified by a sharp rise in imports including oil imports. Brent is also higher in yesterday’s trading – at 79.20.

While USDINR has managed to reverse the previous sharp move, the structural issues mentioned above would come to the fore sooner or later. Our view remains that the medium-term risks for the Rupee are very real and the natural direction is towards more depreciation and that the question is just of timing.

INR waiting for direction in the new year.

(3rd January 2022, 7:00 AM)

INR likely to open around 74.50

The last year-end saw mild Dollar weakness, stable risk appetite and positivity for the Rupee. Dollar Index is trading at 95.75, EUR is at 1.1360, GBP is at 1.3525 and JPY is weaker at 115.25. US equities ended the last day of 2021 on a weak note but are close to their all-time highs. Nifty ended last year on a high note with a gain of 0.8%. Brent remains elevated, currently at 78.30.

INR benefited from the year-end dynamics and solid risk appetite, despite the lingering inflation concerns. In the new year, all the underlying risk factors would come to the surface sooner rather than later as markets reassess the threats. The India trade deficit due today would start the year off for the Rupee. US jobs data and then the inflation data, culminating in the FOMC meeting this month-end are then the key points to watch out for.


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