Daily Morning Update: Global Markets and USDINR

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INR under pressure on the back of global Dollar onslaught. US yields continue to rise.

(23rd September 2022, 8:00 AM)

INR likely to open around 81.10

Dollar surge remained intact yesterday, and US yields rose, even more, reflecting the ongoing concern around the persistent inflation and the Fed rate action. Dollar Index fell slightly though, primarily due to the sharp appreciation of JPY on the back of an intervention from the Bank of Japan. INR has broken through the resistance zone of 80-80.25 convincingly and is set for a further up move to catch up to the depreciation in other currencies such as CNH and KRW. Equities are down and crude remains subdued.

Dollar Index is at 111.08, with EUR at 0.9830, GBP at 1.1235 and JPY at 142.05. US 10y has shot up sharply to 3.71% now, and the 10y even more to 4.2%. US equities fell for the second day after FOMC, with DOW seeing a fall of 0.35%, and NASDAQ cracking by 1.35%. Indian indices withstood the sharp fall in global equities and managed a 0.5% odd fall. 

INR is now firmly on the backfoot now. The sharp rise in the US yields is now starting to influence the Rupee significantly. A move towards 82 seems the logical path here, but there could be some period of consolidation also depending on how markets behave globally until the next inflation print. Currencies such as CNH are seeing relentless depreciation, and INR is not immune from the Dollar onslaught. The buffer for the Rupee from the India growth story and resilience of the equity markets in the short term could help contain USDINR to the 82-82.50 zone rather than the 84-85 range. But, in the next few months, as central bank rate hikes and the receding liquidity works its way into the economies, there could be unforeseen stresses such as fiscal blowouts or overexposure of banks, etc. which might come to the fore. These are still tail-risk events and need not be of concern for now. It is just that we are heading into an uncertain time with a global coordinated rate hike environment, and one has to be watchful regarding the potential volatility anytime.

FOMC hawkish. Dollar rips higher. Risk appetite weak. INR on the backfoot.

(22nd September 2022, 8:00 AM)

INR likely to open around 80.15/20

Dollar ripped higher after the FOMC decision and the Powell presser indicated that they are not going to relent until inflation is seen to be subdued. Dollar Index is at 111.45, with EUR close to 0.9810, GBP at 1.1225 and JPY above 144.30. US yields shot up higher after the FOMC decision. The 2y has surged to 4.05%, and the 10y is at 3.55%. The 10-2 yield curve inversion has deepened to -50 bp, indicating a significant recession possibility in the coming months. US equities had a volatile session with wild swings into the positive territory, before closing in deep red (-1.7% down). In addition to the FOMC event, Putin’s policy announcement about drafting Russian citizens into the war created a sour taste in the markets.

FOMC raised the rates by 75 bp to 3.25%, as expected. The ‘dot plot’ median rate for 2022 increased to 4.4% from 3.8% previously, indicating that at least 5 more hikes of 25 bp in 2022 can be expected. The inflation forecast was raised both for 2022 and 2023, and the markets read that the sticky inflation means higher-for-longer rates. The GDP forecasts were lowered, and the unemployment rate was projected to be higher than previous estimates, suggesting that the FOMC acknowledges the impact of hikes on the economy. While the forecasts were downgraded, the quantum of a downgrade, especially of the unemployment rate to around 4.4%, is too optimistic in our view. It is unlikely that the FOMC would achieve a glide path to a smooth landing for the economy while aggressively hiking rates like the current path.  In addition to the rate hikes, the balance sheet reduction plan has picked up full steam at a clip of 100 billion a month from this month. The effects of the hikes and the liquidity withdrawal would be felt in the coming 2-3 months.

Dollar strength is now firmly established, and most currencies are at multi-year lows against the USD. Until now, despite the sharp moves in Asian currencies like CNH and KRW, INR has held well against the USD. We continue to believe that once the current range is broken, the Rupee could see an extended depreciation to catch up to the move in other currencies. The unrelenting move in US yields cannot be ignored by the Rupee forever.  We are heading into an uncertain time for INR.

FOMC decision today. INR stable, but vulnerable. Dollar surge continues, and US yields are higher.

(21th September 2022, 8:00 AM)

INR likely to open around 79.80

Dollar is strong and US yields elevated ahead of the FOMC decision today. US equities gave up 1%+ yesterday, reflecting the worry about the hawkish Fed. Dollar Index is closing in on 110, with EUR at 0.9965, GBP at 1.1380 and JPY at 143.70. US 10y is at 3.55% and US 2y yield is closing in on 4%. Indian equities did well yesterday, following the positive close of US equites the previous day. Asia has opened down by 1% odd, reflecting the overnight US market performance. Crude remains subdued around 91 per barrel.

INR remains stuck to the range and is moving in incremental fashion, despite the outsized moves in the global markets. Today’s FOMC decision is important for the Rupee, in that if the Fed stays more aggressive than expected. The base case expectation is for a 75 bp hike, with the press conference signaling more hikes in the next meeting. But, the narrative of the Fed could induce some market reaction, specifically their stance on how sticky the inflation is going to be and how they view the potential for recession. The Rupee remains surprisingly resilient despite the sharp rise in global yields, indicating that the RBI is playing a role in keeping it stable. The fact that the Rupee is overvalued against most currencies, and the potential fall in RBI reserves due to the devaluation of their US treasury holdings would play a role in their future strategy on intervention. We continue to believe that the pressure of rising global yields would be felt in the Rupee suddenly, taking it higher than the current range.

INR stable. Dollar steady even as US yields surge ahead of the FOMC meeting.

(20th September 2022, 8:00 AM)

INR likely to open around 79.65

Dollar is steady ahead of the two-day FOMC meeting starting today. US yields surged yet another day yesterday. Equity markets surprisingly have been quite comfortable with the high-rate environment for now. Yesterday saw some moderate gains in most equity indices. INR stayed in a tight range, waiting for a direction post the FOMC.

Dollar Index is at 109.35, with EUR at 1.0020, GBP at 1.1420 and JPY at 143.20. US 2y is at 3.95%, and US 10y has crossed 3.5%.  Markets expect 75 bp  hike tomorrow with a 100% probability and ascribe a 20% chance to a 100 bp increase. US 2y is projecting a resilient Fed action in the coming couple of years, unlike the previous months when there were expectations of a potential rate cut in 2023. The unrelenting US yield surge is being felt in currencies and not yet in equities. DOW rose 0.6% yesterday, and Indian indices also had a similar day. The biggest risk for currencies and markets in general is the resurgence of persistent risk aversion, leading to sharp corrections in equities and corporate bond spreads.

As of now, the yield differentials are being reflected completely in currencies, and the JPY is a clear example of this phenomenon. Even as the inflation in Japan picks up pace, the BOJ continues to stick to the ultra-loose monetary policy (BOJ policy is due Thursday). Chinese Yuan has also been seeing a sharp depreciation due the yield differential play. USDCNH has breached 7.00. The longer this Dollar surge continues, the more the probability of a sharp catch-up move in currencies like the Rupee.

For now, USDINR remains very stable below 80.00. Given the global yield environment and Dollar strength, the current stability cannot last much longer. May be due to the India growth story, and stable government policies, markets have rewarded the Rupee with relative stability. But as we move towards year end, the sharp decline in Dollar liquidity, coupled with higher rates, is set to pressure most currencies including the Rupee even more.

Dollar opens the FOMC week strong. US yields remain elevated. INR range still in tact.

(19th September 2022, 8:00 AM)

INR likely to open around 79.70

Dollar is strong and steady ahead of the all-important FOMC week. Dollar Index is at 109.55, with EUR just below parity, GBP at 1.1400 and JPY at 143.10. US yields remain elevated reflecting the Fed rate hike action in the short-end yield and the receding Dollar liquidity in the long-term yields. US 10y is at 3.45% and the 2y is at 3.85%. US equities ended last week on a negative note as did Indian indices. S&P 500 was down 0.45%, and Nifty fell sharply, by 1.9%.

Inflation concerns slowly are coming back into the market’s consciousness and this week’s equity behavior could determine how INR would fare against the Dollar. FOMC decision on the 21st is now critical and two aspects would be watched with keen interest. First is the quantum of hike (75 bp or 100 bp) and second is the narrative on the future rate hike path. In addition to the Fed, the Bank of Japan has removed the word temporary in its inflation guidance and seems to be paving the way for moving a little on their zero-interest rate policy.

US recession fears continue to simmer in the background. Economic data releases such as retail sales etc. show a subdued but not a recessionary economy yet. But the guidance from the logistics major FedEx that they expect a global recession soon, shook markets last week. In our view, the FOMC and other major central banks would not stop anytime soon and would continue to hike until inflation control is achieved even at the risk of a sharp recession.

INR remains intact in its range below 80. The longer it stays in this range, higher could be the volatility of the subsequent move. With no structural positives to help the Rupee, USDINR could move higher post the FOMC. Given the open today, one can expect a reasonably stable day today and potentially until FOMC meeting.

INR vulnerable amidst continuing Dollar strength. US yields surge yet another day.

(16th September 2022, 8:00 AM)

INR likely to open around 79.70

Dollar remained elevated yesterday, supported by the continuing rise in the US yields. The US 10y is at 3.45%, but more importantly, the 2y has surged to 3.85% making the yield curve inversion even deeper (now at almost -40 bp). US equities fell yesterday, with DOW registering a 0.55% decline, and S&P falling by 1.1%+. Indian indices also fell by 0.7% odd yesterday, in line with global equities. Brent is at 91 $.

US retail sales remained decent, triggering some fears that the resilience of the economy could embolden the Fed in its hawkish stance. As for the domestic situation, the trade deficit remains the primary concern for the Rupee, at 28 billion a month. The recent CPI data at 7% is still on the higher side and would force the RBI to stay aggressive on rate hikes. The flow situation into the country remains vulnerable, but not in a state of constant panic. Given that the rate hike cycle is very much intact in India, the coming few months could see the impact on the economy and sectors such as real estate. We remain bearish on the Rupee given these additional domestic challenges. Expectations around India growth story have helped keep the Rupee from a massive depreciation. But the inevitable catch-up to the relentless Dollar surge could occur in the coming months. The potential for a global recession is very much alive and Rupee remains vulnerable to the global dynamics.

INR stable despite the Dollar surge. Risk appetite manages to hold after initial reaction to CPI data.

(15th September 2022, 8:00 AM)

INR likely to open around 79.50

Dollar managed to consolidate the post-inflation move yesterday. Dollar Index is at 109.40, with EUR at 0.9975, GBP at 1.1535 and JPY at 143.25. US equities eked out small gains even as US yields continued to move higher. US 2y has now reached 3.8% indicating a more aggressive Fed for a longer time to come. US 10y is at 3.42% – and has been sticky above the 3.3% level. DOW ended the day at 0.1% higher.

Indian equity markets have been very resilient to the global environment lately and that same dynamic was reflected yesterday, in that the Nifty managed a flat close despite the previous day’s crash in US equities. The probable belief in the India story and relatively lower inflation in the country compared to the developed economies has been helping the Indian equity market for now, and as a result, INR has been a relative outperformer in the Asian basket of late.

The rise in the US 2y yield is a reflection of the coming Fed rate hikes, much more than expected a month ago. Risk appetite in global markets is still stable but remains very vulnerable to the incoming data and commentary. The FOMC meeting and their narrative on future hikes are going to be important for markets now. An outsized 100 bp hike could trigger a market reaction to the downside.

USDINR remains fairly comfortable, but a sharp INR appreciation has been kept at bay by the US CPI data. There could be sideways movement in the pair until the 21st Fed meeting, the caveat being that any resumption in equity market panic could lead to a move towards 80 again in the next few days.

US CPI higher than expected. Dollar surges. Rupee cautious.

(14th September 2022, 8:00 AM)

INR likely to open around 79.60

Dollar ramped up higher after the US CPI release showed more than expected inflation for the last month. The CPI came in at 8.3% and the core CPI was 6.3%, which is of more concern to markets. Even though the trend in the headline inflation data is of a slow decline, the core CPI has increased steadily, and markets worry that entrenched structural inflation would require the Fed to be more aggressive even if it means crushing the economy. Dollar Index has surged to 109.45, with EUR back below parity, GBP close to 1.15 and JPY back to 144.30 level. US yields shot up post the data, and the 10y is now above 3.4%. More importantly, the short-term 2y yield which reflects the Fed expectations more is at 3.65% after being close to 3.75% immediately after the data.

DOW crashed close to 4% yesterday, in one of the biggest selloffs post-2020 period. Markets now ascribe some probability of even a 100 bp hike in the next Fed meeting. Even though Indian indices did well yesterday, one can expect a sharp negative opening today, given the global picture.

The inflation data has poured cold water on market expectations of Fed dovishness in the coming meetings. The next few days of market reaction are important for medium-term prognosis. Whether the markets (especially equities) would continue the negative movement of yesterday is the question to be asked now. Equity market panic move remains an important risk factor for the Rupee.

Asia FX has opened weaker reflecting the Dollar strength. Chinese Yuan remains one of the weakest of the lot and fell sharply yesterday after reports of potential sanctions to deter China on the Taiwan issue made rounds. As for the Rupee, the range below 80 is still intact and it would take a few days of risk aversion to break that range. The next Fed meeting on September 21st is now a critical event for the Rupee. For now, the CPI report has taken out the possibility of a Rupee appreciation at least.

Global Dollar retreat picks up steam. INR benefitting. US CPI data today.

(13th September 2022, 8:00 AM)

INR likely to open around 79.40

Dollar retreat picked up steam yesterday ahead of the US CPI data. Dollar Index has fallen to 108.25, driven by a sharp rise in EUR to 1.0130. GBP is at 1.1685 and JPY is at 142.50. USDJPY is refusing to move lower since the US yields remain high. The 10y is at 3.35%, reflecting the reality that large government borrowing cannot now be supported by central bank money printing. Equities had yet another positive day yesterday. DOW ended 0.7% higher, aided well by tech stocks. Nifty rose 0.6% and is inching towards recapturing the 18k level again. Brent is slightly higher at 83.40.

There is a clear dichotomy in the behavior of equities and bonds. Bond yields are indicating higher rates for a long time and tight financial conditions in the coming future. Equities seem to be hopeful that the central banks of the world somehow would keep recession shallow and control inflation at the same time. One of these themes would break in the coming months and our view is that equity markets might have to walk back on the optimism soon.

INR remains in its current range and is enjoying some stability due to the ongoing risk rally. If today’s inflation data comes in line or below expectations, the rally in the rupee can take the pair to below 78.50. But there are signs of recession already on the horizon in most of the developed economies and the inflation fight is set to continue for at least 6 months. The year-end period starting from October remains a critical period for the Rupee and markets in general. The Fed’s balance sheet drawdown is picking up pace and US yields could start to trend even higher from the current levels. It is a matter of time before markets start to react to the rising yields. Our view remains therefore that any dip in USDINR remains a buying opportunity.

INR stable reflecting global Dollar stability. US CPI tomorrow.

(12th September 2022, 8:00 AM)

INR likely to open around 79.70

Dollar remains subdued ahead of the important US CPI release this week. Dollar Index is at 108.45, with EUR just above parity, GBP at 1.1610 and JPY at 142.80. Friday saw a resumption in risk appetite, with US equities jumping 1%. DOW ended 1.2% and S&P 500 by 1.5%+ aided by tech stocks. US yields remain high, signaling the coming rate hikes and liquidity withdrawal. Indian indices saw a moderate gain on Friday.

Risk appetite is holding well ahead of the US inflation data due tomorrow. While the Fed officials continue to project hawkishness, markets seem to hope that a mild recession would tame inflation and bring back some relief to the rate hike cycle. The expectation tomorrow is for an 8.1% print, lower than last month’s 8.5%. Inflation is projected to fall slightly MoM, but the core inflation is expected to increase both on monthly basis and annual basis. If tomorrow’s data comes in line with expectations, it would go a lot towards solidifying risk appetite despite whatever the Fed says. Any upside print is likely to cause a tantrum in markets, and potentially lead to sharp move in risk assets. The data is an important risk event.

USDINR remains in a range for now, as the structural factors are kept at bay by the short-term revival in risk appetite. Oil prices have been correcting lately, and the latest news of potential price caps on Russian oil exports by the US could help lower Oil prices more. The scenario where Oil corrects significantly (a beneficial position for the Rupee), would also be the scenario where recession expectations rise steeply. Markets and the Rupee are not prepared for a deep recession in our view. If the central banks cause a sharp fall in global demand, Dollar strength could gain strength irrespective of US yields, and inflation data.

For now, USDINR is in a safe zone, but is aligned towards 81-82 levels in the coming months, as the global central bank tightening measures affect economic performance of major economies. Equities seem to be blind to the potential for a sharp recession. The risk event would be a sharp panic in equity markets, which needs to be watched out for. In the short-term though, INR seems to be stable below 80.

USD retreats despite hawkish Powell. ECB hikes 75 bp. INR in safe zone.

(9th September 2022, 7:30 AM)

INR likely to open around 79.70

Dollar retreated yesterday despite a hawkish Powell speech where he reiterated the Fed’s inflation fighting stance. EUR gained after a 75 bp hike from the ECB. Dollar Index is at 109.10, EUR is at 1.0060, GBP is at 1.1560 and JPY is at 143.70. US yields remain elevated reflecting the Fed chairman’s hawkish speech. US equities managed a 0.5%+ gain for yet another day. Indian indices also had a good day with a 1%+ rise. Crude remains below 90 after yesterday’s fall.

INR is in a stable zone now, at least until the next inflation print. Equities seem to be hopeful that somehow the central banks would manage inflation with a shallow recession. A deep recession in global economies remains a risk factor for the equity markets and currencies. As the liquidity withdrawal picks up pace in the US, the effects would start to be felt by next month and hence we are entering into a tricky period for global risk assets including the Rupee.

USDINR can remain in a range for a few more days. Structurally though, USDINR remains a buy on dips.

INR stable. Powell speech and ECB decision awaited.

(8th September 2022, 7:30 AM)

INR likely to open around 79.70

Dollar retreated, the US 10y cooled off, and US equities posted a solid gain yesterday despite expectations of hawkish Fed and inflation threat. Yesterday was one of those days of revival in risk appetite after a few days of subdued markets. Dollar Index is at 109.80 now, with EUR at 0.9985, GBP at 1.1510 and JPY at 144.15. US 10y is at 3.25%. S&P 500 gained 1.8%.

Next week’s US CPI data is the critical data point all are waiting for. Meanwhile, the ECB decision and Powell speech can move markets either way. For the Rupee, the base case range below 80 could hold for now. The sharp depreciation in CNH and the JPY remains a risk factor for the global markets and the Rupee. Further, the Russia-driven energy crisis in the EU can expose some of the underlying fault lines in their economies and cause problems for markets. While such medium-term risks remain firm, short-term INR seems to be stable at least until the next inflation data print next week.

Dollar on the rampage. US yields surge. INR remains vulnerable.

(7th September 2022, 7:30 AM)

INR likely to open around 79.85/90

Dollar is on a tear as US yields continue to ramp ahead. Dollar Index has shot up to 110.50 now, with EUR below 0.99, GBP back below 1.15 and with JPY surging to 143.20. US 10y has moved to 3.35%, indicating that the impact of hawkish FOMC expectations is now compounded by the withdrawal of Fed balance sheet at a higher rate. US equities ended yesterday down 0.5%. Indian indices ended flat.

For the Rupee, the move has been fairly benign given the global Dollar surge. Despite the structural weakness, INR has been able to hold below 80 for now. More the time spent in this range, higher would be the volatility of the subsequent move since the Rupee has to catch up to the reality sooner than later. The consistent move in US 10y would reach a triggering point at some level or the other, for the markets to take note and cause a panic reaction. USDINR remains a buy on dips.

USDINR range bound. Markets waiting for inflation data next week.

(6th September 2022, 7:30 AM)

INR likely to open around 79.75

Dollar is slightly down, and US yields remain elevated overnight. Dollar Index is at 109.40, with EUR at 0.9965, GBP at 1.1595 and JPY at 140.35. US 10y is at 3.21%. Yesterday was a US holiday. Indian indices managed a 0.75% rise, and for now, have been very resilient compared to other indices.

Structural factors remain detrimental to the Rupee, but the short-term behavior is controlled for now and is data-dependent. The next data point is the US CPI on the 13th. Until then, Rupee could trade in a range.

INR remains under pressure. US jobs data and India trade deficit not supportive.

(5th September 2022, 7:30 AM)

INR likely to open around 79.80/90

Dollar is on a rampage after Friday’s US jobs report despite a small pullback in US yields on Friday. Dollar Index is at 109.85, driven by a sharp fall in EUR – now at 0.9925. GBP has fallen below 1.15, to trade at 1.1490 now. JPY remains above 140. EUR and GBP are plagued by worries about the energy crisis there, and the move down is not necessarily driven by the yield differential with the US. US equities ended Friday down 1%+. Indian equities traded flat on Friday and are expected to open cautiously.

Friday’s US jobs report showed an addition of 315k jobs, which is better than expected. The wage growth slowed a little bit, helping hopes of lesser pressure on inflation. On the domestic front, the trade deficit for last month came in at 28.7 billion. The persistent and increasing trade deficit is a perennial drag on the Rupee structurally. INR has not yet depreciated enough to compensate for the ballooning current account deficit in our view. With inflows jittery on the global inflation issue, RBI has to spend a significant amount of reserves to keep the balance of payments going. Also, the rise in USD/CNY is sure to put more pressure on Asian pairs though relatively milder on the Rupee. In all, USDINR is headed higher from here in the coming months, as structural issues assert themselves.

Rupee range bound despite Dollar surge. US jobs report today.

(2nd September 2022, 7:00 AM)

INR likely to open around 79.70/75

Dollar is back with a vengeance, supported by the continuing rise in US yields. Dollar Index is sharply higher from yesterday – at 109.55. EUR is at 0.9950, GBP has fallen to 1.1550 and JPY is above 140. US 10y yield has topped 3.25%, and the 2y remains above 3.5%. While US equities managed a green close, the sentiment remains jittery. Indian indices fell by around 1.25% yesterday. ISM manufacturing data in the US came in better than expected, and the Dollar took a boost from the data.

Markets await today’s US jobs report. The danger now is a better-than-expected print, which will only fuel worries about more aggressive fed. INR has managed to hold below 80 again, despite the Dollar strength.  Today’s trade deficit release is also important for the Rupee. For now, the range below 80 might not be under threat and the next major event is the US CPI release on the 13th.

INR stable in a range on Dollar stability. US yields surge, non-farm payrolls tomorrow.

(1st September 2022, 7:00 AM)

INR likely to open around 79.65

Dollar has retreated slightly over the past couple of days, primarily due to the reversal in EUR, even though GBP and JPY continue to be weak. EUR is trading at 1.0030, GBP is at 1.1590 and JPY is at 139.40 on rising US yields. US yields continued their surge, and the 10y is at 3.21% now. The 2y yield has crossed 3.5% and the yield curve inversion is deep now, indicating a recession in the economy. DOW slid around 0.9% yesterday.

INR has managed to reverse some of the losses from the 80 mark. But given the Dollar environment globally, the upside to the Rupee is fairly limited. US jobs report tomorrow is a potential trigger point for the Dollar. It would be interesting to see if markets take a bad report to mean dovish Fed, or would the Fed chairman’s previous speech convince the markets that hawkish Fed is the base case going forward. ADP private payrolls came in lower than expected, suggesting  sluggish report tomorrow. Also important for the Rupee is the trade deficit data to be released today/tomorrow. For the Rupee, the coming 2-3 months are very critical as global risk appetite can change shape as Dollar liquidity tightens even more. INR remains very vulnerable at this time.

Rupee holds for now. Dollar in slight retreat. Macro data back into focus from this week.

(30th August 2022, 7:30 AM)

INR likely to open around 79.95

Dollar retreated yesterday, after days of an unrelenting surge. The dollar Index is at 108.70, with EUR trading above 1.00, GBP at 1.1715 and JPY at 138.55. Short-term US yields hold after the sharp rise of the past few days, and hence there is underlying support for the Dollar now. DOW managed to revive from intra-day lows but closed in the red. Indian equity indices fell around 1.5% – better than the initial open suggested. Brent remains elevated on OPEC production cut news, now at 120.70.

USDINR crossed 80.00 yesterday but managed a slight pullback as the global Dollar surge halted. With the Powell speech out of the way, markets would towards the economic data now. Given the market expectations on Fed action currently prevalent, the next inflation data point becomes extremely critical. If inflation ratifies the Fed view, another bout of market panic and a sharp move higher in USDINR is possible. Equity markets are managing to hold despite the revision in Fed expectations which occurred after the last inflation print. But, the next 2 months remain critical as the Fed continues its hawkish action and the balance sheet reduction plan picks up full steam.

INR under pressure on relentless Dollar surge. Powell stresses on inflation fight.

(29th August 2022, 7:30 AM)

INR likely to open around 79.95/80.00

The relentless Dollar March got a boost on Friday after Powell stressed that inflation-fighting remains the Fed’s primary goal, implying persistent rate hikes for the foreseeable future. The dollar Index is sharply higher, at 109.20. EUR is at 0.9930, GBP is at a 1-year low of 1.1675, and JPY is at 138.40. While the US 10y remains steady around the 3.1% mark, the short-term yields are trading higher, post-Powell’s speech on Friday. Markets now have put a 75 bp hike in September back on the table. DOW fell 3%+ on Friday and NASDAQ crashed 4%, as the realization that the Fed might not be dovish at all and could be fine with a recession, hit markets. The fact that the Core PCE inflation cooled down as per Friday’s data release, failed to bring much cheer.

USDINR is now inching towards 80.00 but might still not break the current range unless there is an equity market crash in the coming days. US equity futures continue to indicate further drawdown today, and Asia has opened weak. It is now a question of whether markets would wait for the next inflation print in September or whether the equity market fall of Friday would trigger a cascading risk aversion. For the Rupee, the direction is clear, just the pace of movement is the variable here. The next trigger is the US jobs data release this week and then the CPI release on September 13th.

USDINR biding time. Powell speech and core PCE inflation ahead.

(26th August 2022, 7:30 AM)

INR likely to open around 79.85/90

Dollar remains solid and bond yields slightly lower, ahead of Powell’s important Jackson Hole speech. Dollar Index is at 108.50, with EUR at 0.9970, GBP at 1.1820 and JPY at 136.65. US 10y is at 3.04%. US equities notched up gains for two consecutive days. DOW ended 1% higher, driven by solid performance of tech stocks. Indian indices, though, fared poorly with a 0.5% drawdown.

USDINR has been behaving in a tepid way, waiting for further direction. Today’s core PCE and Powell’s speech could provide some fuel to the markets and set the stage for the next month’s data. The full impact of the Fed’s balance sheet reduction plan would start to be felt in a month or so, and equity market behavior at that time would be critical for the medium-term prognosis of the Rupee. For now, range-bound Rupee is the base case scenario.

USDINR range bound. Global Markets quiet. Powell speech tomorrow.

(25th August 2022, 7:30 AM)

INR likely to open around 79.75

Dollar is slightly lower, and equities trade mildly up, awaiting Powell’s speech tomorrow in the Jackson Hole symposium. Dollar Index is at 108.35, with EUR at 0.9990, GBP at 1.1820, and JPY at 136.80. US yields continue their move higher with each day, on expectations that Powell might keep the inflation fighting stance going in his speech.  US 10y is back above 3.1%. DOW ended 0.2% higher. Nifty ended yesterday flat.

As are other markets, INR also is in a range for now. Powell’s speech has become an important event now, especially since it is in the Jackson hole symposium, where traditionally central banks unveiled their policy thought process. While Powell is expected to the inflation fighting stance, the question would be on how aggressive he would project. USDINR also could react to the PCE also over the next two days. But, the broad range could remain intact until the next month’s CPI inflation data which has the potential to trigger a large move on either side.

INR remains vulnerable. Global risk appetite tentative on slowdown concerns.

(24th August 2022, 7:30 AM)

INR likely to open around 79.85

Dollar traded in a range yesterday but held strong. Dollar index is at 108.65, EUR is at 0.9950, GBP is at 1.1815 and JPY is at 136.85. US 10y remains elevated, at 3.04% now. DOW was down around 0.5%. Indian equities managed a positive move of 0.4%. US macro PMIs came in lower than expected, indicating a creeping deterioration of the US economy.

USDINR remains in the current range below 80, waiting for the next set of data points starting in September. The positive risk sentiment which emerged after the last US CPI data, has dissipated a bit since expectations of a dovish FOMC were quashed by the Fed speakers. While equities have managed a rebound, and “bad macro news is good news” thought process dominates for now, the risk of a sharp recession is also equally detrimental to global risk assets/Rupee as the inflation threat. INR remains vulnerable in the coming months.

INR under pressure on rising US yields and Dollar. Sustained risk aversion potentially seen.

(23rd August 2022, 8:00 AM)

INR likely to open around 79.90

Dollar continues to assert itself relentlessly. Dollar Index is at 108.90, with EUR firmly below parity (0.9940)  GBP at 1.1770 and JPY at 137.20. US 10y remains firm at 3.02%. Equities cracked yesterday with the DOW falling 2%. Indian indices have also started to see 1% + falls now.

The creeping sense that the Fed might not after all be dovish as earlier expected, has now started to impact all markets and just not the Dollar. The Rupee is very vulnerable now as a potential wave of risk aversion can be triggered if the next inflation print is worse than expected. Persistent fall in equities is the factor to watch out for, as that will signal a phase shift back to risk aversion, away from the risk-positive move of the past month or so. USDINR remains a buy in the medium term.

INR under pressure as global Dollar surge continues. Risk appetite waning.

(22nd August 2022, 7:00 AM)

INR likely to open around 79.90

USD has been relentless in its march, after the brief hiccup post the US CPI data couple of weeks ago. US yields have also been higher, especially after the FOMC minutes confirmed that the Fed would not let up on the rate hikes anytime soon. Dollar Index is at 108.15, with EUR at 1.0030, GBP at 1.1820, and JPY at 137.30. US 10y is close to 3% again. Equity markets have started to crack a bit, and Friday saw DOW falling by 0.9% and S&P give up 1.3%. Nifty also fell 1%+ after a while.

INR is now at the top end of its current range. With not much macro data on offer this week (except the US PCE inflation), markets would be momentum driven, and USDINR could breach 80 soon. Next month’s CPI data becomes very critical now for the medium-term prognosis. The Fed’s balance sheet has shrunk at a rate of just 25 billion a month until now. From September, the runoff would pick up steam, and the impact of the receding liquidity will be felt more in October. INR is in a vulnerable position now, due to the failure to capture any upside during the last Dollar weakness trend. The medium-term story for the Rupee remains bleak even from hereon.

INR under pressure as global Dollar strength picks up steam.

(19th August 2022, 7:00 AM)

INR likely to open around 79.75

Dollar surge continued yet another day yesterday, and INR yielded to the relentless Dollar strength. Dollar Index has shot up to 107.50+ levels, with EUR at 1.0080, GBP at 1.1905 and JPY at 136.25. US yields remain elevated (US 10y at 2.9%), as markets digest the FOMC minutes and find that the dovish Fed being hoped for is still a long time away. Further, concerns about the Chinese situation related to their real estate and the general concerns about their economy ravaged by Covid, have been playing on Asian currencies and disadvantaging the Rupee.

US equities managed a positive close yesterday, with DOW just managing to end in green. Indian indices also managed to close flat, despite the tempered down risk appetite. Crude has picked up over the past couple of days, with Brent now hovering around 96.85.

INR remains tentative and vulnerable in the current strong Dollar environment. The last US CPI print has tempered down the momentum of the Rupee depreciation, but it could not change the general direction. Concerns around the state of the Chinese economy are just the beginning of what can be expected if there is a concurrent recession across most major economies. As of now, the US economy seems to be resilient, though the GDP growth has been in the recession zone. The inflation data in other countries, especially the EU, is indicating surging pricing pressures implying aggressive rate hike environment for the foreseeable future. Our view remains that any appreciation in risk assets is a good opportunity to sell and hence any dip in USDINR remains a buying opportunity.

USDINR stable, but global Dollar remains firm.

(18th August 2022, 7:00 AM)

INR likely to open around 79.35/40

Dollar traded stable, and US yields continued to rise yesterday, indicating market’s reassessment of the inflation threat yet again. Dollar Index is at 106.40, with EUR at 1.0185, GBP at 1.2050 and JPY at 134.95. US 10y is at 2.89%. DOW saw a fall yesterday after trading positive for the past few days – fell 0.5%. Indian indices remain on the positive territory, and Nifty gained 0.65%.

The minutes of the last FOMC meeting revealed that the Fed did acknowledge the slowing growth but focused on inflation being unacceptable. As for the Rupee, USD is not yet showing signs of sustained weakness which can lead to some meaningful appreciation of INR. Given the domestic issues of high current account deficit and muted flows, it is unlikely that the Rupee would see a significant appreciation anytime soon. Even if there is an appreciation spurt due to some tactical reasons, it would most likely reverse to align with structural problems. With no major macro data on offer, Rupee could continue to trade sideways until the next month’s US CPI, reacting to global equity performance and risk appetite dynamics.

INR in a comfortable place on good risk appetite. But USD strength remains a threat.

(17th August 2022, 7:00 AM)

INR likely to open around 79.30

Dollar is strong and US yields are holding high even as risk appetite remains strong in equity markets. After the US CPI data last week, while recession/dovish fed hopes keep equity markets going, Dollar has managed to reverse the initial losses as US long term yields have come back to the pre-CPI levels. Dollar Index is currently at 106.30, with EUR at 1.0175, GBP at 1.2115 and JPY at 134.15. US 10y is at 2.81%. DOW had yet another positive day, with a 0.7% jump. Indian indices have been having a good run and yesterday was a good 0.6%+ day for Nifty and Sensex.

INR could not manage much positivity post the US CPI data last week. Sudden buying from Government, defense and oil companies, probably due to long holiday gap, sparked a sharp move higher in USDINR. Given that the global risk appetite is healthy,  INR continues to be in a comfortable place. Structurally, the trade deficit and the continuing Dollar strength keep the Rupee vulnerable over the coming months. The US economy is giving out mixed signs regarding the recession possibility and there is still a divergence between the corporate earnings and the macro numbers. In the next few months, as corporate earnings struggle to show growth, the question around equity market valuations would again occupy market focus. September/October period also would see higher increase in the pace of liquidity withdrawal by the US Fed.

USDINR could meander in a range for now, with no incentive to break the 78.50 low or the 80.00 high.  But, the medium-term direction for USDINR is towards more upside due to structural factors.

INR back under pressure as US yields rise.

(12th August 2022, 7:00 AM)

INR likely to open around 79.50

Dollar is still weak after the inflation report, but US yields managed to reverse all the losses fully. The Dollar now would be supported well by the rise in US yields. Dollar Index is at 105.10, with EUR at 1.0310, GBP at 1.2190 and JPY at 133.25. US equities could not continue the rally of the previous day and lost the initial positivity yesterday to end flat. The US PPI inflation index showed a negative 0.5% MoM, indicating that inflation is near its peak there. But markets could not maintain the momentum of the previous day.

The Rupee failed to capitalize on the good CPI report and the fall in the yields after that. Now that US yields are back higher, INR would remain vulnerable, though safe from a sharp depreciation possibility. The rise in yields indicates a realization that, while inflation is lower than last month, it still is at 40-year high level, and the Fed would continue its aggression. Fed speakers supported this narrative by calling for continuing hikes in the coming months. For the Rupee, a range-bound behavior is the base case scenario for the next few weeks, and any dip in USDINR remains a buying opportunity.

US CPI lower. Triggers risk rally. INR in a comfortable zone for now.

(11th August 2022, 7:00 AM)

INR likely to open around 79.10

Dollar plummeted overnight after the US CPI print came in lower than expected. The headline CPI growth YoY was 8.5% as against 8.7% expected, and 0% MoM. Core CPI also was lower than expected. The CPI data triggered a rally in risk assets, steep fall in yields and pulled down the Dollar. Dollar has since recovered some lost ground in the morning Asia session but is still on the backfoot.  FOMC rate hike expectations dipped to 50 bp from 75 bp for the next meeting. Dollar Index is at 105.20 now, with EUR at 1.0290, GBP at 1.2200 and JPY at 133.00. US 10y is now at 2.75% after being lower than 2.7% overnight.  DOW rose 1.6% and S&P 500 jumped 1.9%. Indian equities had a flat day yesterday but can be expected to see a strong opening due to the overnight equity rally.

Today’s behavior of the Rupee is important now for gauging the direction of USDINR in the next month. If markets assess that the inflation number is not enough for the Fed to reverse their strategy, USDINR might stabilize at levels slightly below the current level. If the risk rally picks up steam, INR might enjoy some upside towards 78 as well. Our view is that the inflation data is still showing significant price pressures. The data might keep any large downside to risk assets at bay, but might not be enough to ignite a sustained rally in them. USDINR could trade lower for some time, but for now, we see 78.50 as the potential low in the next few days.

US CPI today. USDINR biding time and lookin for new direction.

(10th August 2022, 7:30 AM)

INR likely to open around 79.60

Dollar is relatively firm ahead of the important US CPI data due today. Dollar Index is at 106.20, with EUR at 1.0210, GBP at 1.2070 and JPY at 135.20. US 10y is slightly lower at 2.79%, and the US curve inversion remains very deep, indicating meaningful recession ahead. US equities are tentative, with DOW down 0.2% and S&P 500 by 0.4%. Better than expected US jobs report put the spotlight back on inflation data. If the data shows persistent inflation, there could be a quick reset of Fed expectations and market optimism, leading to a sharp reaction.

INR has not managed to break through the 78.50 level and mount a durable response. Today’s inflation data has the potential to provide a new direction to the Rupee. While market expectations are for a fall in headline inflation number to 8.7% from the previous month’s 9.1%, any large deviation from expectations can create large market swings. If inflation comes in much lower-than-expected, it might spark a large risk rally in all assets including the Rupee. INR could be range-y in today’s trade, waiting for the data.

Rupee under mild pressure. US jobs solid. CPI this week.

(8th August 2022, 7:00 AM)

 

INR likely to open around 79.40

Dollar surged on Friday, after the US jobs report revealed sharp rise in jobs-added for last month. The US economy added 528k jobs – much higher than expected. The unemployment rate fell to 3.5%, and the wage growth was also a solid 0.5%. US yields rose sharply, probability of a 75 bp hike in the next meeting rose, Dollar jumped, and stocks ended tentatively after the report.  On the domestic front, the RBI hiked the repo rate by 50 bp – along expected lines. Given the relative inflation picture, the RBI might not be as aggressive as the Fed would be in rate hikes. The RBI action did not move the currency market much.

Dollar Index is now at 106.55, with EUR at 1.0165, GBP at 1.2060 and JPY at 135.20. US 10y is higher, at 2.83%. DOW ended 0.2% higher, while the other frontline indices fell.  Nifty ended the day flattish. Brent continues to slide on global recession fears and is currently trading at 94.20.

It seems the labor economy in the US is thriving and rising wages remain supportive to price increases. The jobs report gives way to the US inflation print this week. The US CPI release in on Wednesday and expectations are for a fall in the headline number from the previous month’s 9.1% shocker. Any large deviation from expectations would trigger outsized moves in markets.

Rupee remains in the new range as the recession theme is balancing out the inflation/rate hike fears. More range bound behavior can be expected for the next day or two until the inflation data.

USDINR stable. US jobs report today.

(5th August 2022, 7:30 AM)

INR likely to open around 79.20

Dollar is lower, US yields subdued ahead of the U jobs data today. Dollar Index is at 105.75, with EUR at 1.0235, GBP at 1.2140 and JPY at 133.20. US 10y is at 2.68%. DOW ended 0.3% lower. Crude continued its downward trend as recession fears mount. Brent is at 94.25 now. US house speaker’s visit had sparked some fears of a confrontation between US and China. While there has been no direct moves from China, news of some military activities near Taiwan is a new development to watch out for. As yet, markets are not excessively bothered about this aspect.

Bank of England delivered a 50 bp hike, warning that the inflation could peak in the UK at 13%+, despite a recession possibility. We believe that inflation in the US would be stubborn enough to force the Fed to continue their current rate hike trajectory and kill the market optimism around a dovish tilt.

USDINR jumped 79.50+ yesterday, only to give up some gains today. Rupee could remain range bound until the next US CPI release next week, unless today’s jobs report shows unexpected behavior. The underlying theme of recession vs inflation remains well in play. Oil price fall is a positive factor for the Rupee, but the last trade deficit is an ominous sign. In all, we expect the Rupee to meander in a range between 78.50 to 79.50 for some more time.

Rupee gives up some gains. Fed comments point to continued aggression towards inflation.

(4th August 2022, 6:00 AM)

INR likely to open around 79.00/79.10

Dollar regained some lost ground and US yields held on to the previous day’s gains, as Fed speakers yesterday attempted to temper down the market’s optimism. All the Fed speakers who spoke yesterday tried to downplay the possibility of a dovish rate cut possibility in 2023 and tried to assert that inflation remains a challenge. While USD and the yields reflected their comments, US equities continued their bubbly run yet another day. Dollar Index is at 106.30, with EUR at 1.0165, GBP at 1.2150 and JPY at 133.80. US 10y is holding at 2.71%. DOW ended 1.3% higher, aided by the tech index. Indian indices rose 0.35% odd.

INR has again reversed some of its recent gains on the back of a significantly higher trade deficit and the revival in Dollar and US yields as markets try to reassess the inflation vs recession dilemma.  Friday’s US jobs report is now awaited to judge the wage growth numbers and if the ongoing technical recession in the US has had any impact on the labor market. USDINR could remain range-bound with neutral bias for a few more days until the next inflation report.

INR continues its positive run. Trade deficit at record high. US inflation data now critical.

(3rd August 2022, 8:00 AM)

INR likely to open around 78.60/70

Dollar rebounded yesterday, US yields rose sharply, and US equities fell after Fed speakers said that inflation remains a primary focus for them. Dollar Index has jumped to 106.10, with EUR at 1.0180, GBP at 1.2160 and JPY a 133.20. US 10y jumped 20 bp yesterday, now at 2.72%. DOW ended 1.2% down. Indian indices ended flattish yesterday but might be set for more caution today.

India trade deficit for last month came in at an all-time high of 31 billion, driven by a jump in both oil and non-oil imports. If this sort of deficit persists, there is a clear structural danger to the balance of payments position of the country and the RBI might find some caution and maintain more FX reserves to cover the deficit. We need to watch out for the next months’ data for confirming any trend in the trade deficit from hereon.

INR has managed to gain well during this period of risk revival. The next 2 weeks are very critical for the medium-term pace of the Rupee move. Some market participants expect that inflation has already peaked and would start to taper in the next couple of months, helping the Fed towards a dovish stance. But, even if the inflation peaks at 7-8%, the inevitable is just pushed a few months away, as the Fed cannot just end its balance sheet reduction plan too soon. Our view is that even more important than the rate hikes is the reduction in global liquidity which is set to pick up pace by September. Further, the global recession cannot be just a shallow one if inflation has to come down meaningfully. Net net, we believe that even if positive conditions continue for the markets in the next couple of months, bringing USDINR down, there could be another wave of sharp depreciation in the Rupee, either due to deep recession globally or due to persistent inflation.

INR comfortable amidst global risk revival. Data now critical.

(2nd August 2022, 7:30 AM)

INR likely to open around 78.95

Risk appetite continued in markets yesterday, as “bad news is good news” theme remained dominant. Even as US data, the latest being ISM, shows that the underlying economy is still not too down, despite the GDP print, markets are trying to force the Fed’s hand into turning dovish by this year end. The US yield curve is into deep inversion, with the 2-10s now at -30 bp. The more the inversion, the deeper the ensuing recession usually.

Dollar remains on the backfoot as Fed expectations are reset dramatically despite the inflation evidence. Dollar Index is at 105.10, with EUR at 1.0273, and GBP at 1.2265. US 10y has crashed towards 2.5% now, and as a result, USDJPY has seen considerable fall from 138+ level to 130.75 now.

USDINR has been able to benefit well from the revival in global risk appetite. Discounting the possibility of a global recession, markets are somehow expecting the central banks to fold quickly and resume their dovish strategies as soon as next year. Going by the Covid example, equity markets are not that concerned about the current earnings and are willing to discount large rise in future earnings provided there is continuous money printing from central banks. We think that equities and other risk assets are again trying to lead central banks in that direction. In this context, the incoming inflation readings remain very critical.

The Rupee can find some more upside given the current climate of risk appetite. If inflation remains elevated, there could be another rebound in USDINR back towards INR depreciation. But, if the inflation data comes subdued, then more downside to the Dollar is very much possible. It currently is a data-dependent market.

Risk appetite strong. INR positive. US jobs data this week.

(1st August 2022, 8:00 AM)

INR likely to open around 79.20

Risk appetite continues and Dollar is on the retreat after last week’s FOMC meeting. Friday saw equities closing well in the green, as hopes that recession would kill Fed’s aggressive rate hike strategy. Dollar Index is at 105.70,with EUR at 1.0240, GBP at 1.2195, and JPY at 132.40. US yields continue to fall, indicating market’s expectations of a coming recession. US 10y is at 2.64%. DOW ended 1% higher and futures indicate mildly cautious Asia open. Indian equity indices have also been surging, in line with their US counterparts. Nifty ended 1.3% higher on Friday.

This week is loaded with important macro data out of the US, with Friday’s jobs report becoming critical data point along with the CPI data in the later weeks. INR has been able to gain some benefit out of the ongoing risk revival. All depends on the incoming data now, and how inflation reacts to the tight financial conditions and recessionary environment. Last week’s US core PCE continued its upward trajectory, indicating that inflation is going to be stubborn. Even though US GDP is negative for the last quarter, consumer spending still remains solid, as is the wage growth.

Any dip in USDINR now, could reverse in the coming months as the tussle between inflationary expectations and recession possibility plays out. As we keep reiterating, the September/October period could see the start of a more volatile risk-averse period for markets and the Rupee. The medium-term bias is firmly towards depreciation even now, and any short-term fall in USDINR could present a good buying opportunity.

Risk appetite healthy. US in technical recession. INR looks to bank on favorable conditions.

(29th July 2022, 7:30 AM)

INR likely to open around 79.50

Dollar continued its weakness yesterday after the US GDP (-0.9%) showed that the US is in a technical recession. Markets are now assessing whether the Fed would be able to achieve its rate hikes fully when the economy is in a recession. Dollar Index is at 106.05, with EUR at 1.02, GBP at 1.2170 and JPY at 134.50. US yields fell yesterday also, as rate hike expectations are slowly turning into expectations of rate cuts in 2023. Equities rallied again, as the bad GDP print provided the momentum, due to hope that the Fed would stop being too aggressive.

INR has finally managed to capture some upside in the backdrop of reviving global risk appetite. The big risk to the Rupee remains the next month’s inflation data. If the inflation does not show signs of reversal, markets could throw a tantrum again as then a stagflationary scenario would be the worst case scenario for the markets. Any fall in USDINR would present a good buying opportunity as inflation is nowhere near a reversal and markets would revert to the inflation focus soon.

FOMC hikes, risk-on sentiment prevails in markets. INR stable.

(28th July 2022, 7:30 AM)

INR likely to open around 79.75

FOMC hiked rates by 75 bp, as expected. Markets took the FOMC as a buy-the-news event. Equities rose sharply, and Dollar saw a mild decline. Dollar Index is at 106.20, with EUR at 1.0200, GBP at 1.2160 and JPY at 135.50. Indian equities also had a good day yesterday, with 1%+ rise.

FOMC statement went as expected, though they tried to stress on the slowing economic conditions more. Markets took the tilt to mean that the future rate hikes might not be as fast, since the Fed has begun to acknowledge the slowdown possibility. Powell, even after reiterating that inflation remains the focus, mentioned the slowdown in the economy. But he refused to consider a recessionary scenario yet and pointed to the strong labor market. Markets interpreted the FOMC statement and press conference to mean that future rate hikes would be disrupted by slowdown in the economy and the Fed might not be able to move ahead as per their ‘dot’ plot. Currently the market yields are pricing in 100 bp lower rates in 2023 from where the Fed’s projections indicate.

After the FOMC, the US yield curve fell across the board, and curve inversion deepened. There is a clear discrepancy between the market and the Fed in the assessment of recession and rate projections. We are now again in a “bad news is good news” market, and any data point which points to recession could be cheered by markets for now. The consequences of a deep recession are not yet been appreciated fully in our view.

For the Rupee, FOMC was a positive event. We should wait for a day or two more to assess if the risk appetite on display yesterday would dissolve quickly as it happened during the previous FOMC meetings. Given that the next meeting is in September, incoming data now become very critical for all risk assets including the Rupee. The data now starts with Friday’s GDP and PCE data and then the next month’s jobs and inflation data become key. Rupee could enjoy some respite in the next day or two due to the global risk-on sentiment. But we reiterate that as we move towards September/October period, the liquidity ejection and the recessionary conditions would start to affect markets in a more tangible fashion and a bout of market panic is due towards the year end.

INR is cautious. FOMC today.

(27th July 2022, 7:00 AM)

INR likely to open around 79.90/80.00

Dollar-traded firm and equity markets stumbled in yesterday’s trading. Dollar Index is at 106.90, with EUR at 1.0140, GBP at 1.2040 and JPY at 137.05. DOW ended 0.7% lower. Nifty is down 0.9%. US 10y is slightly higher at 2.81%. DOW futures indicate a positive start to Asian markets ahead of the FOMC decision today.

FOMC is expected to raise rates by 75 bp today. Markets might be relieved if the rate hike is just 75 bp, as there is a fear of an outside chance of a 100 bp hike. But all would depend on the forward guidance from Powell, specifically on how they see the inflation trajectory and how many more hikes could be expected.

INR remains in a range and has not been able to break it on either side. The balance of probability continues to lie towards more Rupee depreciation. While the current FOMC meeting is important for markets, our view remains that September/October period would pose a threat to market calm, as the Fed’s balance sheet reduction plan picks up full steam by then. While currently, there is some stability and risk appetite continuing in markets, the period towards the year-end could see very volatile markets. The risk of a sharp depreciation in the Rupee remains very much alive and the longer the period of stability now, the more could be the severity of depreciation later. Hedging decisions might take such a possibility into consideration.

INR is stable. FOMC meeting begins today.

(26th July 2022, 7:00 AM)

INR likely to open around 79.75

Markets are relatively calm ahead of the two-day FOMC meeting beginning today. Dollar is weaker, and US yields are stable. Dollar Index is at 106.25, with EUR at 1.0230, GBP at 1.2055, and JPY at 136.40. US 10y is at 2.78%. US equities ended mixed with DOW registering a rise of 0.3% while the tech index fell 0.4%. Indian indices fell around 0.5%. Oil has been trading subdued over the past few days on concerns of recession and demand crash. Oil fall has been a positive factor for the Rupee, but not yet enough to tilt the scale firmly away from further depreciation possibility.

USDINR has been in a range, with a slight downward bias for the past few days as the global risk appetite has stabilized amidst a lack of market-moving data. But the Rupee has not been able to manage much gain, as the underlying medium-term bias remains firmly towards more depreciation. After tomorrow’s FOMC meeting, there could be some more INR appreciation if FOMC sticks to a script as expected by the market. The evolution of inflation and growth data over the next month or two would set the tone for the next leg of the move in most risk assets including the Rupee, just as the liquidity withdrawal picks up pace.

INR stable ahead of the FOMC week. Dollar trading firm.

(25th July 2022, 7:00 AM)

INR likely to open around 79.90

Dollar is firm as markets await the FOMC decision this week. Friday saw withdrawal in equities in the US, as growth fears compounded the inflation concerns. DOW closed 0.4% lower, while NASDAQ slumped 1.9%. Dollar Index is now at 106.65 with EUR at 1.0190, GBP at 1.1975, and JPY at 136.40. US 10y is lower at 2.79%, as bond yields seem to suggest a tussle between the inflation concerns/rate hike activity and the recession/growth fears. Indian equities had a good week last week, and the frontline indices ended Friday 0.7% up.

INR has not been able to capture any upside due to the stabilization of risk appetite. Dollar continues to hold strong, and this week could provide further direction to the Rupee post the FOMC and then the PCE inflation data. FOMC is on Wednesday, and while a 75 bp hike is expected, the tone and tenor of the statement and press conference could provide further insight. USDINR could trade sideways for the next couple of days until the FOMC.

INR remains range-bound. ECB delivers rate hike as expected.

(22nd July 2022, 7:00 AM)

INR likely to open around 80.00

Dollar traded slightly lower yesterday and equity markets continued to rise. Dollar Index is at 106.70, with EUR around 1.02, GBP at 1.1980 and JPY at 137.30. DOW ended 0.5% higher, aided by a 1.35% move in NASDAQ. Indian indices rose 0.5% as global equities seem to be in a mini bear market rally.

EUR popped higher after the ECB delivered a 50 bp hike yesterday but reversed the gains later. In addition to the inflation threat, the ECB seems to recognize that the large deficits of countries such as Italy can be back in focus when rates rise in the region and lead to a potential crisis. Even as the asset purchase (money printing) program ends, the ECB announced a separate facility to enable its intervention in purchasing assets (bonds) of any country as and when needed to stave off any crisis. Such an action would mean more liquidity – contrary to what they need to achieve to tame inflation. The next few months are going to be interesting times in European markets.

INR remains in a zone and has not been able to benefit at all from the recent Dollar weakness trend and increasing risk appetite. The Rupee could meander along for a few more days and wait for some direction post the 26th FOMC.

INR remains vulnerable, even as global risk appetite is stable.

(21st July 2022, 7:30 AM)

INR likely to open around 79.90/80.00

Dollar partly reversed its losses yesterday, and Dollar index is close to 106.90 now. EUR is at 1.0190, GBP is at 1.1970 and JPY is at 138.40. US yields continue to move higher, with the 10y back above 3%. US equities managed another day of green, with the DOW ending 0.15% higher, helped by a 1.5%+ jump in the tech index. Indian equity indices rose 1%+ on the positive vibes from the previous day’s US equities.

INR is not able to gain much on days of positive risk appetite and has been under pressure irrespective of the daily swings in the global sentiment. INR would continue to be tentative until the next major event, which is the FOMC meeting on the 26th. The trend of depreciation in the Rupee could remain intact for the foreseeable future.

INR in a range amidst a strong risk appetite in global markets. ECB decision in a couple of days.

(20th July 2022, 7:00 AM)

INR likely to open around 79.80

Dollar retreated and US equities jumped as risk appetite returned to markets yesterday. US corporate earnings gave a fillip to US equities overnight, while the EU CPI data helped expectations of an ECB rate hike and hence EUR strength. Dollar index is now at 106.45, with EUR higher at 1.0240, GBP at 1.2015 and JPY at 138.25. Asia has opened positive owing to the overnight performance of US indices. DOW ended 2.4% higher and NASDAQ jumped 3.1%. Indian indices moved higher by 0.4%.

INR is not able to enjoy the Dollar retreat as much as the global majors. The structural issues such as the high trade deficit would keep INR a relative underperformer in any Dollar weakness phase. The fact that the Rupee has just depreciated 7.5% odd compared to 15-20% depreciation of other currencies implies that any appreciation move due to global Dollar weakness could also be less prominent for the Rupee. USDINR might continue in a tight range for a few more days until the next Fed meeting.

INR remains vulnerable amidst a quiet day on the data front.

(19th July 2022, 7:30 AM)

INR likely to open around 79.95/80.00

Markets overnight could not sustain the risk appetite of the previous day. Dollar is slightly stronger. Dollar Index is at 107.40, with EUR at 1.0130, GBP at 1.1935 and JPY at 138.30. Brent is higher, on news that the US has failed to extract promises from Saudi Arabia regarding enhanced oil production. Brent is at 106 now – a negative for the Rupee.

Markets are awaiting the developments in the EU region. INR would remain in a range, given the lack of US data this week. The next big event remains the 26th FOMC outcome.

INR is stable after a tumultuous last week. ECB and Russia-EU Gas dynamics in focus.

(18th July 2022, 7:30 AM)

INR likely to open around 79.80

After tearing through most of last week USD retreated mildly on Friday, as risk appetite came back to markets. Dollar Index is now at 107.60, with EUR above 1.01, GBP at 1.19 and JPY at 138.15. US equities had a solid day on Friday, with the DOW seeing a 2%+ jump. Asia has opened with optimism that the FOMC would hike only 75 bp instead of the 100 bp feared by markets.

This week is relatively light on the US data, and hence some sense of calm and slight INR strength might be visible. But the EU would be tense this week, as Russia is slated to resume gas supply to Germany. This event risk along with the ECB meeting, where they are expected to hike 25 bp, would keep EUR tentative. There are fault lines appearing in the EU area, especially in Italy, where rising yields and potential political turmoil is bringing focus to the large deficits and untenable fiscal situation.

INR could benefit slightly this week, given there is no market-moving data out of the US. The next Fed meeting on 26th could bring back the focus to the reality of inflation and the Fed’s hawkishness despite the comments from the Fed speakers. EU risks remain important for the Rupee as well, since the tail risk event of large country default impacting the global economy could emanate out of the EU. BOJ also has the policy scheduled this week, where they are expected to stick to the zero-rate policy and cause JPY more harm. While the JPY fall is not an immediate threat to the Rupee, it is a matter of time, such depreciation in JPY puts CNY and other Asian peers including the Rupee under significant pressure.

For now, INR could see some days of stability.

Rupee remains under pressure, FOMC in focus.

(15th July 2022, 7:30 AM)

INR likely to open around 79.90/80.00

Dollar pulled back slightly, and overnight equities managed to stave off more losses after Fed speakers made dovish comments regarding the next FOMC meeting. Markets have reduced the odds of a 100 bp hike after a couple of Fed officials indicated that such a decision cannot be made just after one inflation data point. Dollar Index is at 108.40, with EUR at 1.0030, GBP at 1.1840 and JPY at 138.85. DOW ended 0.45% lower and the US 10y is higher by 3 bp, at 2.95%. Indian indices ended marginally lower and are set for cautious open today. Today’s retail sales data can ruffle some feathers if too different from expectations. Odds of a 100 bp hike in the next FOMC meeting this 27th are down to 50% now from almost 100% before the comments from the Fed governors.

As for the Rupee, there is not much to look forward to for currency in the coming days. While the general direction for USDINR is towards more Rupee depreciation, there could be some days of relatively range-bound moves until the next FOMC meeting. The domestic situation is not amenable to the flows into India anytime soon. The RBI would continue the rate hike cycle in zest, given that the latest CPI print showed persistent inflation. The risk of a growth slowdown in India remains tangible given the rate hikes, though the latest economic data shows stability for now. The fall in Oil is a silver lining for the Rupee, but not enough to structurally change the fate of the Rupee.

US CPI higher than expected. No respite for INR.

(14th July 2022, 7:00 AM)

INR likely to open around 79.70

Dollar is rock steady after US inflation beat all expectations yesterday. The CPI came in at 9.1% and even the core CPI was higher. The inflation report solidified expectations of a 75 bp hike in the coming FOMC meeting. US 10y fell 5 bp on risk aversion and expectation of an eventual rate cut cycle in the coming years. Brent is lower on recession fears.

Dollar Index is at 108.15, with EUR at 1.0025, GBP at 1.1860 and JPY at 137.90. DOW ended 0.65% lower. Indian indices also ended 0.7% odd lower. Brent is trading just below 100. US 10y is at 2.93%.

INR has no real support now to hold on to, except maybe the fall in Oil. The CPI data shows that the FOMC must be very aggressive irrespective of the recession scenario. It seems more and more unlikely that the central banks of the world would be able to soft-land their respective economies while bringing inflation under control. It could ultimately be a deep recession which would bring down inflation in the coming year or so. USDINR is firmly on the way up, but the magnitude and the intensity of the move are dependent upon the risk aversion dynamics in markets.

INR remains at risk. US CPI is due today.

(13th July 2022, 7:30 AM)

INR likely to open around 79.50

Dollar held on to its gains, and EUR briefly slipped below parity yesterday ahead of the important US CPI data due today. Dollar Index is at 108.10, with EUR at 1.0025, GBP at 1.1890 and JPY and 137.10. US 10y is at 2.98%. The US yield curve has been inverting indicating a recession ahead. US equities had yet another negative day, with S&P 500 falling 0.9%. Indian indices also tracked global markets and fell close to 1%.

INR remains vulnerable as the global scenario of risk aversion and recession possibility along with the inflation issue is a perfect recipe for long-drawn pessimism. Today’s US CPI is expected to top the last month’s print and bring back inflation worries to the fore. The short-term up move in USDINR is expected to remain on track, though the pace of Rupee depreciation could vary depending on the incoming data.

At this juncture, we must keep one eye on the possibility of a large tail risk event. Once recession and high yields become entrenched, the majority of the governments would again attempt to prop up their economies through doles to citizens and large fiscal spending. Given that there are no central bank bond purchases to backstop the large deficits already in place, there is a slight possibility of large country defaults/concerns of defaults in the coming year to two years. While this scenario is not a base case one, the outside chance of such an event is building in the background as the excesses of the past 14 years (post-2008) could come home to roost.

INR continues to weaken as Dollar strength rages on. US CPI is due tomorrow.

(12th July 2022, 7:30 AM)

INR likely to open around 79.40/50

Dollar rampage continued yesterday, and EUR is just a whisker away from parity with the Dollar. Dollar Index is at 108.15 now, with EUR at 1.0025, GBP at 1.1880 and JPY at 137.10. The post-payroll USD strength continued into yesterday’s session and equities in the US had a negative day. NASDAQ fell 2.2% , dragging S&P 500 by 1.1%. US 10y fell sharply again to the 2.95% level, indicating the risk aversion and safe-haven demand for USD are strong. Indian indices managed a flattish close, but Asian markets are cautious today over overnight market moves.

INR continues to be under pressure though large jumps, characteristic of a panic situation, are absent. There is a steady but sure depreciation of the Rupee. RBI has been trying to relieve some pressure through some regulatory relaxations. RBI has opened up international trade and invoicing in the Rupee, probably aimed at the oil invoicing from countries such as Russia. Over some months, there could be some invoicing in INR, reducing pressure on the trade deficit-related Dollar demand. But any such development is some time away, and the global situation is dicey enough for the Rupee to remain vulnerable in the coming months. The next stop for the markets is the US CPI data release due tomorrow.

INR under pressure on good US jobs data. US CPI is due this week.

(11th July 2022, 7:30 AM)

INR likely to open around 79.30

Dollar is strong, and Asian markets are tentative as the week opens ahead. Friday saw US yields rising again, as inflation fears got fanned more by the good US jobs and wage growth data. The US payroll data showed 372k jobs added against an expectation of 270k. While wage growth is lower than the previous month, it still is above 5%. Dollar Index is now at 107.15, with EUR at 1.0140, GBP at 1.1990 and JPY at 137. US 10y is higher at 3.1%. US equities ended Friday flattish, and Indian indices had a 0.5% kind of a day.

This week has the all-important US inflation data, expected to show a continuing pressure on prices. Also important are US retail sales data in the period of a potential recessionary scenario. US jobs data showed that the labor market is healthy still, and retail sales could show how consumption in the US economy is doing. The Fed’s hawkishness and the relative performance of the US economy against the other global regions such as the EU has created a ground for further Dollar strength, especially against the EUR.

INR remains in a zone of pressure as US inflation dynamics and the contributing factors refuse to die down anytime soon. Risk assets managed a quiet week last week, but any bounce in markets is a dead-cat bounce at this point. Structural and fundamental factors continue to be against the Rupee and it is a matter of time before the next bout of sharp Rupee depreciation and risk asset fall is due.

Structural pressure on the Rupee remains very much intact.

(8th July 2022, 7:30 AM)

INR likely to open around 79.10/15

Dollar held on to its gains as markets now await the US jobs data today. Dollar Index is at 106.80, with EUR at 1.0175, GBP at 1.2040 and JPY at 136. Equity markets have been having a mini recovery over the past few days. DOW closed 1.1% yesterday and the NASDAQ ended 2%+. Indian indices also had a solid 0.9% jump.

INR has been buffered from more depreciation due to the news of some pro-Rupee measures from the RBI such as removing CRR requirements for FCNR deposits and such. More than the real impact of such moves, the sentiment that the RBI wants to control INR depreciation helped the Rupee a bit. With Oil also down from the recent highs, the pressure on the Rupee has abated mildly. But the structural pressure on the Rupee remains very much intact. The global scenario is still very tentative and a volatile phase in markets is just an official comment or a data event away. Any dip in USDINR would be a good buy.

INR stable amid Dollar surge.

(7th July 2022, 7:00 AM)

INR likely to open around 79.10

INR was able to hold a range despite the raging Dollar yesterday. Dollar surged yesterday against most currencies, especially the EUR and GBP. Dollar Index is now at 106.90 with EUR at 1.1185, GBP at 1.1925 and JPY at 135.85. US equities managed a positive day with around a 0.3% gain. Indian indices had a good day with 1.2% jump. US yields are slightly higher, and the 10y is close to 2.9%. US ISM services data came in better than expected, but the employment component of the data is suggesting ebbing demand for labor. FOMC minutes were in line with expectations. The data did not lead to any change in the market calibration of recession and Fed actions.

Oil is finally reacting to the global recession fears and potential demand drop. Brent fell more almost 9% yesterday and is now trading just around 100. This factor is a positive for the Rupee, plagued by a high trade deficit and oil import and can help INR from a sharp depreciation in the immediate term. USDINR could now be expected to be back into the new range between 78.80 and 79.30 for a few more days. The next important data point is the US jobs report on Friday.

USD surges as recession fears pick up. Rupee is very vulnerable.

(6th July 2022, 7:30 AM)

INR likely to open around 79.30/40

Dollar rampage moved into a new gear yesterday on safe-haven demand for Dollars and after bad data out of the EU region hurt the EUR. Dollar Index is sharply higher at 106.30, with EUR down to 1.0265, GBP at 1.1960 and JPY at 13570. US long-term yields continue to fall and even the 2-5 segment of the yield curve is now inverted. The yield curve is indicating a recession and the potential for rate cuts in the coming years. US equities managed a positive day, driven by tech stocks. Indian indices ended mildly lower (by 0.2%). US 10y is at 2.8%. Oil fell sharply after the Saudi news, and Brent is now at 105.20.

The EU PMI data triggered a sharp correction in the EUR yesterday as the data suggested that the EU is also heading into recession potentially leading to lower inflation and a less aggressive ECB later. The fact remains that a global recession has already started, even as central banks are at the initial stage of the rate hike cycle. The medium-term consideration for the markets would be whether risk aversion due to potential recession dominates or whether the comfort around the peak in inflation and less aggressive central bank action provides comfort.

USDINR has broken its recent range and is now headed higher, as the global Dollar strength refuses to abate. The biggest risk for the Rupee in the coming months is a scenario of stagflation, wherein inflation settles at a high enough level for central banks to worry and an economic slump hurts markets. For now, INR remains very vulnerable to continuing Dollar strength and risk aversion.

INR remains range-bound. Trade deficit highlights structural problems for the Rupee.

(5th July 2022, 7:00 AM)

INR likely to open around 78.95

Dollar is slightly stronger, and the US yields are mildly higher as inflation and Fed action remain the primary focal points for the markets. Yesterday, being a US holiday, was relatively event free. Indian Indices closed in the positive zone. Nifty ended 0.6% higher. Dollar Index is currently at 104.90, with EUR at 1.0430, GBP at 1.2115 and JPY at 135.95.

USDINR has settled into a new range, but the underlying pressure on INR has not yet dissipated at all. The latest India trade deficit at 25+ billion only goes to show the structural pressure on the Rupee, at a time when there are significant outflows on the FII front. The short-term behavior of the Rupee is difficult to predict and could be range-bound, waiting for the next data points such as FOMC minutes, US ISM and then the jobs data. The medium-term direction, though, is clearer for the Rupee and a move towards the 80+ mark is on the cards in the next few months.

INR stable, for now, data heavy week ahead.

(4th July 2022, 7:00 AM)

INR likely to open around 78.95

Dollar remains strong and Asian markets have opened cautiously ahead of an important data-filled week. Dow futures are down, Dollar Index is at 104.80, with EUR at 1.0430, GBP at 1.2105, and JPY at 134.95. US 10y continues to trade lower, now at 2.88% as recession fears increase the safe-haven demand for US treasuries.

This week has some important data releases culminating in the US non-farm payroll data on Friday. The minutes of the last FOMC minutes are also due this week, along with ISM data. Atlanta Fed’s GDP now is forecasting a negative GDP growth for Q2 implying that the US is already in a technical recession. Markets have already started to factor in rate cuts in 2023 by the Fed, as the recession forces the Fed to cut down on their aggression. On the other hand, persistent inflation means more rate hikes this year, and more importantly, continuing liquidity withdrawal.

INR remains vulnerable, though the momentum which took USDINR to 79 has stalled for now. While the medium-term direction remains towards more Rupee depreciation, the short-term moves are data-driven. This week could see more volatility in the Rupee and markets as important data points shape the tug-of-war between recession and inflation fears. One point which can be made with reasonable certainty is that there is not much upside for the Rupee left anymore. Indian trade deficit data, due today, is also expected to put the spotlight back on the structural problems affecting the Rupee.

INR holding on, but the global environment is not amenable.

(1st July 2022, 7:00 AM)

INR likely to open around 78.95

Dollar is slightly higher, US 10y lower, and equity markets are jittery as recession fears and inflation concerns continue to dominate market sentiment. Dollar Index is at 104.75, with EUR at 1.0470, GBP at 1.2155 and JPY at 135.95. US 10y has fallen below 3% as inflation and Fed hike fears are negated by recession and a potential rate cut possibility in the future. DOW ended the quarter on a negative note, with a 0.8% draw. Indian equities ended flat and are set to see more caution today.

The US PCE inflation data showed that inflation is in the process of peaking. But, given the sheer gap between the current inflation and the Fed’s target, the FOMC would continue to be aggressive on inflation. The US economy is on the verge of a recession, going by the latest GDP, PMI, retail and personal spending data. The question for the coming months is whether the Fed would blink on their rate hike strategy once the recessionary scenario becomes more apparent.

USDINR is holding on to the zone just below 79. Given the global backdrop and economic slowdown fears, any meaningful appreciation in the Rupee is unlikely from here. The short-term might see sideways movement as the incoming data is not disruptive enough. The coming US jobs data and then the US CPI report could trigger more moves. That said, as the global environment is one of risk aversion and fear, outsized moves in markets can occur on any given day without any palpable trigger and we must be wary of that fact always.

INR remains vulnerable. US PCE inflation ahead.

(30th June 2022, 7:30 AM)

INR likely to open around 78.90

Dollar traded higher after Powell spoke hawkish yesterday on the need to curb inflation even at the cost of causing slower growth. Dollar Index is at 104.65, with EUR at 1.0445, GBP at 1.2130 and JPY at a new high of 136.60. US 10y continues to be subdued as recession fears keep long-term rate expectations managed. US equities ended the day flattish, but the undertone remains that of cautiousness. DOW ended 0.3% higher, and S&P 500 ended flat. Indian equity indices closed moderately lower, by around 0.3%.

INR has managed to hold below 79 for now, but the writing on the wall is clear for the Rupee. Today’s US PCE inflation might trigger a minor move in currencies tomorrow. But, Powell’s comments show that the Fed is willing to cause a recession to fight inflation. Most markets are not prepared for long-drawn recessionary conditions and many structural problems such as ballooning fiscal deficits across the world would come to the fore sooner than later. INR might hold on for a while in the short term, but a sharp-up move in USDINR is always on the horizon.

INR is under pressure. Structural problems catching up with the Rupee.

(29th June 2022, 6:30 AM)

INR likely to open around 79

Rupee saw a sharp fall yesterday, as continuing risk aversion, outflows and high crude prices finally have found their way into the USDINR level. The overnight Dollar strength and fall in equities have ensured that USDINR trades above 79 in the NDF market. Dollar Index is at 104.25, with EUR at 1.0525, GBP at 1.2190 and JPY at 135.15. DOW ended 1.6% lower, and NASDAQ crashed 3%, as inflation and recession fears continue to simmer in the background. Indian indices managed a flattish close yesterday, but are set for some losses today.

USDINR has gotten a new momentum and the Rupee is finally reacting to the underlying factors in a decisive way. For the past few weeks, the Rupee could not manage any benefit despite the global Dollar stability and return of risk appetite in equity markets. Now even the momentum has shifted firmly towards depreciation, and the coming US PCE inflation and then the trade deficit data could add more reasons for further Rupee weakness. USDINR could not move towards 79.50 to 80 soon unless there is a sharp reversal today/tomorrow.

INR remains under pressure despite global stability. More focus on PCE & Trade Deficit data this week.

(28th June 2022, 7:00 AM)

INR likely to open around 78.40

Rupee remains under pressure despite the favorable global market situation and mild weakness in the Dollar. Dollar Index is flat at 103.70, with EUR at 1.0580, GBP at 1.2280 and JPY at 135.40. US 10y remains subdued, now trading at 3.2%. US equities broke the winning streak and ended lower, with DOW down by 0.2% and NASDAQ lower by 0.7%. Indian equity indices closed higher by 0.8%.

USDINR is not able to break below the 78 mark, despite stability in the Dollar. Unlike the earlier phases where even slight positivity or lack of negative global developments used to lead to INR strength, the current move is reflective of the general cautiousness around EM currencies and the problems around the domestic trade deficit. The bias remains towards more INR depreciation, and this week’s data on PCE and then trade deficit becomes critical.

INR stable. US PCE inflation this week.

(27th June 2022, 7:00 AM)

INR likely to open around 78.25

Dollar is stable at Asia open and US equity futures are slightly lower, after having closed well on Friday. Dollar Index is lower at 103.75, with EUR at 1.0565, GBP at 1.2285 and JPY at 134.70. US 10y is at 3.13%. DOW ended Friday with a solid 2.7% jump, and NASDAQ surged 3.35%. Indian indices had a good day on Friday at 0.9%, with a positive start expected today.

USDINR is slowly inching up, waiting for the next set of data points from the US. This week’s US PCE inflation is expected to provide an indication of whether the inflation has peaked. INR remains under pressure, but the short-term outlook is stable for now.

INR stable amidst calm global markets. Recession scenario is back in focus.

(24th June 2022, 8:00 AM)

INR likely to open around 78.10

Dollar is stable, but equities had a good day yesterday as markets weigh in potential recession concerns against inflation concerns and fed action. Powell reiterated that the Fed is committed to inflation control and that the Fed’s balance sheet size can potentially be reduced by 2 to 3 trillion USD. While markets downplayed the statement, it remains to be seen if such a large reduction in liquidity can be tolerated by markets eventually. US PMI numbers came in sharply lower, indicating a significant slowdown in the US. There are now two opposing views being played out: a. recession leading to a sharp fall in demand and then inflation which stops Fed hikes b. recession leading to a crash in earnings and market panic more than the benefit of lowering the inflation. Each day, depending on which view is dominant, markets would behave accordingly.

Dollar Index is at 104.10, with EUR at 1.0530, GBP at 1.2270, and JPY at 134.85. US yields are lower as recession odds increase. US 10y is at 3.1%. DOW ended 0.65% higher, and Nifty rose 0.9%. USDINR continues to be in a narrow range. While there is some calm in markets for now, more would depend on the next inflation data points along with the GDP/recession-related data. For now, a range-bound USDINR is a base-case scenario.

USDINR in limbo. Fed’s Powell signals a hawkish stance to continue.

(23rd June 2022, 7:30 AM)

INR likely to open around 78.10/20

Dollar is stable and equities are cautious after Powell’s testimony in the US Congress made it clear that the Fed would be aggressive to fight inflation. He also said that the US economy can withstand higher rates, though he did mention that a recession might be a possibility due to rate hikes. Dollar Index is lower, at 104. EUR is trading at 1.0560, GBP is at 1.2240 and JPY is at 135.85. US 10y is lower at 3.16%. DOW ended 0.15% lower and Indian Nifty ended down 1.4%.

There is not much to write about on USDINR these days. Currencies have settled into a range as has the Rupee. As markets come to terms with the Fed rate hike cycle and the balance sheet reduction, there is always that chance of a sudden crash, as the impact of the liquidity withdrawal is finally realized one day. The timing of the next surge in USDINR is difficult to point out, but it could be triggered by a data point or just technical aspects in the markets. The new range above 78 is solidifying and the possibility of an appreciation move down is minimal. We must just wait for the next leg of the Rupee evolution higher, though the timing of the move is difficult to assess.

INR stable as risk appetite improves.

(22nd June 2022, 7:30 AM)

INR likely to open around 78

Risk appetite made a comeback yesterday in equities, but Dollar traded fairly strong. Dollar Index is now at 104.40, with EUR at 1.0505, GBP at 1.2250 and JPY at 136.10. The move in the Yen continues unabated as the BOJ refuses to budge from their interest rate policy stance. Equities had a solid day yesterday with the DOW registering a 2.15% jump and Indian indices seeing a rise of 1.8-2%.

With no real data or events on the horizon for this week, markets seem to milk the calm period for some gains. Dollar might see slight weakness if the risk appetite holds for the next few days. INR has not benefited much as yet and remains stable around the 78 mark. Since structurally INR remains very vulnerable, the potential upside to the Rupee is anyway minimal and any dip in USDINR is always a good buy.

INR is stable and range-bound. Global markets await the next clues on inflation.

(21st June 2022, 7:30 AM)

INR likely to open around 77.95/78

Markets, in general, were range-y yesterday and overnight trading was muted as yesterday was a US holiday. Dollar is slightly weaker, and equities are mildly higher. Dollar Index is at 104.10, with EUR at 1.0530, GBP at 1.2265 and JPY at 135.10. US 10y is at 3.3%. Indian indices closed 0.5% higher. Oil is in its range, with Brent at 115 handle.

INR is waiting for direction, which could come from the month-end’s US PCE numbers. While there is a lull in the markets for now, focusing back on the US inflation could stir things up for markets. USDINR could move in a tight range and the Rupee might even appreciate a bit in the next few days. The longer-term structural picture of the Rupee remains shaky.

INR stable. Markets await direction from the next cycle of data points.

(20th June 2022, 7:00 AM)

INR likely to open around 78

Friday marked the end of the FOMC week, with muted moves in currencies. Dollar Index is at 104.45, with EUR at 1.0495, GBP at 1.2225 and JPY at 135.25. US equities ended Friday on a positive note, though the rally is meek in comparison to the falls seen earlier. US 10y is at 3.25%. USDJPY shot up higher, as the BOJ reiterated its commitment to the zero-interest-rate policy. Indian indices ended lower by 0.25%.

INR managed to hold on to the new range above 78 despite the Dollar strength and aggressive Fed. Sharp market panic and risk aversion are yet to hit markets as there is still some hope that the Fed might not push the economy into a recession. But dark clouds are circling the world economy and if the inflation measures do not move down quick enough, there is a clear danger of sharp market panic. In the short-term, the upward momentum of USDINR has stalled and the moves from here would be based on Fed comments and risk appetite changes until the month end’s US PCE inflation report.

USDINR stable amidst global equity crash. Dollar weak on falling US yields.

(17th June 2022, 7:00 AM)

INR likely to open around 78

While equity markets continued to panic on recession fears, Dollar reversed its strength as US yields crashed overnight. The US 10y fell to 3.25%. DOW fell 2.4% while S&P 500 fell 3.2% and NASDAQ by 4.1%. Dollar fell sharply and the Dollar index has ended below 104. EUR is at 1.0530, GBP is at 1.2320 and JPY is at 133.25. The fall in US yields is due to a recalibration of recession and hence potentially rate cut/QE possibility in the coming years.

The interesting phenomenon happening now is that Dollar weakness, despite the risk-off sentiment, is primarily due to the shrinking of the yield gap with the major currencies. This might not apply to EM currencies yet due to the environment of risk aversion. As we keep reiterating, EM currencies and INR remain very vulnerable to the coming wave of market panic as every major central bank in the world starts hiking into a global recession. As for crosses, we must wait to see how long this reversal in the Dollar will continue. Structurally though, Dollar remains strong across the board still.

USDINR remains biased upwards, but it has avoided the large moves typical of risk-off sentiment. One cannot put a timeline to the eventual move higher as yet. USDINR could continue to meander along in a range for now and each day is a new day for markets in the current scenario.

Fed hikes 75 bp. INR is stable but vulnerable.

(16th June 2022, 7:00 AM)

INR likely to open around 78

Dollar traded slightly lower and US yields fell after the FOMC delivered a 75 bp hike, as predicted by market prices. Powell said in the press conference that the recent inflation print led them towards a 75 bp hike. The dot plot of the FOMC projects significantly higher rates than the previous dot plot in the March meeting. The FOMC projects a median Fed funds rate of 3.4% by 2022 implying another 7 hikes by the year-end. Powell said that he would expect 50-75 bp hikes in the next couple of meetings. Markets are pricing in 7-8 hikes by Feb 2023. Powell commented that they are committed to move until inflation shows signs of decrease.

Markets had a relief rally after the Fed hike announcement that it is not a 100 bp hike. DOW jumped by 1% and NASDAQ by 2.5%. Dollar index is lower at 104.65, with EUR at 1.0455, GBP at 1.2175 and JPY at 134.50. US 10y fell by 10 bp, now at 3.35%. Indian indices were lower by 0.3% odd but can be expected to open steady today.

Despite yesterday’s relief rally, the fact remains that the US economy is moving towards negative GDP this quarter. The retail sales data of yesterday came in lower than expected and in the negative territory. While the Fed is committed to a 50-75 bp hike, the broader question is about how the FOMC would handle the recession and potential market panic in the coming months.

USDINR could continue in a new zone, as the market reaction to the Fed hike has been along expected lines. We must wait for a couple of days to see if there is a delayed reaction to the Fed hike. For now, there is no runaway depreciation visible in the Rupee over the next few days. The structural long-term depreciation bias is very much alive though.

FOMC today. USDINR in a new range.

(15th June 2022, 6:30 AM)

INR likely to open around 78/78.20

An uneasy calm prevailed in markets ahead of the Fed decision today. Dollar is slightly weaker, but the US 10y has surged higher and the US yield curve has flattened, signaling impending recession. DOW ended 0.5% lower, US 10y is at 3.45%, the Dollar Index is at 105.10 with EUR at 1.0440, GBP at 1.2015 and JPY at 135.20. Markets now expect a 75 bp hike and a total of 11-12 hikes are priced in by Feb/March 2023. The big question now is how far the Fed will move before recession hits and markets crash.

INR is now in a new zone and could meander along waiting for the Fed decision. As we reiterate, unless there is a sense of panic in markets and a fall in US 10y (due to safe-haven buying) USDINR would not see that volatile surge, but rather would go through a slow grind higher. Today’s FOMC can provide some direction to the next leg. On the domestic front, India’s CPI came in lower than last month’s, at 7.04%. The print would not make much difference to the currency markets, as the WPI continues to be high (15.9%) suggesting future CPI inflation. INR is now primarily driven by global central bank activity.

Inflation fears wreak havoc. INR remains under pressure.

(14th June 2022, 7:00 AM)

INR likely to open around 78.10/15

Dollar continued to hold strong and equity markets crashed worldwide for yet another day yesterday. The latest red hot inflation report has now led to fears that the Fed would hike 75 bp in tomorrow’s policy decision. US yields continue to move higher, and the yield curve is flattening fast. US 10y continues its relentless surge, now at 3.38%. Dollar Index is around 105, with EUR at 1.0420, GBP at 1.2150 and JPY at 134.00. US equities fell sharply yesterday. The DOW fell 2.8%, S&P 500 by 3.9% and NASDAQ by 4.7%. Indian indices bore the full brunt of the global inflation panic, with the frontline indices falling 2.7%.

INR has depreciated into a new zone now, and the next leg depends on the FOMC meeting tomorrow. In addition to the inflation and the Fed policy, INR and Asian FX have another potential risk factor to face – the Japanese monetary policy and a disruptive crash in JPY. JPY has borne the brunt of the BOJ policy of keeping rates at zero and continuing the excessive money printing to hold bond yields down. The risk of a super-large money printing exercise leading to a drastic loss of confidence in JPY in the coming months is one risk factor for China and Asia flows to watch. For now, inflation and the Fed remain the dominant themes for all asset classes including INR.

If the FOMC does go for a 75 bp hike, they would have contradicted their own statements that 50 bp orderly hikes are the default. As of now, markets are pricing in a 90%+ probability of a 75 bp hike. INR is clearly in trouble, just that the quantum of the move is the moot point. We have to wait now for the FOMC policy tomorrow.

USDINR up on high US Inflation. FOMC this week.

(13th June 2022, 6:30 AM)

INR likely to open around 78.10/15

Dollar surged and equities and bonds sold off after the US inflation rose more than expected last month, per the data released on Friday. US CPI rose 8.6% – a 40-year high. Core CPI also jumped more than expected. DOW fell 2.8%, and NASDAQ crashed 3.5%. Dollar Index has jumped to 104.15, with EUR close to 1.05, GBP at 1.2290 and JPY at 134.70. US 10y rose to 3.16%. The rise in US 10y and the steady USDJPY level indicate that markets still are not yet in a risk-aversion mode and the market fall is primarily due to expectations of more rate hikes. Indian indices also fell 1.7% odd and more could be expected today.

USDINR would breach 78 today but given that the market situation is yet to turn into an all-out panic, we have to watch if USDINR would settle into a new range rather than run towards 80. This is an FOMC week, and the latest inflation data complicates matters for them. Markets have already started to consider the possibility of a 75 bp hike at this meeting. The next key aspect to note would be if the previous bout of market panic as happened last month can repeat post the FOMC or not. While INR continues to be under pressure, the magnitude of the coming move is yet uncertain and can be clearer post FOMC on the 15th.

USDINR drifting up slowly. Critical US inflation data today.

(10th June 2022, 7:30 AM)

INR likely to open around 77.80

Dollar is higher ahead of the crucial US CPI release today. US equities fell sharply as fears of persistent inflation remain the dominant theme in markets. US yields continue to be high, with the 10y at 3.05%. Dollar Index is at 103.30, with EUR at 1.0620, GBP at 1.2485 and JPY at 134.25. Indian indices ended 0.8%+ higher yesterday but are set to give up the gains back today.

INR has been gradually weakening but through almost imperceptible moves. As we mentioned earlier, the market reaction to the Fed cycle can be divided into two phases. The first phase is characterized by gradual market fall, rising long-term US yields and weak JPY as the risk aversion theme is dominated by the fact of yield differential with the US. In this phase, EM currencies such as INR tend to fall moderately. We are still in this phase as markets still seem to think there is the hope of soft-landing of the global economy.

The second phase is typically the panic phase wherein US yields fall due to risk-aversion and safe-haven buying and equities show continuing panic and volatile behavior. Markets seemed to get into this mode a month ago but reverted to phase 1. The risk now is that USDINR would move up gradually until it does not. Once panic hits the markets, there could be a very quick depreciation move towards 80 levels. The timing of the move is still moot. For now, the short-term Rupee might still be stable for a few weeks possibly if the next FOMC turns out to be as expected.

INR stable post-RBI hike. Tom’s US CPI is next.

(9th June 2022, 7:00 AM)

INR likely to open around 77.75

Dollar is stronger primarily against JPY, and is muted against other majors. USDJPY has shot through 134, as the BOJ is now faced with a hard choice of letting JPY go or to temper down their insistence on zero rates. Dollar Index is at 102.60, EUR is at 1.0715 and GBP is at 1.2530. DOW fell 0.8% yesterday as equity markets continue to hover in a range with no incentive to move much higher. ECB meeting is awaited today, to see if yet another central bank is set to move towards tighter rates.

INR is fairly stable, after the RBI hiked rates by 50 bp, more or less as expected. The policy was hawkish as they upped their annual inflation forecast higher by 1%. We can expect continuing rate hikes in the next few meetings. Indian equity indices fell 0.3% odd after the policy. The aggressive stance from the RBI is not in Rupee’s favor as the economic impact of the move would keep equities jittery and the rate hike cycle leads to higher yields resulting in potential outflows.

Markets are awaiting the all-important US CPI number tomorrow. USDINR could remain in its tight range until that data. But the longer the range-y behavior of the Rupee drags on, the sharper would be the next surge, likely towards INR depreciation.

USDINR stable amidst stable risk sentiment. RBI policy today.

(8th June 2022, 7:00 AM)

INR likely to open stable at 77.70

Dollar remains bid and equities positive as markets wait for the US inflation data this weekend. Dollar Index is higher as USDJPY continues to surge higher since the BOJ is the only major central bank adamant about continuing the low-interest-rate policy. Dollar Index is at 102.50, EUR is at 1.0690, GBP is at 1.2580 and JPY is at 133. The weakness in JPY would have implications for markets and the Bank of Japan can potentially intervene soon. The move in JPY could put more pressure on China to devalue their currency more and in that eventuality, there could be some more risk aversion sentiment setting in markets.

DOW ended higher by 0.8%, aided by tech stocks. Indian indices though fell yesterday by 1%. INR is stable ahead of the RBI monetary policy decision today. More important than the rate hike would be the narrative set by the RBI on the global market situation and the domestic inflation situation. Unless there is a drastic deviation seen in the policy, INR might not see much impact. USDINR is set to remain in its range for a few more days and the magnitude of the next move would depend on whether there is a resurgence of risk-off sentiment after the inflation data and the next FOMC meeting.

USDINR in range. US yields sharply higher.

(7th June 2022, 7:00 AM)

INR likely to open around 77.75

Dollar is strong and US yields are sharply higher, as inflation fears pick up steam. US equities ended moderately high, and the move up in USDJPY is indicative of the fact that market panic has subsided a bit despite the inflation threat. The panic stage is yet to solidify in markets, and one can say that equities are going through a small bear market rally in most geographies. Dollar strength remains firm, though the magnitude of the move against EUR and GBP is smaller than the previous move still. JPY is suffering due to the yield differential between the US and Japan, and the risk aversion dynamics (which usually strengthen JPY) are yet to be seen.

Dollar Index is above 102.60, with EUR at 1.0675, GBP at 1.2510 and JPY weaker at 132.60. US 10y has crossed 3% again and is now at 3.05%. DOW ended flat while NASDAQ and S&P 500 had gained around 0.3%-0.4% overnight. Indian equity indices fell marginally yesterday. Brent remains high, around the 120 $ mark.

INR is still in its range. Irrespective of the global Dollar dynamics at play, Rupee is always on the backfoot now. If risk appetite remains fine in markets, US 10y would move higher, putting at risk EM assets including the Rupee. On the other hand, risk aversion can lead to more Dollar strength due to safe-haven buying and hurt EM assets. The second scenario is more dangerous to the Rupee due to the potential for a more volatile move. For now, USDINR could remain in the range, and wait for the US inflation data on Friday.

INR is tentative but stable in a range. US CPI data this week.

(6th June 2022, 6:00 AM)

INR likely to open around 77.60

Dollar traded higher on Friday after a better-than-expected US nonfarm payroll data release showed a solid jobs market there. The data came in at 390k against 325k expected job additions last month. DOW ended 1% lower while NASDAQ fell 2.5%. Dollar Index is above 102, with EUR at 1.0730, GBP at 1.2500 and JPY at 130.70. US 10y inched higher, trading now at 2.94%. The rise in 10y and weakness in JPY indicate that risk-aversion is yet to take hold of markets. Indian equities ended flattish. Brent continues to surge and has breached 120 per barrel now, after Saudi Arabia has raised crude prices. High oil prices are set to worsen India’s trade deficit even more. Last month’s deficit came in at 23 billion and a sustained deficit at this level would be very difficult to handle for the RBI eventually.

INR remains biased towards more depreciation, though the lack of short-term risk-aversion sentiment is keeping the Rupee stable. Structurally, the high trade deficit eventually would lead to a meaningful depreciation in the Rupee. For now, USDINR could meander along in the current range waiting for the critical US inflation data due Friday. RBI monetary policy is due on Wednesday. A hawkish commentary and a rate hike from the RBI are expected. Any significant deviation from the expected policy stance could induce some movement in the Rupee, though the US CPI and then the next FOMC meeting (15th June) remain the decisive events for the immediate future.

USDINR range-bound, US NFP data awaited.

(3rd June 2022, 7:00 AM)

INR likely to open around 77.40/50

Dollar traded lower and equities higher as risk-on sentiment prevailed in markets yesterday. Dollar Index is now at 101.75, EUR is trading at 1.0755, GBP is at 1.2575 and JPY is at 129.70. S&P 500 ended 1.85% higher, supported by the surge in tech stocks (NASDAQ +2.7%). US 10y is stable at 2.91%. Indian indices closed 0.8% up and are set for more gains today.

Markets await US jobs data today. A weak payroll data would be bullish for markets, while higher than expected jobs number and/or wage growth numbers could lead to risk aversion due to renewed fear of Fed action. INR remains in a range as the ongoing risk-aversion is not persistent enough to cause the Rupee to break the range. The next critical data point for the Rupee is the next week’s US CPI release. For now, USDINR can be expected to meander along in a range.

Dollar strength resumes, but global risk appetite holding Rupee for now.

(2nd June 2022, 7:00 AM)

INR likely to open around 77.60

Dollar has started to regain some strength on the back of rising US yields. The current reversal is not due to panic in markets, but due to expectations of higher yields. There is an interesting phenomenon happening with respect to INR and USD. During market panic and Dollar strength due to risk aversion, INR is sharply depreciating against the USD. When there is relative calm in markets accompanied by rising US yields, the Dollar strength is not being felt as strongly as the Rupee. While the general direction for the Rupee is towards more depreciation, the pace of the move is higher in periods of strong risk aversion.

DOW ended lower by 0.5% odd yesterday. Dollar Index is higher at 102.60, with EUR at 1.0650, GBP at 1.2485 and JPY at 130. US 10y is higher, at 2.91%. American ISM and PMI data was slightly lower than expected, but not enough to move the needle on rate hike expectations. Indian indices closed lower yesterday by around 0.3%. India Q4 FY 22 GDP came in at 4.1% – as per expectations.

European CPI came in at 8%+ – indicating that the inflation problem is entrenched globally now, and hence most monetary policies would align towards more aggression in coming months. The short-term behavior of the Rupee could be muted, but the medium-term storm clouds are gathering fast for EM and INR. Continuing Dollar strength, inflation focus across the world, sagging global growth because of aggressive central banks, high trade deficit, and geopolitical conflicts are all detrimental to the Rupee. There is more to go for USDINR, but just the timing of the move is not yet clear.

INR is under pressure as global markets are in mild risk-off mode.

(1st June 2022, 7:30 AM)

INR likely to open around 77.80/90

US equities ended lower, and Dollar gained mildly yesterday after inflation became the focus of markets. A Fed governor made hawkish comments that the Fed must do 50 bp hikes every meeting until inflation is curbed. DOW ended lower by 0.7% and Dollar Index is close to 102. EUR is at 1.0715, GBP is at 1.2600 and JPY is at 129.15. Brent rose after EU leaders agreed to a phased ban on Russian oil imports. Indian equity indices ended down 0.65% odd.

INR is under pressure as the global Dollar weakness trend has stalled owing to higher oil prices and inflation focus. Since the Rupee could not really benefit from the recent Dollar weakness, it seems that even small changes to global Dollar trends and risk appetite dynamics can weaken the Rupee quickly. Further, focus on higher oil prices is also a negative factor for the Rupee. From now on, we would wait to see if there is a resurgence of risk aversion again in global markets, in which case, INR could depreciate quickly. But, if equities reverse today and remain in a bullish mode for a few more days, USDINR could remain below 78 and drift mildly lower. This month’s inflation data and the FOMC meeting next are the critical events for the Rupee.

INR is stable. Global risk-on sentiment holds.

(31st May 2022, 6:00 AM)

INR likely to open around 77.50

Markets are stable, and Dollar is weak as risk appetite is holding well in global markets. Yesterday was a US holiday. Dollar Index is at 101.40 with EUR at 1.0775, GBP at 1.2645, and JPY is at 127.80. US 10y is higher, at 2.8%, on lack of any risk-aversion led to safe-haven buying. Indian markets had a solid day, with the frontline indices registering a 1.9%+ rise.

While risk appetite remains firm, Rupee is not able to benefit fully yet. Despite the softer narrative that the Fed might not be as hawkish as feared, the reality is that inflation remains sticky and very high and markets would focus on the reality closer to the inflation data and then the FOMC meeting next month. For now, if the strong risk-on sentiment continues for a few more days, USDINR might drift towards 77.00, though any upside to the Rupee is going to be limited and short-term. Given the volatility, a sudden reversal in market sentiment is always on the cards in an unpredictable fashion.

USDINR remains range-bound, US inflation is in the topping-out process.

(30th May 2022, 6:00 AM)

INR likely to open around 77.50/60

Markets ended on a high on Friday and Dollar remained weak after the US PCE inflation data came along on expected lines and induced hopes that inflation might have peaked in April. There is a subtle shift building in the narrative- that even though inflation would remain high for some more time, the month-on-month price jumps would now remain low, and we have reached peak inflation. US core PCE inflation printed at 4.9%.

Dollar remains subdued, with the Dollar Index at 110.70, EUR at 1.0730, GBP at 1.2630 and JPY at 127.30. US equities ended sharply higher – S&P 500 gained 2.5% and NASDAQ ended 3.35% higher. Indian indices jumped 1.2% odd. There is a resurgence of risk appetite in equities for the moment, though it remains to be seen if the current move is durable enough to sustain the long-term fed action.

INR has not been able to benefit at all from the reversal in Dollar strength. At least, the resurgence in global risk appetite would ensure that there is no run-away depreciation in the Rupee for now. This week’s non-farm payroll data could create some flutter in markets leading up to the inflation data and then to the FOMC meeting. USDINR could remain in a tight range with a slight bias towards the downside until the next data triggers a meaningful move.

INR remains stable, risk-on sentiment prevails for now.

(27th May 2022, 6:30 AM)

INR likely to open around 77.50

Dollar remained subdued yesterday as risk appetite held well in equities. Dollar Index is lower at 101.70, with EUR trading at 1.0735, GBP at 1.2615 and JPY at 127.00. DOW ended higher by 1.6% and NASDAQ registered yet another 2.5%+ growth. Indian indices also had a green day with a jump of 0.9%. US 10y is stable at 2.75%. Brent continues to be elevated, now at 114.15.

US GDP came in slightly worse than expected due to a higher trade deficit, but the consumption part of the economy is still robust. Today’s PCE inflation data is more important for the Fed. INR remains vulnerable but stable for now. The next big moves would most likely be possible closer to the next month’s CPI and then the FOMC meeting. For now, the current range in USDINR might continue for a few days.

USDINR in range. FOMC minutes on expected lines.

(26th May 2022, 7:00 AM)

INR likely to open around 77.45/50

USD is slightly higher, US equities closed in the green, US 10y is stable and global markets are calm after the Fed minutes of the previous meeting released yesterday was along expected lines. Dollar Index is at 102, EUR is at 1.07, GBP at 1.26 and JPY is at 127.35. S&P 500 jumped by 0.9%, driven by a 1.5%+ move in NASDAQ after the FOMC minutes suggested that the Fed members are keen to front-load the rate hikes as expected by 50 bp in the next two meetings.

Today’s US GDP and tomorrow’s PCE inflation would provide more data for markets to assess if the economy is cooling off already due to tight financial conditions and if inflation has peaked. The hope is that the inflation itself would tame the economy further causing lower price gains later.

INR continues in the current range for yet another day. Unless the PCE inflation provides a further jolt to the markets, one can expect that USDINR would retain the current behavior until the next inflation data and then the Fed meeting. Equity markets have settled down after the sharp dips over the past couple of weeks, indicating that the sharp depreciation cycle for risk assets is yet to begin in a big way. For now, range-y INR remains the base case.

INR sticky despite global Dollar weakness. Risk-off undercurrent remains.

(25th May 2022, 7:00 AM)

INR likely to open around 77.40/50

Dollar is retreating fast, and Dollar index has fallen below 102 now. EUR is at 1.0725, GBP is at 1.2530 and JPY is at 126.95. US long-term yields fell yesterday and the 10y is now sharply lower at 2.75% indicating that risk aversion remains the underlying theme, and the Dollar fall against currencies such as EUR and GBP is just a recognition of the converging monetary policy stance across the globe. JPY is getting stronger despite the monetary policy divergence between the Fed and the BOJ, indicating that risk aversion is very much the dominant theme still. US equities could not manage gains yesterday after the Monday rise, and NASDAQ ended 2.35% lower, dragging S&P 500 down by 0.8%. Indian equities also ended lower by 0.5% odd.

INR is keeping in the range despite the Dollar weakness and hence there is a sudden jump in cross-INR rates, providing good opportunities for exporters. The retracement in the global currencies is not reflected in EM currencies as much, and this phenomenon could be temporary until inflation and other data come back to focus next month. The underlying risk-off sentiment could keep the Rupee hanging in the range above 77.00 for the next few days. Thursday’s US PCE inflation data can also disrupt markets if above/below expectations. For now, the Rupee remains vulnerable but stable.

INR stable as Dollar weakness continues.

(24th May 2022, 7:00 AM)

INR likely to open around 77.50/55

Dollar slipped yesterday against most global currencies as the trend of reversal in Dollar strength continues. Dollar Index has fallen to 102.25, with EUR at 1.0670, GBP at 1.2560 and JPY at 127.65. US equities managed a good start to the week, and the DOW rose almost 2% yesterday. Asia has opened muted, and US equity futures are down today morning. Indian indices ended flattish, and are set to open fairly cautiously today. US 10y is slightly higher at 2.84%, though not enough to indicate that risk aversion is receding.

INR has not managed to benefit much from the ongoing trend of weakness in the Dollar and hence the cross-INR rates have shot up higher in the past week or so. As more countries embark on inflation fighting stance, the Dollar strength due to monetary policy divergence would reverse until such time that a market panic and risk aversion would cause Dollar to again strengthen. There may be some more legs to the current strength in currencies such as EUR and GBP, but there could be a resurgence of Dollar strength depending on market risk appetite.

USDINR remains in the new range above 77.00 and is likely to remain there until the new set of macro data points create the narrative for the next move. The medium-term outlook for the Rupee remains unshaken – that of sharp depreciation potential.

INR in a range-bound amid stable risk appetite.

(23rd May 2022, 7:00 AM)

INR likely to open around 77.70

Dollar is mildly weak as the week opens to a stable risk appetite. DOW futures are up and Asia has opened calm. Dollar Index is at 102.80, with EUR at 1.0590, GBP at 1.2540 and JPY at 127.70. US 10y remains subdued at 2.81%. Equities closed last week on a positive tone, with the surge. DOW managed a flat close on Friday after the sharp Thursday jump and Indian indices managed a raging rally on Friday, with a 2.7% jump. The big question is if markets can sustain the same momentum this week or not. Given that the next set of market-moving data points is due the next month, markets might try and squeeze some more rallies this week.

INR has not benefitted much from the Friday equity revival and remains in a vulnerable zone. Structurally, the Rupee does not have much to look forward to over the coming months. For the next few days, INR could depend on the changing risk appetite day-on-day.

USDINR manages stability, but risk-off remains the base case.

(20th May 2022, 7:00 AM)

INR likely to open around 77.40

The Rupee managed to stay stable yesterday helped by the reversal in Dollar trend despite the raging risk aversion in equity markets. Dollar index is now below 103 with EUR at 1.0580, GBP at 1.2460 and JPY at 127.95. US 10y is at 2.86%. DOW fell 0.75% yesterday, but NASDAQ managed to hold on with a 0.25% cut. Indian indices bore the brunt of the previous day’s US equity crash and ended lower by 2.5%+. Brent remains elevated around 112.00.

Despite the strong risk-off sentiment in equities, currencies have managed to hold well against the Dollar for now. EUR is helped by expectations that ECB would start with a rate hike soon, thus reducing the policy divergence with the Fed. But the fact is that as all central banks across the world turn hawkish, risk assets would take a large hit sooner than later due to recession possibility. INR managed to reverse from the 77.80 levels for now, but continuing risk aversion would dent any prospect of sustained appreciation. We expect that the longer the Rupee manages to hold, the faster the ensuing depreciation could be, as eventually, INR has to catch up to the global inflation and rate hike dynamics in the coming months.

Rupee is under stress due to the risk-off wave. Equities starting to crack.

(19th May 2022, 7:00 AM)

INR likely to open around 77.80/90

US equity markets nosedived overnight with the DOW registering the worst day since the 2020 Covid period and the tech rout deepening with each day. Dollar reversed some of the losses of the previous couple of days and US long-term yields fell due to the risk-off flows into treasuries. Dollar Index is at 103.80, with EUR at 1.0490, GBP at 1.2350 and JPY at 128.50. US 10y yield fell 10 bp to 2.88%. DOW fell 3.6% and NASDAQ cracked 4.75%. Indian indices closed marginally lower by 0.2% yesterday but are set to open deeply in the red today due to the overnight risk aversion.

INR could not retain any significant gains yesterday despite a weak Dollar, indicating the inherent weakness in the Rupee now. The overnight risk-off wave could take INR above 78 also today. Structurally, the risk aversion phase seems to be solidifying in global markets, and hence INR is now on a secular depreciation trend. Unlike the previous hike cycles, this sharp market reaction has come much earlier in the cycle. And this time around, the Fed is not in a mood to heed to market tantrums and is set to push ahead with its inflation-fighting agenda. USDINR is set to go higher from here, the only question being whether 80.00 would be a possibility in this move or if a short-term reversal would happen. Either way, the medium-term outlook remains grim for the Rupee.

INR stable amidst Risk-on trade. Powell reiterates the inflation-righting strategy.

(18th May 2022, 7:00 AM)

INR likely to open around 77.35/40

Dollar fell sharply yesterday as risk appetite returned to markets. Dollar Index has fallen to 103.30, with EUR at 1.0550, GBP at 1.2490 and JPY at 129.20. US 10y moved higher to 2.98% in line with the increase in risk appetite. S&P 500 jumped 2% and NASDAQ by 2.75%. China’s moves around relaxing clampdown on their tech sector helped markets yesterday. Indian indices had a good day yesterday, with a 2.6%+ rise.

Powell reiterated that inflation is the bedrock of the economy, and the Fed would keep going with rate hikes until there is a clear sign of inflation falling. This statement is very hawkish in that he acknowledged that there would be some pain to the labor markets and the economy, but inflation remains the primary goal now. Yesterday’s move in risk assets could be simply a rebound rally due to the sharp correction of the last few weeks, and one must wait to see if there are any more legs to the current rally.

INR has benefited yesterday by 40 paise odd but has moved lower than the crosses. Given the overnight positivity, today’s markets could be stable. Powell’s statement goes to show that both the balance sheet reduction and the rate hike strategy would be pursued aggressively and the FOMC might risk some market panic in the process. In that context, we reiterate that any short-term rise in risk assets including INR is an opportunity to sell those assets. USDINR remains a buy-on-dip currency pair.

INR vulnerable. Risk aversion persists in global markets.

(17th May 2022, 7:00 AM)

INR likely to open around 77.80

Dollar traded stable to mildly lower while US equities ended yesterday weak. China’s economic data was a drag on markets yesterday. Dollar Index is at 104.15, EUR is at 1.0450, GBP is at 1.2330 and JPY is at 129.10. US 10y is muted, at 2.89%, as risk aversion continues to be the dominant theme in the market. Even though last Friday saw a sharp jump in US equities, this week has started on a subdued note and we have to watch how the markets will behave in the next couple of weeks before judging whether this is a long drawn market rout or just a temporary blip. Brent has shot back above 114, aided by news that Shanghai might open back soon. Indian indices traded slightly higher by 0.3% odd the previous day.

Even though there is some pause in the Dollar strength, INR remains vulnerable to the ongoing concern that central banks’ activities would bring about a global recession. With Brent also on the higher side, INR has little to look forward to in the coming months. The only question that remains with regard to the Rupee is whether the current move would sustain for longer period towards 79+ or whether there would be a temporary withdrawal back to below 77. The question could be answered by the next inflation data and then the FOMC meeting outcome. For the next few days, the Rupee’s behavior could be primarily driven by the day-on-day moves in equities and risk appetite changes.

USDINR is stable for now, but inflation fears abound.

(13th May 2022, 7:00 AM)

INR likely to open around 77.40

Dollar continues to surge ahead on concerns around the hawkish Fed. Dollar Index is at 104.82 now, with EUR at 1.0385, and GBP at 1.2205. USDJPY fell to 127.75 overnight but is now back above 129 now in line with market revival intra-day yesterday. The stability/fall in USDJPY despite Dollar strength is indicating that the current market environment is one of caution and potentially even panic. DOW ended the day in slight red after regaining most of the intra-day losses. DOW is down 0.3%, Nifty ended 2.2% in the Red, though today can see some stability. Brent is sharply higher – at 109.00. US 10y remained subdued throughout yesterday but managed to move higher during the later part of yesterday’s overnight session, now at 2.9%.

USDINR might stabilize in a new range above 77.00 until the next leg of the move becomes apparent. While there is a sense of apprehension in markets, it is yet to turn into an all-out panic. Powell reiterated yesterday that the Fed would continue to fight inflation and that there could be some pain in the process and indicated that two 50 bp hikes in the next two months is a done deal. On the domestic front, India’s CPI came in at 7.79% – an 8-year high. The high inflation is set to lead the RBI into a rate-hike mode and reduce the attractiveness of India for debt flows. INR is vulnerable now for a sharp move anytime and volatility could be the primary feature of markets now. There could be some blips in the form of appreciation of the Rupee and such blips can be used to buy USDINR for a higher level later.

US CPI is persistently high, Rupee remains vulnerable.

(12th May 2022, 7:00 AM)

INR likely to open around 77.40

Dollar remains strong, and risk aversion has deepened after the US CPI data yesterday showed persistently high inflation. The US CPI printed at 8.3% as against an expectation of 8.1%. While the number is lower than the previous month’s, markets felt that inflation would be sticky for a longer time at higher levels forcing the Fed to act more aggressively. US long-term yields fell on risk aversion led to safe-haven buying. US equities seemed like holding gains for the most part of the day, only to completely reverse into significant red by the end of the session (EU equities closed well in the green tracking the initial US market reaction).

Dollar Index is at 103.99, EUR is at 1.0520, GBP is at 1.2235 and JPY is lower at 129.75. The fall in USDJPY is indicative of the risk aversion sweeping markets. The US 10y fell 9 bp and is now at 2.89%. S&P 500 ended 1.65% down and NASDAQ closed -3.2%. Nifty was down by 0.5% yesterday and is set for more losses today on overnight US equity reaction.

INR is now under more pressure as the US CPI data suggests that the Fed has a long way to go before taming the inflation. There are clear signs of reversal in risk appetite now. Continuous day-on-day weakness in equities could fully reflect in USDINR in the coming weeks. With a high domestic trade deficit, India needs significant flows to keep INR stable, and as the flows also reverse, RBI has its task cut out in how the FX reserves would be used to stabilize the Rupee. We expect that the RBI would be fine with INR depreciation as long as it is in line with its global counterparts and is not excessively volatile. The march upwards of USDINR is now the base case scenario.

INR stable ahead of the all-important US CPI data.

(11th May 2022, 7:00 AM)

INR likely to open around 77.30

Rupee had a day of reprieve yesterday after a few days of sharp depreciation. Equity markets, especially in the US, tried to stage a comeback but faltered again yesterday and ended in slight red. DOW reversed a 500-point intra-day gain to end 0.3% negative. Dollar strengthened mildly, with Dollar Index back above 103.90. EUR is at 1.0530, GBP is at 1.2315 and JPY is at 130.40. US 10y bond yield continues to be below 3% on strong risk aversion. Indian equities managed a reasonably quiet day with around a 0.2% fall on frontline indices. Brent crude continues to give ground due to concerns around global growth in the coming months due to the ongoing rate hikes across the world. Brent is at 102.60.

The general rise in volatility across both equity and commodity markets is a risk factor in itself. This phenomenon is typical of the beginning of a risk aversion phase. The next few days would determine whether we are in for a long-drawn bear market or if the current phase is just a blip.

Markets are awaiting today’s US CPI data. Any positivity from the data, such as a lower-than-expected print, can lead to a short-term relief rally and potentially some appreciation in the Rupee. But any disappointment in the data can lead to a sharp, sweeping risk aversion. Today is a critical day for the short-term market outlook until the next Fed meeting in June. The broad theme, though, remains that of depreciation.

INR now cracking under pressure, risk aversion sweeping markets.

(10th May 2022, 7:00 AM)

INR likely to open around 77.40

USDINR has finally reacted to the relentless Dollar strength sweeping markets. Yesterday saw a deep fall in US equities, and US 10y fell sharply, indicating that the current move in risk assets is risk-aversion driven. Dollar in fact weakened mildly against some of the global currencies yesterday, as indicated by a lower Dollar Index, but the Rupee caught up to some of the past Dollar strength. Dollar Index is at 103.75, EUR is at 1.0560, GBP is at 1.2330 and JPY is at 130.05. The stability in USDJPY also indicates that the current theme is now risk aversion in markets. US 10y has fallen below 3% now, after being at 3.15% a day ago. US equities, especially the tech stocks, crashed yesterday. NASDAQ fell 4.3%, dragging S&P 500 lower by 3.3% while the DOW managed a 2% fall. Brent is lower, at 105.05, on worries of sagging global growth in the coming months.

USDINR is now catching up with the global Dollar phenomenon. Indian equities are slowly giving up ground, though not in a panicky mode. Nifty fell another 1% yesterday. Emerging markets have now started to crack slightly and are more at risk now as the risk aversion phase of the move is starting. Typically, the initial phase of a Fed hike cycle is about a rise in US yields across the board and potentially weakness in risk assets across the globe. The next phase is then driven by risk aversion, with a correction in US yields and a sharp fall in risk assets such as equities and EM currencies. The large depreciation of the Rupee in the past two days indicates that the second phase could be starting. The pace of the depreciation could decelerate sooner or later, but the general direction would remain intact.

INR is now firmly biased towards depreciation. US yield surge persists.

(9th May 2022, 7:00 AM)

INR likely to open around 77.05

Friday saw a sharp reversal in USDINR in line with the reversal in the US 10y yield and the re-emergence of risk aversion. DOW ended the day negative as did most equity markets. Indian indices fell 1.6%. Dollar remains strong, with the Dollar Index at 103.95, EUR at 1.0520, GBP at 1.2305 and JPY at 130.85. US 10y has reached 3.15% now, and the surge does not seem like stopping anytime soon. The rise in the long-term US yields remains the biggest risk factor for markets and the Rupee.

The week opened with markets in red across the board and Dollar continuing to surge. The US inflation data due this week could prove to be critical for the Fed’s thought process. While the headline number is expected to be lower (8.1%) than the previous 8.5% print, the risk to markets could intensify if the print comes in even slightly higher than expected.

The quick reversal in risk appetite and the long-term US yields just one day after the FOMC relief rally shows the underlying fault lines in markets. Friday’s US jobs data showed a robust jobs market with the addition of 428k jobs last month and a solid wage growth. In the backdrop of surging inflation, the Fed would be encouraged to stay hawkish as long as the wage growth is good and the jobs market is stable. As such, INR is struggling with a large trade deficit and a lack of inflows in the country. Any news/event which worsens the inflation picture is a negative for the Rupee and in that context, any good US data release is bad for the Rupee.

INR now has given up all its gains and the positive factors do not seem to have much to offer anymore. The bias has clearly shifted to weakness in the Rupee.

INR is back under pressure. Sharp rise in US yields.

(6th May 2022, 7:00 AM)

INR likely to open around 76.50

In a complete U-turn, the relief rally of the FOMC day reversed into a sharp fall in US equities due to a reversal in yields accompanied by solid Dollar strength yesterday. Dollar Index is above 103.60, with EUR at 1.0545, GBP at 1.2365, and JPY at 130.40. The short-term US yields have reversed the FOMC gains and rose by 10 bp and rate hike odds are back to the pre-FOMC level for 2022. The US 10y shot up to 3.1% yesterday, and currently is at 3.06%. S&P 500 fell 3.5% and NASDAQ cracked 5%. Indian equities had a flattish day yesterday but are expected to see some losses today. Brent rose yesterday, now at 110.30.

The complete reversal yesterday, though unexpected in such a short time, shows the risks underlying global markets. The start of balance sheet reduction would result in a lack of long-term bond demand in the face of a large fiscal deficit of the US government. Markets were comfortable with the 10y around 3%, but given the continuing rise, they are now spooked about how far the 10y would go.

INR could enjoy some stability for just a day but is back to being under pressure due to the rising US yields. Today’s US jobs data could also add to some risk for the Rupee if the print comes better than expected. The continuing rise in the 10y is now the primary factor to watch out for.

Relief after FOMC outcome, INR in a stable zone.

(5th May 2022, 7:00 AM)

INR likely to open around 76.05/10

Markets saw a massive relief rally and weakness in the Dollar after the FOMC decision yesterday. The FOMC raised rates by 50 bp as expected, and mentioned their intention to fight inflation. The balance sheet reduction plan is announced to start on 1st June, with a 45 billion run-off to start with, reaching a maximum of 95 billion per month. Powell assured markets in the press conference that FOMC would not hike more than 50 bp in a meeting and a 75 bp hike is off the table. Markets were relieved that the Fed would be gradual and no unexpected hikes would occur, triggering a large relief rally. The Fed pointed out that the monthly inflation data is stabilizing, indicating that there is some hope of stability on that front.

DOW jumped 2.8%, and S&P 500 rose 3%. Dollar fell sharply, with the Dollar Index trading close to 102.50. EUR is at 1.0625, GBP is at 1.2620 and JPY is at 128.80. Short-term US yields fell 10 bp, while long-term yields remained the same. Rate hike bets are now tempered down with more gradual hikes priced in than previously.

INR is now in a favorable position in the short term. RBI surprised markets with a 40 bp hike yesterday, ahead of the FOMC meeting. Indian inflation has also been running higher than the RBI’s comfort zone. The RBI seems keen that the interest rate gap with the US does not shrink too drastically causing large foreign outflows, given the large current account deficit. It seems that the RBI has chosen to keep the currency less volatile rather than keep rates low. The short-term boost to the Rupee due to the RBI hike would be temporary as the reality of continuing deficits and lack of inflows would come back to focus sooner or later. Indian equities reacted sharply with a 2.3% fall in frontline indices and any attempt by the RBI to keep pace with the Fed could lead to sharp outflows from equity markets and defeat the purpose of currency stability.

The FOMC decision was greeted yesterday in a very familiar manner, in that during the last cycles also, the initial hikes were welcomed with a relief rally only to be followed by market panic a few hikes down the line. The balance sheet reduction plan also proved to be one of relief to markets, as FOMC indicated that the maximum pace of reduction would be 95 billion.

With the LIC IPO being a positive factor, and not-too-aggressive Fed helping, the Rupee could remain in a comfortable zone for the next few weeks and some appreciation could also be possible in this period. Inflation remains sticky, especially with the China lockdown adding to supply woes and hence the medium to long-term prognosis remains the same for the Rupee. This FOMC presents a good opportunity for importers to accumulate hedges and for exporters to lighten some hedges through utilization.

INR stable ahead of FOMC today, LIC IPO also opens.

(4th May 2022, 7:30 AM)

INR likely to open around 76.40/45

Rupee and markets, in general, are stable ahead of the all-important FOMC meeting outcome today. INR is also helped by the potential flows expected due to the LIC IPO, though the extant of the benefit could be capped by the FOMC-related constraints. Dollar Index is at 103.42, EUR is at 1.0530, GBP is at 1.2500 and JPY at 130.10. US 10y yield continues to be high, around 2.98%. US equities ended higher yesterday, but equities would be tentative today ahead of the FOMC statement.

Markets expect two hikes today at least but would be keener on the FOMC’s plan on the balance sheet reduction. As of now, the expectation is that the balance sheet reduction would start soon at the stated pace of around 95 billion a month. Depending on the tone and tenor of the statement and Powell’s press conference, markets would try and decipher if the FOMC wants to be more aggressive than the current plan on the balance sheet reduction.

INR has managed to stay stable despite the rampaging Dollar. Most global currencies have fallen 10-15% in the recent few months, while INR fell just 2-3%. As FOMC continues its fight against inflation, a few months of aggressive hikes and reduction in liquidity can trigger the next leg of the INR move. The timing of the move though is moot.

INR remains in a range. Awaiting for the crucial FOMC this week.

(2nd May 2022, 7:30 AM)

INR likely to open around 76.50

Dollar is slightly lower despite the economic data on Friday showing persistent inflation. The strong PCE inflation report indicates that the US inflation remains very stubborn, and adding to concerns is the US consumer spending data which showed strong consumption. While the Dollar came off from a multi-year peak, US equities ended April with a sharp fall. S&P 500 fell 3.6%, and NASDAQ fell 4.2%, primarily due to a 14% crash in Amazon shares.

Dollar Index is at 103.40 now, with EUR at 1.0525, GBP at 1.2560 and JPY at 130.10. The JPY weakness indicates that widespread risk aversion and panic are yet to set in. US 10y is sharply higher, at 2.94% now, indicating that the fall in US equities was due to inflation concerns and not due to systemic panic. Indian indices fell 0.8% on Friday and are set for more weakness today. Markets would be focused on the May 4th FOMC meeting outcome and hope that the FOMC would opt for a softer hike and balance sheet reduction stance.

USDINR could continue the range-y behavior for the next two days until the FOMC outcome provides some direction. The medium-term risk factors continue to develop in the background, as long as inflation data shows persistence.

INR steady on improving risk appetite, global Dollar strength intact.

(29th April 2022, 6:30 AM)

INR likely to open around 76.60

Rupee has managed stability despite the sharp Dollar move of the past couple of days, and yesterday was also one such day. Dollar rose against most currencies, and especially against JPY where 130 on USDJPY was convincingly breached. Dollar Index is at 103.60, with EUR at 1.0510, GBP at 1.2485 and JPY at 130.75. USDJPY move was a result of the Bank of Japan’s policy of holding on to the zero yield strategy despite the rate hike stance of most other central banks. US equities enjoyed a sharp reversal in risk appetite, with S&P 500 registering a 2.5% jump. Indian indices also had a solid day and ended 1.2% higher. US 10y is steady at around 2.82%.

Risk appetite has steadied well, and the fear of an equity market panic has now abated in the short-term. In our view, it is only a matter of time before another bout of panic sets in. Conditions are not favorable for sustained positivity in equities and other risk assets. For now, INR seems to be getting into a comfortable position, aided by the LIC IPO news and general revival in risk appetite, until at least the next major event – the FOMC meeting.

INR manages some stability on IPO news, global Dollar remains strong.

(28th April 2022, 7:00 AM)

INR likely to open around 76.50

Risk appetite returned somewhat, USD continued to strengthen, and US yields were up slightly yesterday. Dollar Index is at 103.10, with EUR at 1.0550, GBP at 1.2535 and JPY at 128.75. DOW managed a positive close with a gain of 0.2%. US 10y has risen to 2.81% due to the stabilizing risk appetite. Indian indices fell 0.95%, influenced by the previous day’s US markets. Brent is higher at 104.60.

INR has managed to stay afloat, despite a shaky risk appetite for now. The announcement of the LIC IPO dates has helped the Rupee to buck the Dollar strength trend. Lowering of the price band from the earlier range has also helped optimism that the attractiveness of the IPO could draw some flows. There could be some divergence between the global currency behavior and USDINR behavior for the next few weeks due to the IPO. The potential benefit to INR could be fairly limited in the current environment, though. The medium-term risks for the Rupee are gathering in full steam and would asset themselves sooner rather than later.

INR is weak on strong risk aversion. Equities under pressure.

(27th April 2022, 7:00 AM)

INR likely to open around 76.80

Dollar was on a rampage yesterday due to the strong risk aversion and safe-haven demand. US equities fell sharply, with S&P 500 declining 2.8% and NASDAQ 3.95%. Dollar Index surged to 102.35, with EUR crashing to 1.0640 and GBP at 1.2585. JPY remained steady at 127.50 level despite the Dollar strength, indicating that the overnight move has been due to strong risk aversion and is not yield-driven. The US 10y yield fell due to safe-haven demand, now trading at 2.74%. Indian indices had a positive day yesterday, with a 1.4%+ jump, but are likely to reverse all those gains today due to the overnight US bloodbath.

USDINR breached 77 in the NDF market overnight but has now settled slightly lower. There are two mechanisms of impact for USDINR – (a) high US yields driving the Dollar stronger and (b) risk aversion dragging all risk assets, including INR down. The second route tends to bring the long-term US yields lower and make JPY stronger/stable and tends to create sharper moves. Until now, INR was under pressure due to higher US yields, but risk appetite was stable. Now that US equities are seeing outsized moves, the critical question to ask would be if this is the starting point for a panic-led crash in risk assets. It is early days to determine this aspect with certainty. INR would remain under more pressure, and one might see large day-on-day moves from hereon.

INR remains shaky amidst cracking risk appetite.

(26th April 2022, 7:00 AM)

INR likely to open around 76.55/60

Dollar remained firm yesterday on shaky risk appetite across global markets. While most equity markets fell sharply through the day, US equities managed a positive close despite Fed rate hike fear. Dollar Index is at 101.60, EUR is at 1.0725 and GBP is at 1.2740. JPY managed to buck the trend and appreciated to 127.40, indicating some seeping risk aversion. DOW ended higher by 0.7%, aided by tech stocks. Indian indices fell 1.1%. US 10y is stable at around 2.8%. Brent is trading subdued at 102.40, on continuing China slowdown fears.

INR remains vulnerable to a sharp move anytime now, given the global environment of uncertainty. Even though INR seems to be under pressure, the fact remains that the movement in the Rupee is nowhere close to the large moves seen in other major currencies. Most of the positives about India and its economy are already factored into the Rupee. Fed’s interest rate action remains the key variable for the future. We continue to reiterate that the May-June period could be the defining period for the medium to the long-term direction of the Rupee as Fed’s balance sheet reduction plan is set into motion.

INR is under pressure on sagging risk appetite.

(25th April 2022, 7:30 AM)

INR likely to open around 76.60

Despite a stable Dollar and quieter US yields, US equities ended Friday sharply lower, setting up an environment of risk aversion for Asia today. Dollar Index is now at 101.20, with EUR at 1.0780, GBP at 1.2810 and JPY at 128.60. US 10y is at 2.87%. The DOW fell 2.8% on Friday, while Indian indices fell 1.2%. The theme of interest rate divergence between the US and EU/Japan remains the primary driver for global currencies. Equities seem to be getting into a state of persistent risk aversion as we move closer to the Fed meeting. Oil is down on fears of demand outlook with the Shanghai lockdown, and Brent is at 103.20.

USDINR remains in a range, but the bias continues to be towards more INR depreciation. The Fed meeting on May 4th would set the stage for the coming rate hikes and liquidity reduction depending on how aggressive the Fed positions itself. This week is relatively light on market-moving data. INR could move in a range unless sharp risk aversion sweeps through markets over the next few days, continuing from the Friday US move.

USDINR is stable for now. Fed gearing up for rate hikes in May.

(22nd April 2022, 7:00 AM)

INR likely to open around 76.25

Dollar remained firm yesterday after Powell indicated that 50 bp rate hike is on the table for the May meeting. Dollar Index is at 100.60, with EUR at 1.0840, GBP at 1.3030 and JPY weaker at 128.55. US 10y shot up post comments from Powell, now back at 2.95%. It seems only a matter of time before the 10y yield breaks the 3% mark. DOW fell sharply after Powell’s comments which reminded markets that the Fed would continue to be aggressive in pursuing rate hikes. DOW fell 1% dragged by tech stocks (NASDAQ -2%). Indian indices had a good day yesterday with a 1.5%+ jump, following the cues from the previous day’s US markets. The overnight negativity in the US markets would lead to some drawdown in Indian indices today. Brent is stable at 107.50 level.

USDINR continues to be in a tight range, as any INR appreciation potential is capped due to strong US yields. The Rupee continues to be very vulnerable to the coming rate hikes and balance sheet reductions. Real risk-aversion-led panic is yet to happen in equity markets and once such panic starts, we could see sharp moves in USDINR and other risk assets. Until the Fed meeting on May 3rd-4th, there could be range-y moves in markets, waiting for the broader direction.

Lower US yields help relieve some pressure on INR temporarily.

(21st April 2022, 7:00 AM)

INR likely to open around 76.20/25

Dollar relented a bit yesterday and settled lower. Dollar Index is at 100.45, with EUR at 1.0840, GBP at 1.3060 and JPY at 128.30. US 10y backtracked yesterday and is now at 2.85% and this yield move helped bring the Dollar down a bit. DOW ended 0.7% higher, despite a sharp 30%+ fall in Netflix. Indian indices also jumped 1%+ on stable risk appetite.

INR could enjoy some respite today, supported by a fall in US yields. Fed officials continue to comment that sharp rate rises are needed. It is just a matter of time before the yields resume their up move as the Fed’s balance sheet reduction plans coupled with large US fiscal borrowing requirements ensure that there is pressure on treasury prices. USDINR would continue to move in tandem with US interest rates, for now, waiting for the larger direction in the coming weeks ahead of the Fed meeting.

US yields pressure INR, US 10y yield eying 3%.

(20th April 2022, 7:00 AM)

INR likely to open around 76.55/60

US yields surged yesterday, supported by hawkish comments from Fed officials on the need to tame inflation. Dollar is well propped up by the rising yields, and the Dollar Index has reached 101. The US 10y yield is at 2.97% and is set to cross 3% soon. EUR is at 1.0790, GBP is at 1.3010, and JPY has sharply weakened to 129.10. USDJPY is now reflecting the sharp contrast between the two central banks on the monetary policy. US equities moved higher by 1.5% odd despite the surge in yields. Indian equity indices fell 1.2%. Brent is trading sharply lower, at 107.

INR remains under pressure amidst the surging US yields. Since the short-term rate hike trajectory is well expected, the long-term yield move is the primary driver for the Rupee now. As we keep reiterating, the movement in long-term US yields, which itself reflects the Fed’s balance sheet reduction plan, would eventually cause market panic sooner rather than later and cause a significant move in INR. For now, risk appetite in markets is still holding, and JPY is reflecting that fact in its weakness. How large a move in the US 10y would the market be able to take before cracking, would determine the fate of INR in the coming month or two. We expect meaningful moves in USDINR as the Fed moves on its strategies in the May and June meetings.

INR remains under pressure, waiting for long-term direction.

(19th April 2022, 7:00 AM)

INR likely to open around 76.25/30

Dollar continues to go from strength to strength each day, supported by strong US yields. The Dollar index is now at 100.85, with EUR below 1.08, GBP at 1.30 and JPY at 127.40. US 10y is at 2.85%. US equities ended the day slightly in the red, while Indian indices saw a sharp fall of 1.6%. Brent remains elevated, trading at 112.90.

Yesterday saw a very muted range-y trading in USDINR, on lack of any market-moving event or data. There is no change to the long-term prognosis for the Rupee, which would be driven by rising US yields and inflation and increasing Dollar demand on the domestic front due to the current account.

INR remains under pressure. US yields remain elevated.

(18th April 2022, 7:00 AM)

INR likely to open around 76.25

Dollar is solid, aided by rising US yields and uncertainty around the Ukraine crisis. Dollar Index is at 100.50, with EUR close to 1.08, GBP at 1.3050 and JPY at 126.40. The ECB, in its monetary policy meeting, decided to end their fresh purchases of bonds (liquidity) only by the third quarter and then prepare for rate hikes. The relative dovishness of the ECB has led to a fall in the EUR. US 10y is at 2.84% as the looming rate hikes and Fed balance sheet reduction keep long term yields on an upward trajectory. US equities ended last week lower on rising yields. Oil moved higher on deteriorating Ukraine war situation. Brent is at 113 now.

With no significant data slated for this week, markets would continue to gyrate to the incoming news and events. INR remains vulnerable to the rising US yields and oil prices. The short-term positivity due to the stability in the war situation is not materializing enough for the Rupee. The LIC IPO might provide some relief, but the medium-term trend remains that of more pressure on the Rupee.

 

INR remains vulnerable. US CPI data indicates continuing inflation pain.

(13th April 2022, 7:00 AM)

INR likely to open around 76.05

Dollar continued its strength yesterday after the headline CPI inflation in the US came in more than expected, at 8.5%. But US yields remained subdued as the core inflation printed lower than expected, providing relief to markets. Dollar Index is at 100.30, EUR is at 1.0830, GBP at 1.3010 and JPY at 125.60. US 10y is at 2.75%. US equities ended it the red by 0.3%. Indian equities managed a positive day. Putin’s statement that talks with Ukraine have reached a stalemate has led to some risk aversion. Brent is higher at 104+ level.

Yesterday’s US CPI data indicates that that there would be no respite to the surging inflation unless the Fed acts on cooling the economy off. The lower-than-expected core inflation did provide some hope that may be the top for US inflation is close. Whatever the current data is, the fact remains that the FOMC must embark on sharp rate hikes and balance sheet reduction to bring the inflation into a reasonable range.

The issue is that inflation is just not specific to the US and is a problem for most countries. There is a significant supply side element and geopolitical aspects to controlling the inflation. The central banks would try and control the demand side of the inflation equation by trying to soft-land economies without crashing market panic. In our view, this scenario is not possible since markets are addicted to easy liquidity conditions for several years.

India CPI also came in at a 17-month high of 6.95%, driven by high food prices. With Crude remaining above 100, inflation in India is also slated to increase. RBI did mention the inflation issue in the April 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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