Daily Morning Update: Global Markets and USDINR

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INR range-y in year-end trading, awaiting direction next year.

(31st December 2021, 7:00 AM)

INR likely to open around 74.40/50

Currencies were flat and USDINR drifted lower ahead of the last day of trading in 2021. Dollar Index is at 95.98, EUR is at 1.1325, GBP at 1.3500 and JPY at 115.05. US equities ended yesterday down by 0.25% odd. Nifty ended flat. Brent continues to be elevated, above 79. Rupee managed to strengthen mildly even as Omicron is spreading fast in India, indicating that markets don’t expect Omicron to impact economic growth in any significant way.

Not much can be expected in the next couple of days by way of a lasting directional move. Markets would reassemble next year to assess the real impact of the inflation surge and the Fed action and probably realize the importance of waning Dollar liquidity.

INR positivity still continues due to year-end dynamics, but risks abound.

(30th December 2021, 7:00 AM)

INR likely to open around 74.60

Rupee continues the year-end rally for yet another day. The global Dollar is also weaker as indicated by Dollar Index trading below 96. EUR is at 1.1345, JPY at 115.05 and GBP at 1.3495. US yields continue to move higher, and the 10y is at 1.55%. US equities ended mildly in the green, while Indian indices fell slightly by around 0.1%. Brent continued its rally, touching 80 yesterday, and is currently at 79.30.

Despite the surge in Omicron cases across the globe, especially in the EU and the US, markets are ignoring the variant now on the news that the disease severity is low and the stress on the hospital systems is minimal. India is also seeing a surge in cases, and one can expect that the caseload would reach all-time highs by around mid-January. But India spread is unlikely to bother INR.

The Rupee has been benefiting from the calm and pro-risk global market environment towards the year-end. It is just a matter of time before the inflation-related risk-aversion comes to the fore again. The medium-term direction could resume only in the next year, once all the relevant data comes in and the FOMC meeting takes place. Until then, Rupee could drift along with a neutral bias.

INR positivity continues due to year-end dynamics, but risks abound.

(29th December 2021, 7:00 AM)

INR likely to open around 74.75

INR continued its positive run yesterday on the back of good Indian equity performance. But the Dollar remained strong globally. Dollar Index is at 96.15, EUR is at 1.1305, GBP is at 1.3430 and JPY is at 114.80. Nifty rose 0.85% higher yesterday, but US indices saw the continuous rally of the past few days snap. Brent remains elevated, now trading at 78.90.

INR has managed to gain back a significant chunk of the previous move’s losses. This outsized appreciation is due to the illiquid year-end markets and not due to any fundamental shift in risk perception. Dollar remains firm across the board, the US inflation remains a concern and with Omicron fears subsiding, the line is clear for the Fed action on inflation. Brent has come back to its elevated levels, and with the ballooning trade deficit, INR has structural issues to contend with. The new year could bring more clarity on the medium-term direction for the Rupee, especially after the US jobs and inflation data.

INR stable for now on solid risk appetite, but medium-term risks abound.

(28th December 2021, 7:00 AM)

INR likely to open around 75.00

While equity markets continue to move higher and have a Santa rally, currencies were muted and range-bound yesterday. Dollar index remains at 96.05, EUR at 1.1325, GBP is at 1.3435 and JPY at 114.80. S&P 500 surged another 1.4% odd and Indian indices also managed a 0.5% jump. Risk appetite remains strong as the Omicron scare seems to give way to optimism that the economic impact of the variant could be minimal. Brent has surged back to the 78.50 level. Consistently high oil prices would add more pressure to the ballooning trade deficit.

INR continues to benefit from the return of risk appetite. Given the year-end dynamics, one cannot make deductions about durable trends from the current move. The next year’s data on US jobs and inflation becomes now critical. In our view, it is a matter of time before the Rupee reacts to the fact that the global liquidity is going to diminish soon. The next few days can even see some more appreciation or stability in the Rupee if the equity surge and risk appetite remain intact. But the medium-term risks could come back to hit Rupee soon, especially given that there is a large structural deficit developing in the current account in India.

INR is buoyed by returning risk appetite, but inflation concerns waiting to strike.

(27th December 2021, 7:00 AM)

INR likely to open around 75.00

The past few days have seen risk appetite recovering across markets, as the Omicron scare ebbed. Dollar remained in a range amidst thin holiday trading and the Dollar Index is now hovering around the 96.05 mark. EUR is at 1.1321, GBP at 1.1322 and JPY at 114.40. JPY weakness indicates that risk appetite has been healthy during the last few days, as can be seen in the “Santa Claus” rally in equities. US indicates are at their all-time highs, but Indian indices managed a smaller rally though. Brent is higher, at 75.75 reflecting the confidence about the Omicron impact.

While the FOMC has been talking taper, they managed to keep printing money into the year-end and increase their balance sheet. The real impact of the Fed action on inflation would be felt in the coming months when the liquidity tap is completely switched off. With the latest Covid scare moving into the background, the FOMC can now afford to talk and take a more aggressive stance on inflation.

INR has cashed in on the return of risk appetite. We have been mentioning that INR can see some positive moves in the short term, especially if the Omicron issue turns out to be less severe. This is a temporary phase for the Rupee, in our view, as the larger issue of inflation remains a major risk factor. The next months’ US jobs and inflation data could again trigger pressure on the Rupee. Given the illiquid year-end trading, there could be some outsized moves in USDINR for the next few days. But any fall in USDINR could be a good opportunity for importers to lock in for longer-term upside. Exporters would be served well to keep hedge ratios balanced and not be too aggressive about hedging and hedge too low (loss of premium) or too high (loss of potential USDINR move).

INR remains stable despite risk aversion, but risks remain.

(21st December 2021, 7:00 AM)

INR likely to open around 75.75/80

Dollar remained slightly mild yesterday despite surging risk aversion in equity markets due to Omicron. Dollar index is at 96.40, EUR at 1.1290, GBP at 1.3215 and JPY at 113.60. US equities fell around 1%-1.5% and Indian indices crashed 2.1% yesterday, as news of Omicron surge in the EU and the US rattled markets. Brent fell to 71 handle, indicating that the risk aversion is due to Omicron concerns.

INR has held well despite the falling equities, but if more risk aversion were to happen, the pressure on the Rupee would increase further. The ultimate reality is that if the FOMC is in a hawkish mode, risk markets across the world would find some reason to fall and Omicron has added fuel to that movement now. Even though INR is stable for now, the medium-term risks remain very much relevant.

INR is stable for now, but Fed and Omicron risks remain high.

(20th December 2021, 7:00 AM)

INR likely to open around 76

USD traded stronger on Friday as the Omicron scare and Fed hawkishness sent equity markets lower across the globe. Dollar Index has surged to 96.60, EUR is at 1.1240, GBP at 1.3225 and JPY at 113.60. US equities fell 1-1.5% on Friday as did Indian indices. US yield curve is flattening due to the Fed’s aggressive stance, meaning that markets expect the Fed to overshoot their rate hike cycle and this expectation is generally bad for equities. News of Omicron surge in Europe and lockdowns and restrictions in some EU countries over the weekend has soured sentiment and Asian markets have opened lower as a result.

INR is now in a range as the short-term event risk has dissipated to some extent. Despite the spread of Omicron, there is some hope based on the South Africa data on severity, and this is the one reason why USDINR has surged ahead. The medium-term pressure on INR would remain until there is the threat of aggressive taper from the FOMC. The short-term is very much news-dependent and volatile and can even see some INR stability.

INR takes a breather, but not out of the woods.

(17th December 2021, 7:00 AM)

INR likely to open around 76.10

Dollar fell yesterday against most currencies, just a day after the FOMC’s hawkish stance. ECB and BOE policy outcomes yesterday moved the respective currencies higher against the USD. BOE surprised with a rate hike, and ECB, while keeping the status quo on rates, did stop their pandemic emergency bond purchase program. ECB signaled rate hikes in the second half of 2023. Dollar Index is below 96, EUR is at 1.1330, GBP at 1.3330 and JPY at 113.80. US equities fell, driven by a sharp cut in tech stocks (S&P -0.87% and NASDAQ -2.5%). Indian Indices managed a positive close with a 0.15% rise. Brent is higher, closing in on 75.

USDINR has managed to stabilize post-Fed hawkishness, as markets are taking their time to digest what aggressive taper of liquidity would mean. Given that we are moving into the year-end, markets could be more illiquid and volatile. There is a chance of stability and mild appreciation also in the Rupee until the inflation/US jobs data next month (and next year). Omicron news could keep markets and the Rupee guessing as more data on severity comes by in the next few weeks. For a coming couple of days, USDINR could drift along in a range.

FOMC outcome as expected, not much relief for the Rupee.

(16th December 2021, 7:00 AM)

INR likely to open around 76.20

FOMC outcome was as expected by the markets. Taper rate is doubled, on track for complete stoppage of QE by Apr/May. The “ Dot Plot” now signals 3 rate hikes in 2022 and 3 more in 2023. The shift is very dramatic given that in the November meeting there was hardly one hike priced in 2022. Powell mentioned that in their view, inflation is no longer transitory and needs to be addressed. The FOMC statement mentioned Omicron as a risk for the economy and hence any drastic revision to the Omicron outlook can change the taper plans.

Markets reacted calmly to the announcement. Dollar is flattish, with the Dollar Index at 96.35. EUR is higher at 1.1290, GBP at 1.3260 and JPY at 114.10. US yield curve flattened due to the rise in short-term rates. US equities close sharply – DOW by 1.1% and S&P 500 by 1.65% indicating that the FOMC outcome is as per expectations. In our view, this move could be temporary as the reality that the liquidity tap is going to completely stop soon is going to hit markets. Nifty ended in the red yesterday by 0.3%, but futures are pointing to a positive start.

USDINR could remain under pressure in the coming days although the immediate one or two days could see INR getting some relief. It all depends on how long the positive market reaction of yesterday to the FOMC would last. Given the hawkish Fed, the coming ECB and Bank of England meetings would be watched for their tone and actions on inflation. For the Rupee, there is not much to look up to – Omicron on one side and hawkish Fed on the other. The medium-term path continues to point to more depreciation for the Rupee.

INR remains under pressure. FOMC today.

(15th December 2021, 7:00 AM)

INR likely to open around 76.05

Dollar is up, and equity markets are down ahead of the FOMC decision today. Dollar Index has moved to 96.50, EUR is at 1.1265, GBP at 1.3235 and JPY at 113.75. S&P 500 fell 0.7%, Nifty fell 0.25% yesterday and is set for a subdued open today. Brent is also lower, at 73.20.

USDINR has breached 76 – highest after April 2020, indicating the underlying pressure on the Rupee due to the surging Dollar. Despite this move, INR is still better performing than the global majors, a fact which only goes to show the sheer magnitude of the current Dollar move. The positivity around potential inflows into India has kept a lid on the Rupee depreciation until now, but the surging trade deficit, and global Dollar strength and FOMC hawkishness continue to be headwinds for the Rupee. Today’s FOMC could provide some further insight into the next leg of the Rupee move whether towards all-time lows or towards a short-term correction.

Rupee remains under pressure, FOMC in focus.

(14th December 2021, 7:00 AM)

INR likely to open around 75.75/80

Dollar remained bid yesterday and equities fell sharply across the globe due to the ongoing risk aversion around the Omicron variant and jitteriness around the FOMC decision tomorrow. Fed’s survey showed that inflation expectations in the US are soaring in the population and stocks took a hit as a result. Dollar Index is higher -at 96.30. EUR is at 1.1280, GBP at 1.3205 and JPY at 113.60. US equities fell around 1%, with NASDAQ down by 1.4%. Nifty was down 0.8%. US 10y yield fell to 1.4% indicating that some risk aversion also has crept in, driven by the fast surge in Omicron cases in the UK and Denmark. Brent is now at 74.25, consistent with the concerns around falling demand due to Omicron.

INR seems to have given up the ability to sustain itself against the Dollar surge. In the previous inflation-driven Dollar move, INR held well below 75, only to weaken post the Omicron scare. Now that the Omicron scare is dissipating slowly, INR is not able to regain that strength, indicating that the Fed action is now critical for the Rupee. Tomorrow’s FOMC would be watched for any rate hike signals, and changes to the taper schedule. Fed officials have been hawkish in their comments recently and tomorrow’s FOMC outcome could signal their hawkish intent clearly.

The Rupee would remain under pressure for the foreseeable future unless FOMC tries to mellow down their previous statements. On the domestic front, India’s CPI came in at 4.9%, slightly lower than market estimates. But the domestic data is no longer important enough to move USDINR in a sustainable manner. All eyes are on the FOMC tomorrow.

INR remains vulnerable, Fed in focus this week.

(13th December 2021, 7:00 AM)

INR likely to open around 75.70

Dollar remained strong on Friday, backed by strong US inflation data. The print came in as expected, at 6.8% – highest in decades. Equity markets took the data release in their stride, probably due to relief that it came in as expected and did not surprise on the upside. Dollar remains firmly in dominance as markets await the Fed this week.

Dollar Index is at 96.10, EUR at 1.1310, GBP at 1.3260 and JPY at 113.50. US equities ended higher by 0.5%-1%. US 10y is closing in on 1.5% again, and short-term yields point to an aggressive Fed, with a rate hike on May 22. Indian indices ended Friday flat but are set to see some positive vibes due to the US market close. Brent is close to 76.

USDINR has now been catching up with the behavior of the global currencies against USD. INR has been supported by hopes of flows and the potential inclusion of India in the MSCI index. Despite the current weakening episode, INR is still relatively stronger against most crosses when compared to a few months ago.

While countries like the UK are sounding emergency alert on Omicron, the situation in South Africa seems to be very much under control and the odds that the variant is very mild are increasing by the day. Omicron is no longer a news of interest to markets, and hence the US yields and inflation are back in focus. The behavior of the Rupee indicates that it is turning very vulnerable in the coming months to the global picture of high inflation and aggressive Fed and the domestic issue of surging trade deficit.

INR under pressure, US inflation data keenly awaited.

(10th December 2021, 7:00 AM)

INR likely to open around 75.60

Rupee came under pressure yesterday as markets turned cautious ahead of the US inflation data due today. Dollar index is slightly higher -at 96.20. EUR is at 1.1295, GBP at 1.3220 and JPY at 113.40. US 10y fell due to risk aversion in US markets, now at 1.48%. S&P closed 0.7% lower. Indian indices managed a positive close yesterday (0.25%) but might be under pressure today due to the overnight risk aversion.

Expectations are that the November CPI rose 6.8%, the highest in more than 30 years. If the release comes close or higher than this, the odds of a Fed tightening next year would consolidate fast and markets could start pricing in an aggressive taper quickly.

USDINR is on its way up, and the pace would depend on the inflation data and the outcome of the next week’s Fed meeting. For now, Omicron seems to have taken the backstage until more news emerges regarding the severity of the variant. The general trend for the Rupee now would be towards depreciation, though there could be some fluctuations around that trend line depending on the incoming news.

USDINR in limbo, US inflation data awaited.

(9th December 2021, 7:00 AM)

INR likely to open around 75.40

Yesterday saw mild moves in currencies. Dollar Index is at 96.00, EUR at 1.1340, GBP at 1.3205 and JPY is at 113.80. US 10y surged higher as Omicron concerns faded away and inflation is now front and center. US equities managed a positive close, with S&P higher by 0.4%. Indian indices had yet another recovery with a 1.7%+ move higher. Brent is higher, at 75.90.

The RBI monetary policy was on expected lines, with status quo on rates and stance and similar growth projections. The next stop is the US inflation data tomorrow. Despite the sharp recovery in risk appetite and move higher in stocks, INR remains stuck to the 75.30-40 level, probably due to higher US yields and inflation-related concerns. For now, Omicron is no longer an issue for the markets, as the severity data from South Africa seems to indicate that it causes mild disease. USDINR could remain in limbo until the inflation data and then the next week’s FOMC.

INR remains under pressure despite global revival, inflation data awaited.

(8th December 2021, 7:00 AM)

INR likely to open around 75.40

Dollar remained steady, but risk appetite came roaring back into other markets yesterday. S&P 500 shot up 2%+ yesterday backed by a tech stock surge (NASDAQ 3%+). US 10y rose, indicating movement out of safe-haven buying – now at 1.47%. Dollar Index is steady at 96.25, EUR is at 1.1275, GBP at 1.3240 and JPY at 113.50. Indian equities also had a good day with 1.5%+ rise. Brent moved higher in line with the narrative of a potentially mild Omicron variant – now at 75.40.

USDINR remains in a range and is torn between the inflation narrative and the opposing narrative of Omicron-driven lockdowns. For now, markets seem to believe that the Omicron variant would not overwhelm healthcare systems and not lead to lockdowns and hence is the short-term recovery in risk assets. But USDINR remains stuck to a level as the inflation scare and the rise in the US yields continue to be negative for the Rupee. Structurally, the Indian trade deficit has surged in the past few months creating a high Dollar demand from current account activities.

USDINR could meander along in a range for a few days to come, but with an upward bias. Today’s RBI monetary policy outcome is unlikely to influence the pair in a tangible way. Markets expect a status quo policy, and business as usual until at least Friday’s US inflation data and then going into the next week’s FOMC.

INR remains under pressure, no clarity yet on Omicron.

(7th December 2021, 7:00 AM)

INR likely to open around 75.35/40

USD held its strength against majors and the Rupee came under a bit of pressure yesterday along with Indian equity markets. Dollar Index is at 96.35, EUR at 1.1280, GBP at 1.3260 and JPY at 113.55. The overnight US markets staged a recovery on the back of a statement from Fauci that the initial reports on Omicron disease severity are encouraging. DOW ended up higher by 1.9%. US 10y jumped to 1.43% and Brent moved higher to 73+ level, consistent with recovering risk appetite. Today could see some positive moves in Indian markets also, and INR might be stable as a result.

Until the US inflation data later this week, markets would fluctuate with the incoming Omicron news. As of now, worries about the new variant seem to be fading, and markets could pivot back to inflation concerns again. USDINR has been drifting higher but is still in a manageable range for now. The medium-term bias remains towards INR depreciation, given the eventual changes to the global liquidity situation. In the short-term though, a positive Omicron scenario could help with some appreciation potential for the Rupee. It is a news-driven market for the Rupee in the short term.

USDINR could remain range-bound, waiting for Omicron news. 

(6th December 2021, 7:00 AM)

INR likely to open around 75.20

USD is mildly stronger, with the Dollar Index at 96.20. EUR is at 1.1295, GBP at 1.3225 and JPY at 112.95. US 10y yield continued its downtrend on Friday due to safe-haven buying, now at 1.38%. DOW fell 0.2% odd, but S&P fell 0.8% on Friday due to a sharp fall in tech stocks. Nifty fell 1.2%, indicating that equities across the globe are running out of themes to keep their upward momentum going. Brent is higher at 71.90 – in a sign that the Covid variant scare is fading slightly in markets’ perception.

It is now a toss-up between the inflation theme and the Omicron theme which could be mutually exclusive over the medium-term. FOMC’s hawkish stance on inflation can only be neutralized if Omicron leads to large-scale disruptions in the economies across the world. As of now, ground reports suggest that the variant seems to lead to mild disease and that most of the hospitalized patients do not need high-dependency care and oxygen supplementation. Given that most countries have significant immunity due to the delta variant, it is likely that Omicron might lead to a mild disease while immunizing populations. It is still early days to form these conclusions, but the trend seems positive. Markets would take note of the incoming data on Omicron over the next 2-3 weeks and might move back to the inflation theme soon.

The next 2 weeks have important data/events on the inflation front. This week has the US CPI release and the FOMC meeting is scheduled next week. On the domestic front, RBI monetary policy is due this Wednesday, but the policy decision is unlikely to cause major ripples in currencies.

USDINR is still range-bound, and the lesser the perceived Omicron scare, the better is the position of INR in the short-term. Over the medium-term INR would be under pressure in both scenarios – Covid disrupts/inflation benign and Covid milder/inflation stronger. Over the next few days, USDINR could remain range-bound, waiting for Omicron news.

USDINR is still in limbo. Omicron’s uncertainty continues.

(3rd December 2021, 7:00 AM)

INR likely to open around 75

Dollar is slightly stronger; US yields are slightly higher and equity markets had a solid run yesterday as Omicron fears faded yesterday. Dollar Index is at 96.20, EUR is at 1.1290, GBP at 1.3290 and JPY is at 113.20. US 10y is higher, at 1.43%. Brent slightly moved higher towards 69.70 in line with other markets. US equities surged 1.5%+, and Nifty jumped 1.4%.

USDINR remained in limbo for yet another day, as Omicron uncertainty persisted yesterday. There are clear indications that the variant is super infectious, as evidenced by the steep rise in the South African case. But reports that the variant was found in many countries earlier than its official discovery mean that it might behave differently in different countries. Until there is clarity on its immune escape nature and the impact on vaccinated persons, there would be day-to-day changes in market perceptions.

For now, markets have steadied themselves hoping that the Omicron scare could go away, but the FOMC hawkish stance is still a risk factor. USDINR could move sideways until there is clarity on the Covid front or until markets come to terms with the aggressive taper stance. Today’s US jobs data could provide some clues to the coming Fed stance.

USDINR remains range-bound, Omicron impact awaited.

(2nd December 2021, 7:00 AM)

 

INR likely to open around 75.00

It was status quo for currency markets yesterday as there is no clarity yet on the evolution of the new covid variant. While US equities fell sharply (1-2%) on news of the first US case with the Omicron variant, Dollar and currencies were fairly range-bound. Dollar Index is at 96.05, EUR at 1.1320, GBP at 1.3280 and JPY at 112.90. US 10y fell sharply yesterday indicating strong risk aversion in markets and is now at 1.41%. Nifty managed a 1%+ jump yesterday but is likely to see a negative run today due to the overnight risk aversion. Brent fell yesterday as did most commodities. Commodity indices have reached a correction zone and are down significantly from the recent peaks. Brent is trading at 69.

On the data front, India’s trade deficit for last month came in at a whopping 23+ billion. There is a trend of a sharp rise in the deficit for the past 3 months, and at this rate, India would need around 120 billion of Dollar flows to cover the current account deficit in a year. INR is vulnerable to any global event which can cause flows to stall, especially given the surging current account deficit. In the coming months, there could be a slowdown in the trade deficit only in the scenario where lockdowns come back to hurt the economy, which is anyway a negative outcome for the Rupee.

The next important data point is the US jobs report due tomorrow. ADP private payrolls yesterday showed a better than expected job numbers. Powell continued his stance yesterday also that the December meeting would discuss more aggressive taper measures.

USDINR remains stable, biding time to understand the new variant. Given the risk aversion in global markets, INR is under mild pressure, but is still range bound and would be so until there is clarity on the new covid variant and its impact vis-à-vis vaccinations and hospitalizations.

USDINR biding time, next couple of weeks critical.

(1st December 2021, 7:00 AM)

INR likely to open around 75.00/05

USD gained slightly, and US yield curve flattened after mixed messages rattled equity markets. While markets were comforted on Monday by the news that the new variant might create mild disease, they were rattled on Tuesday by the statement from Moderna’s CEO that new vaccines might be needed for Omicron and the variant could be severe. Further, Powell made comments yesterday reversing years of dovishness and mentioned that taper must be more aggressive, to leave room for rate hikes. He further stated that it is time to retire the word “transitory” to describe inflation, and markets took the statement to mean that the FOMC would now be much taken the more hawkish stance to tackle inflation. Yesterday, Powell took a stance in complete opposition to Monday when he said the Omicron could pose significant risks to the economy.

EUR is trading at 1.1320, GBP at 1.3290, JPY at 113.40 and Dollar Index is at 96.05. US 10y is at 1.48%. Brent is trading at 70.10 on Omicron fears. Equity markets cracked yesterday, and S&P fell close to 2% on both Powell and Omicron news. Indian equities fell sharply from intra-day highs and ended around 0.4% down. Today also could see a negative open for Indian markets.

USDINR is holding around the 75 levels and biding time for any news on the new variant. While many countries have already imposed travel restrictions, it is a certainty that the variant has been in circulation for some time now and could be present in many countries, especially given how transmissible it is. The critical determining factor for the next leg of the USDINR move is the potential severity of the disease the new variant leads to. The next couple of weeks remain critical for this assessment. USDINR could move in a range until such time.

USDINR waiting for direction. All up to Omicron now.

(30th November 2021, 7:00 AM)

INR likely to open around 75

Dollar is in a lull, waiting for the news around the Omicron variant. EUR is at 1.1290, GBP at 1.3310, and JPY is at 113.80. US yields fell slightly yesterday, and the 10y is now at 1.5%. Brent remains under pressure, now trading at 73.25. DOW managed a 0.7% rise, while S&P could recover 1.3%, driven by a sharp rise in tech stocks. Indian indices managed a meek rise of 0.2% odd but are set to open positive today.

Contradicting news from South Africa’s epicenter for the Omicron has led to confusion on the economic impact of the virus strain. Some doctors pointed out that the variant causes a mild disease, while other reports suggest increasing hospitalizations. The next few days could provide some more clarity on the disease severity. Powell said that the Omicron strain could pose risks for the economy, and markets took it to mean that if indeed the mutant strain poses an issue, the FOMC could shy away from their hawkish stance.

USDINR is at crossroads now, and the next leg of the move is completely news-dependent. If it turns out that the new strain causes benign disease, markets could even surge and INR appreciates. The scenario could be a way out of the pandemic as a less virulent but more transmissible strain outcompetes the more dangerous strains and most of the population would get some immunity without a load on the health care system. But if the strain turns out to be as virulent as the Delta strain with a potential to evade existing immunity, then there could be a re-emergence of lockdowns like those of the last March/April period and a sharp fall in markets. In such a scenario USDINR could move towards even 77+ levels. The next couple of weeks are critical for the direction of Rupee and the same cannot be predicted with any degree of confidence. One must watch out for the news on the new strain.

INR is under pressure but the coming few days could be critical.

(29th November 2021, 7:00 AM)

INR likely to open around 75.00

Dollar retreated from highs on Friday as risk aversion took over from inflation concerns. Markets panicked on the news of the new highly transmissible Omicron variant of the coronavirus. Dollar Index is down at 96.20, EUR is higher at 1.1290, GBP is stable at 1.3330 while JPY is stronger with USDJPY falling to 113.70. US yields fell due to safe-haven buying, and currently, 10y is at 1.54%. Brent has crashed to 74.50 levels on fears of renewed travel restrictions and lockdowns. DOW fell 2.5%, and Nifty fell 2.9% on Friday. The volatility index in the US jumped 50%+ on Friday, indicating the level of complacency built up in the markets.

Some initial reports from South Africa mention that the new variant could lead to milder disease than the Delta variant, and markets seem to have turned a bit optimistic on that news. Equity futures indicate a positive opening for equities today. But markets would continue to be jittery until there is clarity on the disease severity caused by the new variant.

INR could be under some pressure now as the new variant has led to the start of a risk aversion wave. If the concerns settle down soon, markets could again stabilize, and the story can move back to the inflation theme. But the changing dynamics in markets could have set-off a more prolonged risk aversion due to technical factors and if so, the Rupee can continue towards more depreciation. The next couple of days would determine the applicable scenario. On balance, the bias remains towards INR depreciation for now.

USDINR status quo, waiting for direction.

(26th November 2021, 7:30 AM)

INR likely to open around 74.50.

Yesterday was a relatively quiet day for the Dollar, owing to being a US holiday. Dollar Index is flattish at 96.70, EUR is at 1.1220, GBP at 1.3305 and JPY at 114.90. US 10y retreated mildly, now at 1.6%. Nifty ended yesterday with a 0.7% gain. Brent is lower, at 81.15.

There is no change in prognosis for USDINR from yesterday – that it can meander in a range and even appreciate in the short-term given the resilience of the Rupee, but the medium-term risks are very apparent and can assert themselves going into the year-end and the next year.

Yet another USD surge, but INR remains firm for now.

(25th November 2021, 7:30 AM)

INR likely to open around 74.60

Dollar remained bid yesterday amid US PCE inflation data and FOMC minutes releases. Dollar Index has surged to 96.80, with EUR reaching as low as 1.1205. GBP is at 1.3340 and JPY at 115.40. US yields have remained stable. US equities managed a mildly positive move, while Indian frontline indices fell around 0.5%.

US PCE inflation came in higher than expected, indicating the underlying pricing pressures once again. FOMC minutes of the November meeting revealed that many participants were of the view that the taper should be done aggressively so that room for rate hikes can be made if necessary. The Fed vice-chairman has confirmed that the taper timeline would be on the agenda during the next FOMC meeting on Dec 14-15th. Markets are yet to come to terms with the QE withdrawal and in the next few months, there could be a reaction to the same in the form of a risk aversion move.

For now, USD strength has shone through the majors and is due to impact the EM currencies. Brent has also come up to the 82.50 level and is set to move up from here. We continue to reiterate that the risk of a sudden up move remains tangible, though the timing and the event leading to that move are still invisible. USDJPY (JPY weakness) indicates that risk aversion is yet to set in, and markets continue to focus on the Dollar strength wave. Equity markets have been registering muted movements, indicating a potential topping process. The year-end and the next year’s beginning might set the medium-term direction for equities and the Rupee.

INR stability continues, but odds are stacked against the Rupee.

(24th November 2021, 7:00 AM)

INR likely to open around 74.45/50

USD remained firm yesterday and US yields rose further. Dollar Index is at 96.50, EUR at 1.1240, GBP at 1.3380 and JPY at 115.15. The short-end of the US yield curve is pointing to a rate hike by mid-2022 now. The 10y US yield also rose yesterday, now at 1.66%. US equities managed a flat close, though the tech stock Index fell 0.5%. Indian equity indices recovered some of the previous day’s losses with a 0.9% jump today. Brent is higher despite news that the US would be tapping into their strategic oil reserves to control retail prices. Brent is now trading at 82.

Today’s US PCE inflation data is another important data that might point to the reality of rising inflation. More and more FOMC members are coming out about the need to be more aggressive on the taper so that there is room for rate hikes if need be. Markets are not prepared for a fast taper of liquidity in our view and hence are due for a sharp correction soon. Until now, the Rupee has bucked the trend and held firm against a rampaging Dollar. But how long would the Rupee be able to hold is the question which bothers us.

In an environment of rising US yields and slowing global liquidity, the odds are stacked against INR. India’s FX reserve position and the expected growth trajectory can help buffer any large and untoward move in the Rupee, but the natural direction for the Rupee seems to be towards depreciation. In the short-term, though there could be bouts of stability/appreciation due to news and flows, but in the medium-term, the Rupee remains vulnerable.

USDINR still bucking the trend, but risks lurk close by.

(23rd November 2021, 7:30 AM)

INR likely to open around 74.45/50

USD and US yields surged yesterday after the renomination of Jerome Powell as the Fed chairman. The Dollar Index is at 96.50, EUR has fallen to 1.1240, GBP is at 1.3400 and JPY is at 114.80 US 10y is close to 1.63%. US equities fell due to rising yields, with S&P 500 registering a 0.3% fall. Indian indices continued their downtrend yesterday and the Nifty saw a sharp cut of 2%. Brent rose higher on concerns that OPEC members might not be able to boost production as requested by the US due to production constraints. Brent is at 79.50.

USDINR is yet to catch up to the Dollar strength and the risk aversion in Indian equities. There has been FII selling in equities, but USDINR has bucked the trend until now. The Rupee is facing headwinds in the form of stubbornly high US yields, lack of risk appetite in Indian stocks, the covid situation in the EU and finally the taper risk hovering over the next few months. The more the short-term stability in the Rupee, the faster could be the catch-up move, once it starts. The next set of data points would be during the first two weeks of December, which can set the trend for the FOMC meeting at December end.

 

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Rupee stable for now, but USD strength could re-assert soon.

(22nd November 2021, 7:30 AM)

INR is likely to open around 74.35/40

The Dollar remains well bid against most currencies, especially the EUR. Dollar Index is at 96.10, EUR is at 1.1280, GBP at 1.3440 and JPY at 114.15. EUR is especially vulnerable given the massive Covid wave and potential lockdowns in many countries in the region. FOMC officials’ comments on Friday that a more aggressive taper might be needed if inflation remains stubborn, supported the Dollar well.

With fears of lockdowns in the EU and due to the strong Dollar, crude has reversed its surge for the past few days. Brent is now at 78.50, which is a positive for the Rupee. US yields have settled now, and the 10y has been hovering in the range of 1.55%-1.62% (now at 1.56%).

Rupee has been bucking the trend for a few days and has remained steady against the surging Dollar. The flow situation has been favorable for the Rupee, but it is a matter of time before it changes again. The December period, being the global year-end might change things a bit for the flows across the world if another inflation print comes out high. The short-term outlook remains neutral for the Rupee, but a catch-up towards the global Dollar strength is imminent for USDINR.

INR is at an advantage for now, but medium-term risks remain.

(19th November 2021, 8:00 AM)

INR is around 74.20

Rupee bucked the USD trend again yesterday and appreciated to touch almost 74. Dollar remained strong overnight, though EUR slightly recovered from the previous day’s lows. Dollar Index is at 95.60, EUR at 1.1360, GBP at 1.3490 and JPY at 114.30. US yields remained stable around 1.6% on the 10y. US equities managed a positive day with S&P up 0.4%. Indian indices though fell by 0.7% odd, driven by a weak sentiment around a sharp fall in Paytm shares post the IPO listing.

USDINR has bucked the Dollar strength trend until now, buffered by a temporary FII flow into equities. The medium-term risk of a sudden pullback in USDINR is something that hedgers must watch out for. The FOMC taper has already started, and the US treasury markets would react to the taper sooner or later. For now, INR is at an advantage given the surge in India-specific flows, but the global picture is still uncertain for the Rupee, as inflation dynamics pose a major risk.

USDINR is in a zone, but long-term risks lurk.

(18th November 2021, 8:00 AM)

INR likely to open around 74.30

Dollar took a break from the surge yesterday as did US yields. Dollar Index is at 95.70, EUR is at 1.1330, GBP at 1.3490 and JPY at 113.95. US 10y has fallen to 1.585%. S&P 500 fell 0.5% as did Nifty. Oil fell sharply yesterday on reports that the US has called for a coordinated action among some countries such as China and Japan to release oil from their respective strategic reserves. Brent is around 80 now.

USDINR has been subdued despite the global Dollar strength due to short-term factors such as potential flows and reasonable risk appetite. Equity markets are showing signs of topping out. The medium-term risks around inflation remain very tangible. We reiterate that the longer the quiet period for USDINR, the sharper the next move would be, similar to the behavior seen during the move from 73 to 75.50. For now, USDINR would be stable and meander along in a range, but long-term risks lurk.

Global Markets and INR around 7:30 am (17th November 2021)

INR likely to open around 74.45/50

Yesterday was yet another day of Dollar strength and higher US yields. Aided by the strong retail sales data, Dollar remained bid and the 10y reached 1.63%. Dollar Index is closing in on 96.00, EUR is at 1.1325, GBP at 1.3435 and JPY is at 114.90. US equities eked out some gains yesterday and the DOW ended 0.15% higher. Nifty closed in the red by 0.6%.

US retail sales (at 1.7% against 1.4% expected) showed that the US economy is healthy, which indicates that the demand side of the inflation equation remains firm. Markets expect the Fed to act in 2022 and continue aggressively into 2023. Whether the FOMC can afford to be hawkish and disrupt the equity markets is the big question in the coming months. Despite the surging Dollar equities remain benign, and the Rupee has not yet had the corresponding fall as the other currencies such as EUR and JPY. It is a matter of time before the strong Dollar reflects in a higher USDINR level, but the timing of that move remains uncertain.

Global Markets and INR around 7:00 am (16th November 2021)

INR likely to open around 74.45/50

USD strength extended yesterday, with the Dollar Index breaching the 95 mark. DXY is now at 95.45 as EUR crashed yesterday to below 1.1375. GBP is at 1.3415 and JPY is trading at 114.20. The US 10y continued the climb yesterday – now at 1.6%. Equity indices, both in US and India managed a flat ending. Brent has fallen to 82.60 now, owing to the strong Dollar.

The Dollar strength is being felt primarily at the EUR/USD level, due to a stark monetary policy divergence between the EU and the US and due to the ongoing Covid wave in Europe. But the Dollar strength will eventually trickle down to the Rupee sooner or later. Sharply higher US yields are a clear negative for the Rupee and over the next few weeks, their effect would be felt on USDINR.

Today’s US retail sales might create some movements in currencies, but the next major set of data releases are not due until December 1st week. The short-term behavior of USDINR would be to trade in a range with no real bias towards either side.

Global Markets and INR around 7:30 am (15th November 2021)

INR likely to open around 74.45

USD ended the last week strong and US yields remain elevated after the inflation surge. EUR is now at 1.1455, GBP at 1.3430 and JPY is at 113.80. US 10y is at 1.56%. Equities ended Friday on a positive note with the DOW jumping 0.5% and Nifty moving higher by 1.3%.

The rest of the month is relatively free of market-moving data as far as USDINR is concerned. The US retail sales are due on Tuesday and can have some impact on the Dollar if the print is way different from expectations. But, until the first week of next month, currencies could be driven by technical factors. The Fed has already started the taper from this month, as evidenced by their purchase schedule which amounts to 70 billion (from 80 billion earlier).

The medium-term risks for currencies including INR remain elevated as inflation has refused to temper down and as liquidity supply is slowly curtailed. The longer the markets hold, the more the pain later. In the short term though, USDINR could remain in a zone with a neutral bias for the next few days.

Global Markets and INR around 7:00 am (12th November 2021)

INR likely to open around 74.40

Dollar continued its surge yesterday and Dollar Index has reached 95.25. EUR is below 1.1440, GBP is at 1.3360 and JPY is at 114.20. Short-term US yields moved higher, though the 10y remained around 1.57%. DOW ended in the red by 0.4% though S&P managed a positive close due to the good performance of the tech index. Nifty fell 0.8%.

INR is stable despite the Dollar strength, but the stability is very temporary and can quickly change into sharp depreciation towards 75 if the Dollar strength momentum continues. With no significant data/event until December 1st week, the markets and the Rupee would move due to technical factors. The rising short-term US yields are signaling a more hawkish Fed in the coming year or two and Indian markets and the Rupee are not prepared for such eventuality. The medium-term risk for the Rupee remains high.

Global Markets and INR around 8:00 am (11th November 2021)

INR likely to open around 74.45/50

USD surged yesterday and yields shot up after the sharply higher US inflation data triggered fears that the FOMC would be forced to be hawkish. US CPI hit 6.2% YoY beating all expectations. US yields jumped, and the 10y is back to 1.57% levels. The yield surge supported the Dollar, and the Dollar Index is now trading close to 95. EUR is at 1.1480, GBP at 1.3415 and JPY is at 114.05. DOW fell 0.65%, and S&P 500 fell 0.8% due to sharp correction in tech index (-1.6% NASDAQ). While Nifty fell slightly by 0.15%, today might see more red due to rising US yields.

USDINR would now be under pressure due to the unexpected US inflation print. If equities hold well and markets continue to believe in the FOMC narrative, the Dollar strength could taper off from here and the Rupee would eventually find some solace around the 75 range. But, if risk aversion sets in equity markets, then a sharp potential outflow from India, coupled with a high Current Account Deficit could lead to a sharper rise in USDINR. We would watch the behavior of USDJPY to gauge the risk aversion in markets. The weakening of JPY yesterday is a sign that risk appetite is still holding and the general direction is due to a strong Dollar. Any fall in USDJPY despite the Dollar strength will be the warning sign for risk appetite.

USDINR could drift higher towards 75 in the coming days to catch up with the US yields, but equity market behavior would become the key from here.

Global Markets and INR around 7:30 am (10th November 2021)

INR likely to open around 74.10

Dollar remained under slight pressure yesterday, but the Rupee’s positive momentum has stalled. EUR is at 1.1590, GBP at 1.3550, and JPY is at 112.90. US yields are flattish. US equities ended in mild red and fell around 0.3%. Nifty also saw a mild fall of 0.13%.

US CPI data is awaited today. Yesterday’s PPI came in line with expectations. If the CPI remains within the expectation band, markets could continue to remain positive for a few more weeks as the next major event would again be the next month’s jobs data.

USDINR could meander along in a broad range and move according to technical factors in global markets. Brent has again climbed to 85+ and further up moves could be noticed by the Rupee market. The short-term remains comfortable for the Rupee.

Global Markets and INR around 7:30 am (9th November 2021)

INR likely to open around 73.90

The Rupee rode the momentum yesterday and broke 74, in a move that started with the Dovish FOMC last week. USD still remains strong against other global currencies, though losing a slight advantage due to the FOMC stance. US yields continue to be under pressure – 10y at 1.48%. EUR is trading at 1.1580, GBP at 1.3550 and JPY at 113.15. US equities managed to close in the green and S&P had yet another all-time high close. Indian indices did well, with Nifty gaining 0.85%.

The Rupee has had a good correlation with the US 10y yield of late and USDINR has reflected the fall in yields post FOMC. With risk appetite healthy, the Rupee has found itself in a position of comfort. This positivity might not last long, if inflation becomes the focal point again. The next stop is the CPI data out of the US tomorrow. For now, USDINR would be stable with a bias towards Rupee appreciation, as the global Dollar continues to falter amidst a lack of support from US yields.

Global Markets and INR around 7:00 am (8th November 2021)

INR likely to open around 74.20

Post the relatively dovish FOMC last week, the Dollar has been stable but US yields have fallen sharply. The FOMC downplayed the risk of rate hikes even while providing a timeline for the taper of bond purchases. They had indicated that the taper would start this month and continue at a reduction rate of 15 billion a month until the middle of the next year. But Powell downplayed the inflation threat again and tried to assuage any concerns of a sharp move by the FOMC. Despite the Friday’s healthy US jobs data, markets seem to be believing the Fed narrative for now, and yields reflect that belief.

EUR is at 1.1560, after being lower at 1.1520. GBP is at 1.3480 and JPY is at 113.60. The dovish FOMC comments provided enough cover to global equities to continue the rally and to a healthy risk appetite. EM currencies such as INR have benefited due to this FOMC. The US jobs data came in higher than expected – at 531k jobs added. But markets felt that the data is just in the right zone of comfort, which does not disturb the inflation expectations and at the same time keeps the growth expectations growing.

The market behavior of the past few days clearly indicates that the only major market-moving factor of any worth is the FOMC. Even as equities are at an all-time high, job growth is good, inflation running very high, the market somehow believes that the Fed can continue to print money and maintain zero rates without any accident.

The next critical data point is the US inflation this week. If the print is within the expectation zone, risk appetite could continue to be strong for a few more days. The more the short-term positivity and risk appetite, the higher the chances of a sharp correction later. We are heading towards an accumulation of medium-term risks and INR is vulnerable to a sharp panic correction once the taper starts.

There was an expectation that the last FOMC would set the medium-term direction for the Rupee and Dollar. But it seems we must wait for the actual taper and the coming data points on inflation to make that call.

Global Markets and INR around 7:00 am (3rd November 2021)

INR likely to open around 74.85

Risk appetite returned to markets and Dollar is slightly weaker ahead of the FOMC meeting starting today. Dollar index is below 93.94, EUR at 1.16, GBP at 1.3650 and JPY at 114.05. DOW and S&P 500 managed a small gain of around 0.2%, and Nifty shot up 1.5% wiping out the previous day’s losses.

India’s trade deficit for October came in at around 19.9 billion. Though lower than the previous month’s, a 20 billion per month trade deficit works out to an annualized 100-120 billion CAD, which can prove difficult to manage in times of outflows. This is a negative factor for the Rupee, but not something that will influence USDINR in the short term.

All eyes are on the FOMC, and markets would be tentative until the statement tomorrow. USDINR remains in a tight range and can be expected to meander along a narrow path till tomorrow’s decision.

Global Markets and INR around 7:00 am (2nd November 2021)

INR likely to open around 74.70

Currencies are trading muted ahead of today’s crucial FOMC decision. USD is trading flat against most currencies and risk appetite is holding well. EUR is at 1.1580, GBP at 1.3620 and JPY is at 113.85. US 10y is slightly lower, at 1.55%. Brent is at 83.65. US equities ended higher by around 0.35%. Indian equities saw a mild red (0.2%).

FOMC statement and the potential timeline for the taper are being awaited keenly by the market. Also important will be Powell’s tone in the press conference. Most FOMC members have come out talking about persistent inflation. The current yield curve is projecting a more aggressive Fed till 2023 when compared to the FOMC’s “dot plot” and is less aggressive from then. While inflation is the key concern currently, any hawkish action by Fed can lead to massive panic in markets given the liquidity deluge that most markets are used to and can lead to strong risk aversion. This meeting could be the first of a series of hawkish ones over the next year or so at least.

USDINR is in a range, benefitting from quiet global markets. Today’s FOMC and the subsequent jobs/inflation data out of the US remain the critical factors for the Rupee. The potential move in INR for the next few weeks is very much event-dependent, though the medium-term outlook remains consistently bearish for the Rupee.

Global Markets and INR around 7:00 am (1st November 2021)

INR likely to open around 75

USD closed last week strong. EUR is at 1.1550, GBP is at 1.3670 and JPY at 114.10. Dollar index is back above 94. US equities ended the last day of the previous week mildly positive (0.2%), but Nifty ended in red (-1%). Brent is at 83.40.

This week might set the medium-term direction for the Dollar. FOMC decision would be out on Wednesday. PCE inflation, the Fed’s favorite measure of inflation, continues to remain high at 4.4%, as per Friday’s report. The short-term yield curve is projecting a more hawkish Fed than what their own dot plots have indicated thus far. Supply chain issues remain very real across countries and persistent inflation might put a dent into global growth prospects if inflation expectations get entrenched. In addition to the FOMC, US jobs data would keep currencies on their toes.

With the resurgence of the USD, the Rupee would be in a tight spot today and ahead of the FOMC meeting. While USDINR has stalled in a range for the past couple of weeks, a hawkish FOMC can set the next leg of the move. Equities have been resilient until now, but one can see some weakness setting in, especially in Indian indices. As for crosses, we expect some risk aversion led strengthening of JPY soon if FOMC goes as expected. It will serve USDINR importers well to keep the hedge ratio high while exporters might lighten their hedge ratios or focus on some option hedges to keep the potential upside in the USDINR spot open.

Global Markets and INR around 7:00 am (29th October 2021)

INR likely to open around 74.85/90

USD fell yesterday amid low GDP numbers and a surge in EUR post ECB decision. EUR is now at 1.1680, GBP at 1.3790 and JPY is at 113.40. US equities managed a good day with a 1% gain for S&P 500, driven primarily by tech stocks. Asian markets were jittery yesterday on both inflation fears and concerns around sagging growth. Indian equities fell sharply, and the frontline indices recorded around 1.9% fall, the highest since April. Given the overnight positivity in the US markets, Nifty might recoup some of yesterday’s losses today.

US GDP came in lower than expected – at 2%. This print indicates that there is a serious slowdown in the economy and the post-covid momentum is lost. Stocks did not bother about the growth data and remained more concerned about the Fed action. But USD took note of the same and has weakened. US yield curve is flattening fast, with 2y rates jumping 5 bp higher yesterday, while the 10y fell 2 bp. Yield markets are indicating either a sharply lower growth or a policy error from the Fed. Continuing flattening of the yield curve is not good for markets eventually, and this aspect might come into focus soon if rates continue to flatten. In addition to the macro data, news that the US infrastructure bill hit some stumbling blocks led to slight weakness in USD.

ECB tried to moderate the market expectations about a hawkish stance on inflation. ECB kept the status quo on the policy and said that their pandemic bond-buying program would continue at least until March 2022. The ECB president downplayed inflation concerns saying they are transitory. But markets took EUR higher, indicating that they don’t believe the dovishness of the ECB.

USDINR is still biding time in a range ahead of an event-filled next week. Given the backdrop of falling US growth, it would be interesting to see how FOMC positions the taper and rate hike timelines. INR remains in the clutch of negative factors relating to growth and inflation concerns, and the medium-term outlook remains uncertain.

Global Markets and INR around 7:00 am (28th October 2021)

INR likely to open around 75.10/15

USD traded slightly stronger despite weak US durable goods data. EUR is at 1.1590, GBP at 1.3725, but JPY strengthened to 113.80. US yields fell after the durable goods data which indicated a sagging growth. US GDP is expected today and can influence the currencies if seen to be falling more than expected. ECB meeting today is key for EUR and given the surging inflation in the EU, markets want to hear from the ECB on their stance around halting the bond purchases. Bank of Canada has officially halted their asset purchases and have signaled a rate hike soon. Also slated today is the BOJ decision, and they are expected to continue the status quo on asset purchases and rate stance.

DOW fell 250+ points yesterday, and the JPY strength reflected the risk aversion in trade. Nifty ended in the red by 0.3%. Brent fell sharply and is now trading at 82.40, a positive for INR. USDINR continues to meander along until a firm direction is apparent. Today’s ECB decision might not impact the pair much. Tomorrow’s US PCE data and the next week’s FOMC, US jobs release and trade deficit are the key focal points now. USDINR can be expected to drift with some upward bias today due to the mild risk aversion in markets.

Global Markets and INR around 7:00 am (27th October 2021)

INR likely to open around 74.90/95

USD traded flattish yesterday. EUR is at 1.1605 ahead of the ECB policy. GBP is at 1.3770 and JPY is weak, at 114.10. US 10y fell again slightly, now at 1.62%. While US equities managed a flat close, Nifty rose by around 0.8% odd. Brent is back above 85 again.

USDINR continues to trade in a range and might continue to do so for the next few days, unless the US PCE data blows away expectations. Markets would focus on the ECB decision tomorrow and the more dovish ECB is, the wider will be the monetary policy divergence and the higher the pressure on EUR. Any major move in USDINR might occur in the November first week, after the FOMC meeting and trade deficit data, and USDINR might trade with a neutral bias until that time.

Global Markets and INR around 7:00 am (26th October 2021)

INR likely to open around 75/75.05

USD traded strong yesterday. EUR is at 1.1610, GBP at 1.3770 and JPY at 113.85. US 10y is slightly lower at 1.64%. US equities managed gains, driven by tech stocks. S&P gained 0.5% and NASDAQ close to 1%. Nifty was flattish, though some sectoral indices such as banks surged 2%+. Brent traded flattish, now at 85.15.

USDINR remains in a range waiting for the next move and the pair can be expected to be stable today. Ahead this week are US PCE inflation, US GDP and the ECB policy decision.

Global Markets and INR around 7:00 am (25th October 2021)

INR likely to open around 74.95/75.00

USD opened the week stable. Dollar Index is at 93.60, EUR is trading at 1.1645, GBP at 1.3770 and JPY at 113.80. US yields fell on Friday, with the 10y down to 1.63%. Brent also saw some pullback to trade at 85 now. US equities were slightly down on Friday led by tech, but the DOW managed a positive close. Nifty was down by 0.3% odd.

Evergrande said it managed an extension to the bond payment, but other Chinese real estate companies are also seeing some repayment pressure on their international commitments. There is a clear risk emanating out of the Chinese attempt to reign in debt-laden sectors of the economy and this could be a disruptive aspect for global markets in the medium-term.

The next critical stop for markets is the FOMC meeting next Wednesday. US inflation remains the primary issue before the FOMC. Supply chain constraints are continuing to bother most sectors and some projections indicate that the climate change-related pullbacks in the energy sector are adding to this problem for crude markets.

Covid is again coming to the fore, as the sharp rise in the UK caseload and the ongoing severity of the Russia wave seem to point to another potential mutation. While there might not be a direct impact on markets for now due to the resurgence of the virus, the medium-term risk that it could influence a growth slowdown and compound the problem for central banks.

As for this week, data such as US, GBP and PCE inflation would keep the market somewhat busy. USDINR could remain in a range for the next few days as the global Dollar takes a breather waiting for the all-important first week of November.

Global Markets and INR around 7:30 am (22nd October 2021)

INR likely to open around 74.80/85

Markets were relatively calm, and the Dollar moved in a tight range yesterday. EUR is at 1.1625, GBP is at 1.3800 and JPY is at 114.10. US 10y rose to 1.69%. The DOW managed a flat close while S&P 500 rose 0.3% backed by tech. Nifty fell 0.5%. Brent retreated yesterday and is now trading at 84.90.

Except for some news-related volatility, markets might hold on from any large directional moves until the first week of November. In addition to the usual data on US jobs and India trade deficit, FOMC is slated on the 3rd of next month. USD has lost some momentum for now, and most risk-currencies are steadying post the slump. We can expect INR to drift sideways for the next few days unless there is a risk aversion from the Evergrande episode again. Covid continues to lurk in the background and countries such as the UK are seeing a resurgence of cases again and the US is seeing a shift in caseload from the southern states into the eastern ones such as NY slowly. It seems that more restrictions are unlikely even if the Covid surge occurs again. But, given that the US GDP growth seems to be slowing down, Covid would remain a meaningful threat to markets, but only in the coming months. In the short term, Rupee could continue to trade in a range between 74.50 and 75.60.

Global Markets and INR around 7:30 am (21st October 2021)

INR likely to open around 74.80/85

USD is weaker against most currencies except JPY. EUR is at 1.1660, GBP at 1.3825, and JPY at 114.35. US yields remain elevated, and the 10y is at 1.66%. DOW ended 0.4% higher, indicating a healthy risk appetite. Nifty though fell 0.8% odd yesterday. Dollar index is at 93.50.

It is now a tussle between risk appetite and USD strength. With the FOMC meeting less than two weeks away, markets are fairly comfortable about the taper possibility, and risk appetite is holding in equity markets. USD has weakened due to this risk appetite, another indicator of which is weak JPY. Despite pricing pressures, supply chain issues and potentially longer period of high inflation, markets seem sanguine about the potential disruption due to the taper.

USDINR remains in a comfort zone for now, due to the reversal in global Dollar strength. This is a temporary phase in our view, as the inflationary forces would lead to risk aversion sooner or later. Oil is another key negative factor for the Rupee. Brent is now at 86. It is a matter of time before markets talk about oil at 100 if current supply constraints and strong demand continue. November can be expected to be an important month for determining the medium-term trend for the Rupee.

Global Markets and INR around 7:30 am (20th October 2021)

INR likely to open around 75.10/15

USDINR is now stable in the 75-75.30 range as the Dollar is showing some signs of pullback after the solid run of the past couple of weeks. USD dipped yesterday against most currencies except JPY. US yields remain elevated, especially at the long end. EUR is at 1.1640, GBP is sharply higher at 1.3805, but USDJPY is up at 114.50. US 10y is at 1.66%. The yield differential is keeping JPY weak, in a sign that the current USD strength is driven by yields rather than risk aversion. Equity markets continue to hold well, and yesterday saw a 0.6% odd rise in the DOW.

With most of the data out of the way for this month, markets are now dependent on technical factors. The short-term outlook for the Rupee remains balanced as the Dollar strength is taking a breather. But, given that risk aversion is yet to hit equities, the November FOMC meeting might as well be the trigger for some sell-off there. Inflation continues to be an issue across the globe. More and more companies are coming out about supply-chain issues and shortage of commodities and input material. It seems that inflation would be a concern going well into 2022, which means that the FOMC might be forced to be more aggressive in their taper stance.

Oil continues to be elevated and crude option markets are now pricing in some value to 200$ strikes also, indicating that they see some small probability of even a 200 $ oil. If not such drastic prices, an increase in oil from current levels is looking like a good possibility, and with the trade deficit already very high, INR could get negatively impacted in the medium-term.

For now, Rupee is well-balanced for the next few days until the month-end, until the next set of data points on the US jobs and inflation are slated to hit the wires.

Global Markets and INR around 7:00 am (18th October 2021)

INR likely to open around 75.10

The Dollar ended stable against most currencies on Friday, after a solid US retail sales print showing surging consumer part of the economy. Equity markets rallied even though yields went higher post the data. JPY weakened again, as risk appetite remained strong. EUR is now at 1.1590, GBP at 1.3740 and JPY is at 114.05. DOW rallied 1% as did Nifty. Brent has risen yet another day, now at 85.75.

With significant economic data out of the way, currencies would move based on equity and risk aversion changes for the rest of the month. Evergrande could be officially in default by Oct 23 after their grace period is over. The recent Dollar strength was despite equity strength and strong risk appetite. Risk factors such as oil price, Chinese concerns, and eventually taper-related issues have the potential to cause a sharp equity correction and risk aversion, leading to another leg of Dollar strength. We would watch the behavior of USDJPY to gauge any risk aversion setting in. For now, USD remains strong, but searching for further momentum.

USDINR might remain in a range and even give up some of the recent gains before the next leg of the move. But the medium-term prospects for the Rupee remain bleak.

Global Markets and INR around 7:00 am (14th October 2021)

INR likely to open around 75.30

Dollar stabilized yesterday after days of strengthening and US yields fell post the inflation data. The US inflation rose 5.4% YoY and the core inflation rose as per expectations. Even though the number is way higher than the Fed’s target of 2%, markets took comfort in that the inflation is not running away each month. US yields fell and the 10y is now at 1.55%. EUR is back at 1.16, GBP at 1.3670 and JPY slightly stronger at 113.40. Even though S&P 500 rallied 0.3% due to tech strength, the DOW ended flat, indicating that markets continue to be cautious. Nifty managed a 0.9%+ jump yesterday, in a sign that in the very short-term, the risk appetite is holding well.

FOMC minutes have revealed that most members are in favor of starting the taper from November, as expected by markets. USDINR up move has taken a temporary hiatus and the momentum has now stalled. Whether there would be some reversal of the recent gains for the USD is now dependent on how oil behaves and whether equities continue the momentum from hereon. There is not much data left to influence markets in a big way for the next week or so. October has always been a fairly volatile month for global equities, and USDINR could also be volatile now without a large directional shift until the risk appetite turns either side.

Global Markets and INR around 7:00 am (13th October 2021)

INR likely to open around 75.40/45

Dollar gave back some of the intra-day gains and ended flattish yesterday. EUR is at 1.1545, GBP is at 1.3590 and JPY is at 113.50. US equities could not manage green close yesterday also and ended slightly in the red. Indian equity indices rose around 0.25%. US 10y fell to 1.58%. Brent remains at an elevated level, now at 83.40.

US inflation data is slated for today, and a strong report can potentially lead to the next leg of the USDINR move. USDINR moved to 75.65+ levels yesterday before reverting lower. Rupee has been very weak despite the lack of risk aversion in equity markets. The major worry for the Rupee from hereon would be if a genuine taper tantrum leads to meaningful equity market fall and leads to FPI outflows. The outlook for the Rupee remains bleak until there is a sense that markets have managed to take the taper in their stride. Further, the commodity price rise and Chinese real estate concerns also have the potential to disrupt the Rupee in the coming months. The short-term bias also remains towards depreciation unless the incoming data such as inflation surprise to the downside.

Global Markets and INR around 7:00 am (12th October 2021)

INR likely to open around 75.40

The relentless USD strength continued yesterday, supported well by the elevated US yields and jittery equity markets. EUR is at 1.1550 now, GBP at 1.3590 and JPY at 113.40. US 10y is at 1.62%. The DOW fell 0.7%. Nifty managed some gains yesterday but is set to open subdued. Brent moved higher yesterday also, now at 83.40.

The general environment is that of unease as markets do worry when the liquidity tsunami which kept them rising is slated to disappear. Chinese firm Evergrande missed another bond payment yesterday, but more concerning is that a couple of other Chinese real estate companies said that they would miss their international bond payment due this month. It seems that the Chinese real estate sector is facing a deep liquidity crisis, another factor of concern for markets.

USDINR is slowly but surely drifting up. Taper remains the key market factor driving the move. Tomorrow’s US inflation data is important for the Rupee and going by the recent wage pressures apparent in the jobs report and the supply chain disruptions in various markets, it is more likely than not that inflation is set to remain elevated for more months to come. The natural direction for the Rupee is towards depreciation.

Global Markets and INR around 7:00 am (11th October 2021)

INR likely to open around 75.10/15

USD remained strong despite a sharply lower US jobs print on Friday. The headline jobs-added number was 194k against the expected 500k. But the unemployment rate fell to 4.8% due to people leaving the labour force and the August number was revised higher. More importantly, the wage growth of 0.6% MoM revealed the ongoing labor shortage and wage pressures that would contribute to future inflation. While the Dollar fell slightly initially, it quickly reversed, backed by rise in yields. EUR is at 1.1575, GBP at 1.3640 and JPY is at 112.30. Equity markets ended flat in the US and could not hold on to the gain after the payroll data. US 10y is at 1.62%.

Nifty gained 0.6% on Friday but is set to open muted following the US market cues. Brent continues to remain elevated, now at 83. There are news reports that the coal and natural gas shortage is spreading into many countries including India, leading potentially to enforced power blackouts. The outside chance that oil will shoot up towards 100 is to be considered a risk for markets.

On the domestic front, the RBI kept rates unchanged and said that the accommodative stance would also be continued for foreseeable future. It reduced the inflation projection, despite the sharp rise in global energy prices. The policy had minimal effect on the Rupee.

USDINR is firmly on the up move, though the pace of the move could be slower from here. The next data point of interest is the US inflation due Wednesday. Higher USDJPY indicates that the current move is not due to risk aversion, but more due to the sharp rise in US yields. The risk factor for the Rupee is a potential onset of risk aversion in equity markets – a taper tantrum. Until then, USDINR could keep drifting higher as long as US yields remain in the same direction.

Global Markets and INR around 7:00 am (8th October 2021)

INR likely to open around 74.85

Dollar remained strong yesterday even as equity markets managed to gain solid ground. While the temporary lift of the US debt ceiling helped equities, inflation concerns, and the Fed taper continue to buoy US yields and the Dollar. EUR is at 1.1550, GBP at 1.3615 and USDJPY at 111.80. US 10y yield is hovering at 1.59%. Brent has again resumed its up move and is at 82.70 now. DOW jumped close to 1% and Nifty moved up by 0.8%.

Today’s US jobs report could be critical and can potentially trigger the next leg of the Dollar rally. The recent data points on the labour market suggest solid demand in the US. On the domestic front, RBI is slated to announce the monetary policy today and we expect it to maintain the status quo. The potential inflationary impact of rising oil prices could be the point of discussion in today’s policy. An unmitigated rise in oil could tie RBI’s hands and force them to give up the easy liquidity stance in the coming policy meetings leading to stress on debt flows.

USDINR would remain bid until the global Dollar reversal picks up steam. The medium-term direction remains towards more Rupee depreciation.

Global Markets and INR around 7:00 am (7th October 2021)

INR likely to open around 74.80

Dollar surged during the day yesterday but cooled down in the overnight US session. USDINR breached 75 yesterday, and the underlying pressure on INR remains high. EUR is now at 1.1555, GBP at 1.3590 and USDJPY at 111.40. Equities had a mixed day yesterday with most equity indices seeing deep cuts, but US markets recovering from the lows. S&P 500 rose 0.4% after news that there is some temporary relief up to December possible in the debt ceiling negotiations in the US congress. Given the late reversal in the US indices, Nifty could stabilize today after being down 1% yesterday. US 10y is at 1.54%. Brent is lower at 81.

Even though USD saw temporary stability yesterday, the next key stop is the US payroll data which is expected to be solid. The ADP private payroll data came in better than expected and the ISM services index had shown robust growth. If the jobs data does come out better than expected, markets would fear a more aggressive taper and risk aversion might set in quickly. The volatility in equities is indicative of the stress in markets due to the coming tapering. While most market observers say that the taper would not be disruptive to markets, one must realize that in the past 1.5 years there is an unprecedented liquidity surge buoying markets and helping risk appetite and a drastic cut to that liquidity cannot be smooth.

USDINR remains vulnerable to an up move but would be volatile depending on the performance of the global Dollar. The Rupee finds itself pushed by a confluence of factors – high oil prices, high trade deficit, high global inflation, and the Fed taper. The general trend would remain towards depreciation until these factors get resolved favorably.

Global Markets and INR around 7:00 am (6th October 2021)

INR likely to open around 74.55

The Dollar remained firm yesterday except against GBP which was driven by hopes that the Bank of England would be relatively hawkish in its rate stance. EUR is at 1.1590, GBP is at 1.3620 and USDJPY is at 111.60. US yields resumed their up move again, and the 10y is back to 1.55%. DOW and equity indices across the globe reversed the previous day’s losses and ended higher by 1%+. Nifty also saw a 0.75% jump.

While equities have managed to eke out some gains, the trend of Dollar strength remains intact. Oil also rose to 82.60+ level, putting further pressure on the Rupee and keeping the inflation concerns fueled. The extent of Rupee depreciation from here would depend on whether there would be a risk aversion wave in equities due to taper and inflation concerns. The US economy is doing strong and the latest ISM services data came in higher than expectations. Especially, the prices paid component, which indicates the inflation in the economy, was very robust. The next set of jobs and inflation data are critical to sustain this Dollar strength. INR remains vulnerable to further depreciation in the current environment.

Global Markets and INR around 7:00 am (5th October 2021)

INR likely to open around 74.55

Dollar remained stable yesterday, but equity markets sold off in the US, driven by tech. EUR is at 1.1610, GBP at 1.3590 and JPY is at 111. USDJPY remained supported and JPY did not strengthen against most currencies, indicating that the equity move was not risk-aversion driven. S&P 500 fell 1.3%. Nifty jumped 0.9% yesterday but is slated to see a negative opening today. Brent surged higher, now at 81.20, and this unremitting rise in oil is a clear Rupee-negative factor. It seems that the sharp jump in the trade deficit and continuing rise in oil are making markets jittery and pulling USDINR up.

We are yet to see a broad risk-aversion-driven move in equities and EM currencies. More INR depreciation is very much a possibility, especially if JPY starts to strengthen relative to most currencies, indicating risk aversion. High oil prices would feed into inflation across the globe, and markets can react to this factor anytime now. Markets are also waiting for the US jobs data to gauge if the US economy is overheating or not.

USDINR has a firm bias towards Rupee depreciation, though the quantum of the move could still be limited. The next target is the 75 zone, which has been a good resistance in the previous move. Unlike the previous breach of 75, this time around, the confluence of other factors is affecting the Rupee. Taper possibility and persistent inflation are now compounded by higher trade deficit and sharply rising oil prices, along with jittery equity markets and muted flows. In all, while the Rupee could still be in a range below 75 for a few days, the risk of a sharp depreciation is slowly building up and this factor must be kept in mind during hedging.

Global Markets and INR around 7:00 am (4th October 2021)

INR likely to open around 74.15

The Dollar reversed some of its gains on Friday, as US yields retreated. US 10y fell to 1.45% from 1.5%+ levels. EUR is at 1.1605 now, GBP at 1.3550 and USDJPY is at 111. US equities managed a sharp rebound with 1%+ gains, in line with a fall in yields. Whether the Friday’s reversal is just a temporary blip in the ongoing USD strength, or whether the reversal is more durable are the questions of interest for markets now.

India’s September trade deficit came in at a whopping 22.9 billion – a 9 billion jump from the previous month. There is an increase of 6 billion USD in the oil import bill, and other imports increased by 3 billion. We have to wait for the next month’s data to see if this surge is just a temporary phenomenon. If not, the Rupee would be in trouble as a 22 billion deficit indicates around 120+ billion of CAD annualized. The trade deficit data might not impact the Rupee negatively yet and markets might want to wait for another print.

This week has the critical US jobs data, among others. October has historically been a very volatile month for equities and can potentially go either way – the reversal of September losses or a continuation of the risk-averse moves. Evergrande is still a point of concern for international investors and can still trigger some risk aversion. The latest ISM data shows healthy manufacturing growth in the US, and services data is awaited this week. On the domestic front, the RBI monetary policy is slated for this Friday.

USDINR is now in a neutral zone as falling US yields keep risk aversion checked. The general direction over the medium-term remains towards INR depreciation as a host of adverse factors still are lurking around. In the coming few days though, the base case remains that of a range-bound USDINR reacting to the news.

Global Markets and INR around 7:00 am (1st October 2021)

INR likely to open around 74.20

Dollar continued its surge yesterday also, especially against EUR. EUR is at 1.1570, GBP is at 1.3450, and USDJPY is at 111.35. US yields have slightly softened with the 10y at 1.5% now. DOW finished September with a cut of 1.6%. Nifty also had a fall of 0.5% odd. Brent moved up again yesterday and is currently at 78.40.

Markets are in an uncomfortable position, as the taper process can potentially upset the yields in the US. While the yields have come off highs, the specter of a reversal again is always a threat. Dollar has gathered good momentum, and if yields remain elevated, EM currencies are at risk of a larger move over the next few months. The new set of data points for October start from today, with the PCE. Next week’s payroll data could also move currencies well.

USDINR remains biased towards Rupee depreciation. The momentum of the up move towards 74.25 has stalled, but the direction is intact. USDINR seems to have a good correlation with the 10y yield in the short term, which is to be watched out for. In the medium-term, it is unlikely that the Rupee would appreciate meaningfully, given the backdrop of taper, rising inflation across the globe, and high oil prices. Any of these factors has the potential to cause a sharp depreciation in a 6m to 1y period.

Global Markets and INR around 7:30 am (30th September 2021)

INR likely to open around 74.35

Dollar rampage continued yesterday, supported by high US yields. EUR crashed to 1.1605, GBP to 1.3445 and JPY is at 111.90. US 10y cooled off from yesterday, but still is elevated, at 1.51%. US equities managed to stay in the green, and EU markets saw a recovery of 0.5%-1%. Nifty ended lower by 0.6% and is set for a flat open. Crude is slightly lower on US inventory data. Brent is now at 77.90.
Markets are awaiting some progress on the debt ceiling negotiations in the US Congress, as any failure to come up with a bill would lead to a government shut down thereby Oct 15th. The October data on jobs and inflation would assume more importance as they can directly influence the Dollar momentum.

USDINR is now firmly on an up move. Dollar has been stronger against EUR and GBP, than against EM and more strength is possible there. While equities have recovered, for now, the US yield movement has become the critical influencer of USD strength. The next set of incoming data might set the direction for US yields and the Dollar, especially if they sway too much away from expectations. The bias remains towards more INR depreciation.

Global Markets and INR around 7:30 am (29th September 2021)

INR likely to open around 74.20

USD is raging against most currencies, supported by surging US yields. US equities fell sharply on inflation fears and worries that the Fed stance would need to be more hawkish than the current position. Powell’s testimony to the US Congress mentioned that inflation would be more persistent than previously thought. With most commodity prices, including crude prices rising, markets sense that we could be at the starting point of a long-drawn rate tightening cycle.

US 10y surged to 1.55% – 25 bp in 5 days. EUR is at 1.1680, GBP is at 1.3530 and USDJPY is at 111.60, indicating a sharp broad-based Dollar strength. S&P 500 fell 2%+, driven by a sharp selloff in tech stocks (2.8% cut in NASDAQ). In all, there is some sense of taper tantrums creeping into the markets. Nifty fell 0.6% yesterday and is set for more today.

USDINR has easily broken through the 74-74.10 resistance and is set for more up move in the coming days. Global Dollar strength, potential taper tantrum, higher oil prices with a chance of a further rise and covid related concerns are all now worries for the Rupee. The next few days of equity and US yield behavior are critical for the extent of movement in USDINR and to determine whether this is the start of a large move.

Global Markets and INR around 7:00 am (28th September 2021)

INR likely to open around 73.85

USD is strong against EUR and JPY and is firmly supported by higher US yields. EUR is at 1.1725, JPY is at 110.60 and GBP is at 1.3675. Oil is higher as supply is unable to match the demand revival. Brent is currently at 78.50, moving towards 80+ soon. Equities ended flattish on Friday, but futures are indicating a positive start for today. US 10y has reached 1.45%+ and it seems markets are factoring in higher inflation and Fed hawkishness.

Evergrande is yet to make the last week’s payment, but hopes are alive that that payment and this week’s interest would be paid soon.

Higher US yields are pushing USD strength against EM currencies and USDINR is also naturally inclined to move higher for the same reason. With oil also rising in a sustained fashion, there would be more pressure on the Indian trade deficit in the coming months, which is a negative for the Rupee. Further higher oil also means higher US inflation and yields.

In the next few days, there are not many critical economic releases to influence currencies, and USDINR could drift higher depending on how global Dollar strength and US yield moves play out.

Global Markets and INR around 7:30 am (27th September 2021)

INR likely to open around 73.85

USD is strong against EUR and JPY and is firmly supported by higher US yields. EUR is at 1.1725, JPY is at 110.60 and GBP is at 1.3675. Oil is higher as supply is unable to match the demand revival. Brent is currently at 78.50, moving towards 80+ soon. Equities ended flattish on Friday, but futures are indicating a positive start for today. US 10y has reached 1.45%+ and it seems markets are factoring in higher inflation and Fed hawkishness.

Evergrande is yet to make the last week’s payment, but hopes are alive that that payment and this week’s interest would be paid soon.

Higher US yields are pushing USD strength against EM currencies and USDINR is also naturally inclined to move higher for the same reason. With oil also rising in a sustained fashion, there would be more pressure on the Indian trade deficit in the coming months, which is a negative for the Rupee. Further higher oil also means higher US inflation and yields.

In the next few days, there are not many critical economic releases to influence currencies, and USDINR could drift higher depending on how global Dollar strength and US yield moves play out.

Global Markets and INR around 8:00 am (24th September 2021)

INR likely to open around 73.85

USD gave away some of its strength against most risk currencies yesterday but strengthened against JPY indicating a resurgence in risk appetite. Equities across the board shot up higher by 1 to 1.5% as Evergrande fears receded somewhat. EUR is at 1.1740, GBP at 1.3730 and JPY is at 110.40. The DOW jumped by around 1.5%, as did the Nifty.

Markets, for now, seem to be comfortable with the Fed’s taper stance. But, while there might not be a large taper tantrum like the 2013 one coming, there is a good chance that Equities wake up to the reality that the liquidity tap could be shut off in the next few months.

Evergrande has yet to make the payment to international bond investors, but news that the Chinese government has asked the company to avoid any default and that the PBOC has increased the quantum of liquidity injections has provided comfort to Markets. The issue, though, is not yet over.

USDINR range is holding for now, but the bias remains towards Rupee depreciation. While yesterday saw a general Dollar weakness, the medium-term factors such as Taper, Covid, Inflation, and Oil are all Rupee negative. Today, though, might see some stability in the Rupee owing to global risk appetite.

Global Markets and INR around 7:30 am (23rd September 2021)

INR likely to open around 73.85/90

The combination of FOMC and Evergrande’s fears has led to a resurgence in the dollar strength. FOMC was more hawkish in our view in relation to the timelines for the taper. They announced that a reduction in bond purchases is now appropriate. Powell indicated that the taper can start this year itself (announced in the Nov meeting) and end in mid-2022, which is a fairly aggressive timeline. The “dot plot” indicated that more FOMC members see a rate hike in 2022 than in the June meeting. The FOMC revised their inflation forecasts much higher for 2021 and beyond suggesting a hawkish stance. In all, it was a hawkish outcome and would influence markets negatively in the coming weeks/months.

Dollar strengthened post the meeting. But USD was slightly weaker before the FOMC meeting on the Evergrande news. Evergrande stuck a deal on on-shore bond payments leading to hopes that the offshore payment could also be made and a crisis averted for now. Currently, EUR is trading at 1.1695, GBP at 1.3625 and JPY at 109.90. Equity markets were higher by 1% on easing Evergrande fears, despite the FOMC hawkishness.

Post FOMC, the US 10y fell by 4 bp indicating the market view that the Fed is more hawkish and ahead of the curve and also due to the fact that the FOMC projects the rate cycle to end at much lower rates than the previous ones. The US yield curve is flattening fairly fast and at this rate can lead to inversion even before the rate hike cycle starts. In other markets, Brent surged higher and is now trading at 76.35 – a clear negative for the Rupee.

The Dollar is now in a position of strength. The Rupee is now marred by both Evergrande concerns and FOMC hawkishness. For now, equity markets are higher due to hopes around Evergrande, but it is a matter of time before the reality of a taper hits the markets and a wave of risk aversion sets in. USDINR is fundamentally now on the up move due to the confluence of so many factors. The first stop is the breaking of the 74-74.15 resistance zone post which one can expect more momentum. Positive factors for the Rupee would be if the Evergrande issue is sorted out cleanly and markets completely ignore the FOMC taper in the short-term, and both these factors seem not that likely for now.

Global Markets and INR around 7:30 am (22nd September 2021)

INR likely to open around 73.65/70

Currencies are trading tight ahead of the FOMC decision today. EUR is at 1.1730, GBP at 1.3660 and JPY at 109.35. Most equity indices, including Nifty, managed to reverse the previous day’s losses. But, US indices ended flat yesterday. Evergrande is not expected to be an event that would cause global panic, but markets remain cautious about the eventual fallout.

FOMC is expected to mention taper in this meeting. Whether the FOMC would come up with a timeline is the question of everyone’s mind. As for USDINR, the range remains intact, but can break if FOMC surprises with a strong language in the statement, higher rates in the “dot plot” and a taper timeline. On the other hand, if the Fed follows what Powell did in the Jackson Hole speech and downplays inflation and the need to act soon, there could be some INR appreciation, but would be capped by the Evergrande fears. Today could prove volatile for currencies including INR.

Global Markets and INR around 7:30 am (21st September 2021)

INR likely to open around 73.65

USD is holding strong and markets are slightly jittery going to this FOMC week. Fed taper possibility would be front and center this week and it is expected that the FOMC would signal some kind of timeline for the taper and rate hikes. EUR is at 1.1720, GBP is at 1.3720 and JPY is at 110. US yields continue to rise and the curve continues to flatten indicating that markets expect the Fed to err on the side of aggression in the policy. US 10y is at 1.36%. Oil has been slowly inching up despite the strong Dollar, now at 75.

US equities fell on Friday, with the S&P seeing a 0.9% drop. Equities, of late, have been a bit shaky and the momentum has stalled. Indian equity indices are mirroring the US indices, and are expected to open cautious today. There is no trigger visible for continuing equity rally, and this is a risk factor for markets.

FOMC outcome is on Wednesday and in this meeting, they would release the “dot plot” showing the member expectations of future rates. Currencies would be volatile this week as it is loaded with BOE and BOJ rate decisions also in addition to the FOMC. Both Covid and taper continue to be the two risk factors for the Rupee. In addition, the Chinese Evergrande’s bond default event is another point of focus for markets. USDINR range is intact for now, but the bias remains towards some Rupee depreciation.

Global Markets and INR around 7:00 am (20th September 2021)

INR likely to open around 73.65

USD is holding strong and markets are slightly jittery going to this FOMC week. Fed taper possibility would be front and center this week and it is expected that the FOMC would signal some kind of timeline for the taper and rate hikes. EUR is at 1.1720, GBP is at 1.3720 and JPY is at 110. US yields continue to rise and the curve continues to flatten indicating that markets expect the Fed to err on the side of aggression in the policy. US 10y is at 1.36%. Oil has been slowly inching up despite the strong Dollar, now at 75.

US equities fell on Friday, with the S&P seeing a 0.9% drop. Equities, of late, have been a bit shaky and the momentum has stalled. Indian equity indices are mirroring the US indices, and are expected to open cautious today. There is no trigger visible for continuing equity rally, and this is a risk factor for markets.

FOMC outcome is on Wednesday and in this meeting, they would release the “dot plot” showing the member expectations of future rates. Currencies would be volatile this week as it is loaded with BOE and BOJ rate decisions also in addition to the FOMC. Both Covid and taper continue to be the two risk factors for the Rupee. In addition, the Chinese Evergrande’s bond default event is another point of focus for markets. USDINR range is intact for now, but the bias remains towards some Rupee depreciation.

Global Markets and INR around 8:00 am (17th September 2021)

INR likely to open around 73.50/55

USD traded strong yesterday after the US retail sales data surprised on the upside with a 0.7% growth MoM as against an expectation of a fall. US yields moved higher, and the 10y is now trading at 1.34%. EUR is at 1.1760, GBP at 1.3875 and USDJPY at 109.90. US equities ended in the red despite being higher intra-day. The retail sales data has again rekindled expectations of a Fed taper as the data showed that the US economy is still going at a good pace despite the Delta variant. Nifty managed a good 0.7% gain yesterday following the previous day’s US market performance.

USDINR has now moved to a calm phase and can be expected to be here for a few more days, as markets look for the next directional move. Both US inflation and the slowing of economic growth are risk factors which can push USDINR anytime the markets decide so. The next week’s FOMC is now the next major stop for markets and until then, the Rupee could move in the range with slight depreciation bias.

Global Markets and INR around 7:30 am (16th September 2021)

INR likely to open around 73.50

Currencies have traded in a tight range since yesterday. EUR is at 1.1815, GBP at 1.3845 and JPY is at 109.35. DOW managed to recover from the previous day’s fall, with a 0.7% gain. Nifty also surged 0.8% yesterday, reflecting the general revival of risk appetite. The next data point of importance is the US retail sales release due today, and there might be some moves if the data surprises markets.

INR remains stuck to the new range and volatility has again subsided. It looks like today could be yet another day of range-bound moves in currencies and the Rupee, at least until the evening’s data release.

Global Markets and INR around 7:30 am (15th September 2021)

INR likely to open around 73.65/70

The Dollar is drifting and is mildly weaker after the US CPI missed expectations slightly. US CPI came in at 0.3% MoM against expectations of 0.4%, and the YoY number is as expected at 5.3%. The lower print would imply that the Fed stance that the inflation is transitory might indeed be correct, but the headline number at 5.3% is still higher by the FOMC standards when compared against their 2% target. The initial fall in USD and rise in equities post the CPI release were nullified on risk aversion probably due to the potential China bank stress. EUR is now at 1.1810, GBP is at 1.3800, and USDJPY is at 109.60. US 10y fell sharply aided by safe-haven buying, at 1.28%. The DOW fell close to 300 points (0.85%) yesterday. Nifty managed a 0.1% odd rise.

With the CPI out of the way, markets would look at the retail sales data. Equities seem to be jittery now, as rallies are being short and falls are occurring with increasing volumes. Chinese firm’s (Evergrande) default is a matter of concern for markets and this news is to be watched out for.

USDINR could be in a range for now, as the positive vibe from the lower CPI is offset by the potential risk aversion and jittery equities. The bias remains towards mild INR depreciation.

Global Markets and INR around 7:00 am (14th September 2021)

INR likely to open around 73.50/55

USD has been in a tight range since yesterday, awaiting today’s US inflation data. EUR is at 1.1810, GBP is at 1.3850 and USDJPY is at 110.05. US equities managed a positive day and DOW ended 0.7% higher. Indian indices, though, were in the Red yesterday. Today’s US inflation data has the potential to set the medium-term direction for markets. Recent wage trends in the US do indicate that the inflation there would keep higher for a longer time. On the domestic front, India’s CPI came in at 5.3% – lower than consensus. This data would keep the RBI feeling comfortable about the liquidity position and they would not shy away from liquidity infusions through FX intervention during large inflows.

Today’s US CPI, if very different from the consensus can set the ball rolling on a large move in USDINR. Following this data would be the US retail sales release which would show the state of the US economy and the covid impact on the consumer. USDINR is now in a new range between 73 and 74. The base case for the Rupee is that it would trade in the range with an upward bias towards 74 this week.

Global Markets and INR around 7:00 am (13th September 2021)

INR likely to open around 73.50/55

The Dollar remained strong on Friday, as US equities saw a fall of 0.7%+ on concerns of slowing economic growth. EUR is at 1.1805, GBP is at 1.3830 and USDJPY is at 109.95. Brent is higher, at 73.40. US 10y is at 1.345%.

Markets are confused with the Fed messaging on the taper timelines and expect that this week’s CPI data release can help decipher the way forward. The Rupee has reversed some of its gains during the last few days of the past week and now is set to track the global Dollar strength. The US payroll data disappointed markets, but Fed officials seem to be satisfied that they are reaching their employment goals for commencing taper. The latest Fed beige book says that the economy has felt an impact due to Covid. This week’s US retail sales data also would now play a critical role in the prognosis for the economy. On the domestic front, India’s CPI is due this week.

USDINR is in a new range now, with 73 as the support and 74 as a resistance. The momentum of Rupee strength has given way to some depreciation bias depending on the incoming data. A solid US inflation print can easily lead to a sharp move in USDINR if markets expect to taper sooner than expected. The medium-term risks continue to be a threat for the Rupee. Market overvaluation and inflation/taper are both potential disruptors to be watched out for.

Global Markets and INR around 7:00 am (9th September 2021)

INR likely to open around 73.75

The sharp turnaround in USD continued yesterday also, as general caution about global growth is slowly taking hold of markets. Both the US and Indian equities were slightly in the red again, and 10y fell 3 bp indicating mild risk aversion. The sharp move higher in USDINR indicates that the Rupee strength of the previous few days was a fairly flow-driven phenomenon and the fundamentals are not supportive of a durable INR strength. EUR is at 1.1815, GBP is at 1.3760 and JPY is at 110.20. Brent continues to inch up, now trading above 72.50.

The Covid situation remains grim in the US and even in the UK, which is seeing a surge again. Markets have become cautious around its potential impact on the economy and hence the mild risk aversion. The next week’s inflation data would be the next stop for markets. For the Rupee, the bias has changed towards more depreciation, as the global Dollar weakness has turned to strength.

Global Markets and INR around 7:00 am (8th September 2021)

INR likely to open around 73.35/40

USD managed to reverse the weakening trend yesterday as a caution about the general environment of high inflation and slowing growth took over markets. Equities were fairly quiet, the US 10y moved higher by 2-3 bp, and the Dollar strengthened. EUR is at 1.1840, GBP at 1.3780 and JPY at 110.30. The lack of positive momentum for the Rupee led to a reversal in USDINR towards 73.40. This week’s rate decision from ECB is the next event to watch out for, as to whether it creates any large move in EURUSD and in the Dollar, in general.

USDINR has now lost the downward momentum completely and the bias has shifted towards Rupee weakening, albeit very mild. 73 becomes a very good support for USDINR now. The base case scenario remains that of a range-bound movement, waiting for the next week’s US CPI.

Global Markets and INR around 7:00 am (7th September 2021)

INR likely to open around 73.10

Markets were fairly quiet yesterday given it was a US holiday overnight. Currencies traded in tight ranges. EUR is at 1.1880, GBP is at 1.3850 and USDJPY is at 109.75. US 10y is slightly higher at 1.34%. US equities ended fairly flat and Indian indices saw a mild 0.2% gain. USDINR remained stuck to the 73 levels, looking for further momentum. The FII flow situation has improved in September and the month has seen around 650 million month-to-date (2.5 billion monthly rates). The flow is not enough for a blowout INR strength given that the trade deficit is increasing by the month. The fundamental situation for INR is hence a bit uncertain if the flow numbers do not improve from here.

Markets are waiting for the next set of triggers, especially the inflation data due next week. For now, there could be news-based and sideways movements in currencies. Covid remains an issue, with the UK reporting increasing caseload again and Israel reporting the highest per-million case number despite being the most vaccinated country. But, markets seem to be confident that central bank money printing would take care of them, independent of the actual performance of the real economy. For the Rupee, there are no adverse triggers for the next few days and hence might drift in a range with a strengthening bias.

Global Markets and INR around 7:00 am (6th September 2021)

INR likely to open around 73.00

The dollar ended the last week weaker, and the disappointing payroll data did little to help the currency. EUR is at 1.1880, GBP is at 1.3850 and USDJPY is at 109.80. The US jobs report revealed a disappointing 235k jobs added as against 720k expected. Equities reacted negatively initially and ended fairly close to flattish. Indian indices continued their good run with the Nifty jumping 0.5%.

The weak jobs data could have two possible market impacts – that it would keep the Fed stimulus going and hence is good for risk assets or that it means that the economy is slowing fast and hence is bad for risk assets. It seems that the market is in favour of the first interpretation for now. The next important market data point is the US inflation data due next week and there are no fresh triggers as such this week. USDINR could continue to drift sideways with a bias towards slight INR appreciation. The global risk factors such as Covid related slowdown and inflation remain lurking, and would affect the Rupee in the next month or two.

Global Markets and INR around 7:00 am (3rd September 2021)

INR likely to open around 73.05

The Dollar remained weak yesterday as risk appetite held well in markets. EUR is at 1.1875, GBP at 1.3840, and JPY at 109.90. US equities managed a slight rise of 0.2% and Indian indices registered a gain of 0.9% odd. USDINR has plateaued around 73, and the INR strength momentum is now fully over. Markets are now waiting for the important US jobs data due today evening.

India’s August trade deficit increased to 13.9 billion as expected. With oil remaining high (now at 73) and with the economy fully functional, we can expect a consistent deficit of 15 billion per month going forward, indicating an annualized CAD of around 50-60 billion. This is an important medium-term driver of USDINR rate, especially if FII flows stop due to global factors such as tapering or risk aversion. Despite the positivity in equity markets, the ground situation with regard to Covid remains vulnerable, especially in the US. The caseload continues to rise (the latest being 175k daily cases) and the economic impact of the covid wave might be felt on jobs and the economy there.

USDINR is still biased towards some INR appreciation, but the market behaviour indicates that Rupee has lost most of the steam and is looking for fresh triggers. Today’s jobs data has the potential to set the direction for the next leg of the move.

Global Markets and INR around 7:00 am (2nd September 2021)

INR likely to open around 73

Dollar retreated again yesterday due to a miss on ADP payroll data. Markets are concerned that the sharply lower ADP data might be signaling weak jobs data on Friday. EUR is at 1.1840, GBP at 1.3780 and JPY at 109.90. US 10y fell 3 bp indicating slight risk aversion in markets. US equities closed flattish and Indian equities fell 0.3% odd – for the first time since the Powell Jackson Hole speech.

On the domestic front, the data has been mixed. The Apr-June quarter GDP at 20%+ could not completely recover the fall in the same quarter of last fiscal, but markets liked the data as indicative of a rebound. The recent PMI has been lower than expected. The trade deficit for the last month is due today. Going by the trends, it should move higher – eventually towards the 15 billion figure, if the economy is picking up speed.

It is now a toss-up between a potential US inflation spike in the coming months vs a much slower-than-expected global economic growth creating equity market risk aversion. The coming week or so could provide some answers on this aspect. USDINR is now in a comfortable place, but the sheer momentum of INR strength seems to have tempered down. The medium-term factors remain threatening to the Rupee though.

Global Markets and INR around 7:30 am (1st September 2021)

INR is likely to open around 73.00

The momentum of INR strength continued yesterday amidst flows and the background of Dollar weakness. Indian equity markets registered another 1%+ day, indicating the risk appetite. EUR is at 1.18, GBP at 1.3740, and JPY at 110.20. The move in INR reflects the pent-up volatility after the range of 74-75 held for a long time. While it now looks like there is no hurdle for INR strength, the risk factors around Covid and inflation remain in play and can change course fairly quickly in the coming months.

For now, markets would look forward to the US jobs data on Friday to validate whether there is a sharp slump in the economy or whether the job market is too heated – either of which is a source of risk aversion. Until then, Rupee has the upper hand.

Global Markets and INR around 7:30 am (31st August 2021)

INR is likely to open around 73.40

After the sharp appreciation, the Rupee held ground yesterday, aided by the global Dollar weakness. EUR is at 1.18, GBP is at 1.3770 and USDJPY is at 109.90. US equities were flat, but Indian equities reflected the solid risk appetite post the Powell speech and jumped 1.3%. US 10y fell further yesterday, indicating that bond markets are comfortable with the potential taper timelines next year.

Markets are awaiting the US jobs report due on Friday. One of the reasons why markets are comfortable with the inflation picture is that the economy has cooled down a bit. The recent data has been signalling slowing growth and in that context the jobs data is important.

For now, there is a clear advantage for INR, as global risk appetite improved at the right time. But risk factors, in the form of sharp equity valuations, the potential for new covid related risks and the potential for sticky inflation would come into play sooner or later. This might be a good time for exporters to utilize some of their hedges and importers to increase medium-term hedges.

Global Markets and INR around 7:00 am (30th August 2021)

INR is likely to open around 73.50

USDINR saw a sharp fall in the late hours on Friday, ostensibly on large inflows. Further, the general USD weakness also helped the Rupee break the recent range. Now 74/74.10 is a good resistance for USDINR in the short term. In the Jackson Hole speech, Powell tried to underplay the inflation concerns and indicated that the taper could start in 2021 and there is no hurry in that aspect, helping the equity markets and weakening the USD further. EUR is close to 1.18, GBP is at 1.3765 and JPY is at 109.75.

INR is clearly at an advantage now in the short term. But, inflation concerns have not yet receded and remain a risk. More Rupee appreciation from these levels due to the sheer momentum can occur, but the risk factors remain lurking. Covid situation continues to remain grim in the US, and equity markets are stretched on the valuation front. While it is an advantage for INR in the short-term, the long-term remains uncertain for the Rupee. The next trigger would be the US jobs data due this Friday.

Global Markets and INR around 7:00 am (27th August 2021)

INR is likely to open around 74.15/20

USD strengthened as markets wait for Powell’s speech during the Jackson Hole Symposium. The Fed speakers who have already spoken have mentioned the need for taper and even the need to complete that process by next year so that they can calibrate rate hikes to evolving inflation dynamics. US 10y reflected the sentiment of the hawkish Fed, rising to 1.35%. EUR has fallen slightly to 1.1745, GBP is at 1.3685 and USDJPY at 110.05. US equities were jittery about the Powell speech and DOW fell 0.5% odd as a result. US jobless claims came in slightly worse than expected and the US Q2 GDP came in at 6.6% – slightly lower than expected. But, the primary driving factor continues to be the Fed action on taper and rate hikes.

The Covid situation remains grave, especially in the US as the ICU caseload reaches close to the previous highs. Further, the UK spread, which seemed to come off, has now again picked up steam. Covid remains a credible threat to economic activity, and can generate some risk aversion in equity markets, but only in the medium-term.

USDINR remains tethered to the lower end of the current range, and overnight USD strength can keep the pair from breaching the lower band today. Today’s Powell speech can move the Rupee if he is either too hawkish and assertive about the need for taper or if he is too dovish in downplaying the inflation threat.

Global Markets and INR around 7:00 am (26th August 2021)

INR is likely to open around 74.15

Dollar was slightly weaker yesterday, but markets were fairly subdued overall. EUR is at 1.1766, GBP is at 1.3760 and USDJPY is at 110.05. US 10y yields rose again yesterday, now at 1.34%, indicating that the risk-aversion-driven safe-haven buying has now stopped completely. This is one of the primary reasons for Rupee stability. Both DOW and Indian equity indices ended fairly flattish.

Markets are focused on the FOMC thought process and inflation dynamics. But, in the meantime, there is a surge in Covid cases in the US – the latest tally reaching 170k per day. Even the UK, which saw an initial fall, is now seeing a jump again to 35k a day. In Israel, which is one of the most vaccinated countries, the daily caseload reached close to the previous wave, and mortality is catching up. The latest India figure, at 46k, is primarily due to the surge in Kerala which is now at a test positivity rate of 19.5%. In all, Covid related fear and the potential economic impact remain a significant risk factor.

USDINR has been trying to breach the 74.15 area for some time now. In the short-term, there could be a move lower due to ongoing risk appetite, but a reversal is possible due to the medium and long-term factors such as Covid and inflation.

Global Markets and INR around 7:00 am (25th August 2021)

INR is likely to open around 74.15/20

The Dollar is slightly weaker overnight, with EUR at 1.1740, GBP at 1.3720 and JPY at 109.80. US 10y has reached 1.3%, as risk aversion subsided. Brent is back above 70. While the equities in the US ended flattish, Indian frontline indices racked up 0.75% odd gains. Markets would now wait for the Jackson Hole symposium in the coming couple of days.

USDINR is in its range but at the edge of the lower end. For the next few days, the moves would be event-driven, based on how the central bankers opine on inflation evolution and rate hike/taper. Post this, the next triggers come in the form of jobs data, ISM and inflation in the first/second week of September.

Global Markets and INR around 7:30 am (24th August 2021)

INR is likely to open around 74.15

Dollar gave up some of its gains ahead of the coming Jackson Hole Symposium. Equities had gains across the globe, indicating continuing risk appetite even in the midst of the Delta variant surge. EUR is higher at 1.1740, GBP at 1.3718 and USDJPY is at 109.70. DOW ended 0.6% higher driven by sharp gains in tech (1.5%+ on NASDAQ). Nifty also held gains of 0.4%. Oil jumped higher yesterday after being down for the past week or so. Brent is now at 68.90.

USDINR could look to breach the lower band of the recent range today, as risk aversion is kept at bay by hopes that the slowdown in global economic growth would keep the Fed from moving on the Taper. This week’s symposium is critical for judging if indeed this would be the case. Any hawkish commentary during the meeting could again trigger Dollar strength. Further, the reversal in Oil is also another risk factor to watch out for. In all, INR is still at an advantage given the fall in the global Dollar but not enough to cause a sustained appreciation.

Global Markets and INR around 7:30 am (23rd August 2021)

INR is likely to open around 74.35

USD is strong globally on the back of Covid worries and the potential divergence between the monetary policies of the US and the other major countries. EUR is hovering around 1.1710, GBP is at 1.3650 and JPY is at 109.80. With Covid lockdowns in place in countries like Australia, mask mandates back in the US, Asian countries seeing a surge in cases, and China growth slowing, there is a growing concern about the economic growth optimism which drove equity markets. Indian equities fell 0.5% on Friday. Today, though, equities have opened positive across Asia, and risk appetite is holding – a positive factor for the Rupee today.

The US Fed changed the format of the Jackson Hole summit to an online version, triggering concerns that the FOMC might take the impact of Covid seriously in their assessment. This week is crucial for markets and the Rupee, as comments about the potential taper of bond purchases in the summit can trigger some moves. Oil has been falling on growth concerns, and Brent being around the 65.50 mark could help India’s trade deficit a bit. But, in all, there is a risk that the Dollar strength, which affected the majors until now, could show up in EM weakness also. For now, the USDINR range is intact, but the next 2-3 weeks of fresh data and Fed comments have the potential to set the medium-term direction for the Rupee.

Global Markets and INR around 7:30 am (20th August 2021)

INR is likely to open around 74.40

USD regained strength over the past two trading sessions, after the release of hawkish FOMC minutes on Wednesday. The minutes indicated that there was a discussion on tapering the bond purchases and some members opined that the process should start by this year-end. EUR is lower, at 1.1675 and GBP at 1.3630. USDJPY is at 109.75, reflecting the Dollar strength. DOW closed lower by 0.25%. Yesterday was a market holiday in India. Brent continues to fall by the day on worries about the slowing global growth, currently trading at 66.50.

The Covid surge in the US has reached a rate of 150k new cases a day, and the death count has reached close to 1000 a day. Markets will remain jittery until there is a palpable turnaround in the case trajectory there. For the Rupee, FOMC minutes proved to be a hurdle to the appreciation momentum generated by weak US retail sales and inflation. Worries about global growth also are balancing out the positivity from the low inflation. USDINR is set to remain in the current trading range of 74.15 to 74.95 for some more days.

Global Markets and INR around 7:30 am (18th August 2021)

INR is likely to open around 74.35

USD rebounded sharply yesterday on the back of a strong risk aversion, post weak US retail sales data. US equities fell 0.7% odd, US 10y yield fell to 1.26% and the Dollar index reached 93.15 from 92.75. EUR is now at 1.1715, GBP at 1.3750, and JPY at 109.55. US retail sales fell 1.1% in July as against an expected fall of 0.2%. Markets are now worried that the Delta variant is impacting the economy deeply.

The renewed Dollar strength means that the Rupee appreciation momentum of the past few days would now halt for some time. Despite the sharp move in USD, there is no trigger yet for a sustained move up in UDSINR above the current range. The Jackson Hole meeting would be the item of focus for markets now, as there are some expectations that a taper of US QE could be discussed there. For now, the momentum is in favor of a slight INR depreciation within the current range. Today’s equity market behavior is critical to assess whether this is the beginning of a sharp risk aversion move or not.

Global Markets and INR around 7:00 am (17th August 2021)

INR is likely to open around 74.15

The Dollar has been weak for the past couple of days after the relatively benign inflation data. Yesterday and Friday saw the Dollar weak against most currencies. EUR is now at 1.1775, GBP is at 1.3830 and USDJPY is at 109.25. While on one hand, there is a fear of slowing growth due to the delta variant, equity markets are managing to hold on, and risk appetite is still healthy. US equities were higher by 0.3% odd and Indian indices rose 0.3%, after being higher by 1% on Friday. Oil fell over the past two days after the Chinese data and on continuing Delta scare. Currently, Brent is trading at 69.75.

Markets are waiting for Powell’s potential comments on rates and monetary policy today in a scheduled town hall. There is a clear shift in the outlook for USD from last week, especially after the inflation data. There are signs that the growth is slowing across the globe and the latest Chinese data were not up to expectations. The US empire state index also came in lower than expected. While the inflation scare has slightly receded into the background, for now, the medium-term outlook for inflation remains grim. The Jackson Hole symposium on the 26-27th of this month is keenly awaited by the market for hints on the start date of the taper. The next few days are expected to be benign for the Rupee as the global picture is fairly positive.

Global Markets and INR around 7:00 am (13th August 2021)

INR is likely to open around 74.30

Currency markets were fairly muted yesterday and the Dollar traded flattish. EUR is at 1.1740, GBP is at 1.3815 and USDJPY is at 110.40. Equity markets had a stable day with both US markets overnight and the Indian equity indices registering gains. S&P 500 gained 0.3%, led by tech gains and Nifty moved higher by 0.5%. US 10y moved higher, to trade at 1.36%, and bond markets are indicating that inflation pressure could continue to be a problem. Brent has regained some strength over the past couple of days, after being down due to Dollar strength and Biden’s request to OPEC to increase production. Brent is now at 71.10.

The covid situation remains uncertain in the US, as daily cases continue to be higher than 100k. The market seems to be sanguine about the potential economic disruptions for now. We think that the risk from a sharp market correction in the face of a covid wave in the US and other countries is potentially minimal, going by the behavior of the disease in the UK. The rise in inflation remains the big medium-term risk factor. While the latest inflation data seems to suggest a slowing US inflation rate, year-on-year numbers suggest that the “transitory” period can be longer, potentially leading to inflationary expectations remaining etched in consumer minds. Indian inflation has eased slightly with the latest CPI coming in at 5.69% – below the RBI threshold of 6%.

USDINR range remains intact for yet another day. The rebound from 74.15/20 levels shows that there is some support developing in that area. The short-term outlook is neutral for USDINR with positives and negatives balancing out and we can expect a range-bound behavior for a few more days.

Global Markets and INR around 7:30 am (12th August 2021)

INR is likely to open around 74.20

The July US inflation came in lower than expected yesterday and helped the market stave off Fed hike fears. The CPI came in at 5.4% compared to last year and 0.5% over the previous month as compared to 0.9% the month earlier. Further, the core CPI came in at 0.3% MoM, sharply lower than the 0.8% print last month. Dollar fell yesterday and INR is a clear beneficiary. EUR is at 1.1740, GBP at 1.3870, and JPY is at 110.30. US 10y fell slightly after the report. US equities rallied 0.5%+ post the CPI data. Indian equities had a flat day, and today might see some positivity.

INR has got a breather from the inflation report and the depreciation pressure has yielded a bit now. The Covid progress in the US continues to be worrying and the potential economic impact and equity market impact is yet to be priced in and this remains a risk factor for INR. But for the next few days, the bias is slightly in favor of the Rupee as the Dollar strength move has abated.

Global Markets and INR around 7:30 am (11th August 2021)

INR is likely to open around 74.40

Yesterday was a fairly uneventful day in markets. The Dollar is holding on to its strength, with EUR at 1.1720, GBP at 1.3825, and JPY at 110.60. The 10y continues to inch up and is now at 1.35%. Equities were slightly up overnight on passage of the infrastructure bill in the US, and that positivity might rub off on Asian markets today. The critical US inflation data is due today and if the data is very different from expectations, some sharp moves in currencies might happen tomorrow.

The Covid situation in the US continues to be of concern, especially in some states. The US is consistently reporting 100k new cases a day. The economic impact of the Delta spread is beginning to be felt and might reflect in the next month’s data. But, equities have taken this issue in their stride and there seems to be no sharp risk aversion yet. But, Covid would remain a risk factor for the next few weeks though.

USDINR range is back in play and today’s US CPI might set the stage for the next move in Rupee. The Rupee range has been in vogue for some time now, and hence once the range is broken, the subsequent move would be sharp and volatile.

Global Markets and INR around 7:30 am (10th August 2021)

INR is likely to open around 74.40

The post-payroll Dollar momentum continued yesterday also. EUR is at 1.1733, GBP at 1.3840, and USDJPY at 110.30. US 10y is slightly higher, at 1.32%. Equity markets across were flattish. Brent is slightly lower, at 69. Post the strong payroll data, markets are expecting that the taper discussions would start this month-end when the Fed members meet during the Jackson Hole symposium. With equities slowing down, there are signs that markets are worried about the Delta variant still and the Dollar strength might also be due to some safe-haven demand.

US inflation data is due tomorrow and until then, the momentum in USD might put some pressure on the Rupee. The Delta variant remains a worry for the US, even as it seems to retreat in the UK. USDINR has retreated from the 74.15 lows back to the 74.40 levels. Any further momentum in the next couple of days would depend on any potential risk aversion in equity markets. There is a slight upward bias for USDINR, but not enough to move it sharply towards 75. The medium-term remains uncertain for the Rupee, though, as the general economic impact of Covid and the overvaluation of equities across the globe add to the inflation and taper fears.

Global Markets and INR around 7:30 am (9th August 2021)

INR is likely to open around 74.25

USD is sharply higher post the US payroll data on Friday. EUR is trading at 1.1750, USDJPY at 110.20, and GBP at 1.3870. US yields shot up post the data and the US 10y is now at 1.3%. While US equities held on to gains, Asian markets are jittery about what the good jobs data means for the Fed move. Indian equities were lower by 0.3% odd, after the RBI policy. Oil and metal prices fell in line with the Dollar strength. Brent is now trading at 69.25.

US NFP report said that the US added 943k jobs last month, the unemployment rate fell to 5.4% from 5.9% and the wage growth came in at 0.4% MoM. It was a better-than-expected report in all possible angles. Further, the previous month’s data got revised sharply higher. In all, the jobs data might have set the market re-thinking about the Fed’s narrative that there is no need for action anytime soon.

On the domestic front, the RBI monetary policy went in line with expectations. The policy rates were kept the same, and the policy stance remains accommodative. The RBI did raise the inflation projections for the current FY but within their tolerance limit of 6%. INR was not influenced by the policy as such.

This week has the crucial US inflation data, especially important after the solid job market report. The next few days would determine whether the momentum of Dollar strength is here to stay or would it reverse soon. Persistent USD strength could put some pressure on the Rupee and for now, the bias has shifted very slightly towards Rupee depreciation. That said, the fall in oil prices is a positive factor for the Rupee and helps balance the Dollar momentum. The ongoing USDINR range could be maintained for more days to come, at least until there is a reaction in the equity markets on the potential for the Fed action.

Global Markets and INR around 8:00 am (6th August 2021)

INR is likely to open around 74.20

USD is stronger ahead of the crucial payroll data today. US equities had a good day and risk appetite was strong overnight. But, Asian open has been muted owing to the continuing worries about the Delta strain. EUR is at 1.1825, JPY at 109.87, and GBP at 1.3915. Indian equities closed positive by around 0.2%. US jobless claims yesterday came in better than expected, stoking expectations of a good payroll number today. Crude has been falling gradually on demand fears due to the Covid-19 situation in some countries including the US. Brent is trading at 71.25

Today’s RBI monetary policy is expected to be a status quo policy. Even with inflation continuing to be sticky, the MPC might stay put on the accommodative stance on interest rates and liquidity. INR might not be affected much by the policy. The covid-19 situation is steaming up in the US, as the caseload remains elevated at 120k a day and the death count has begun to climb. If the spread remains so for another week or so, some sort of restrictions can be expected in the US, and markets are wary about that fact.

USDINR has been gyrating to the general risk sentiment in the market. With Asia opening muted, one can expect a range-bound move in the currency pair today, ahead of the crucial jobs data.

Global Markets and INR around 8:00 am (5th August 2021)

INR is likely to open around 74.20

USDINR drifted lower, in line with general positive risk sentiment, which also Indian equities higher by another 0.7% odd yesterday. The dollar has regained some strength though, with EUR at 1.1833, GBP at 1.3885, and USDJPY at 109.70. Comments from Fed vice-chairman that the environment is primed for a rate hike from 2023 have led to some Dollar strength. US markets were in the red, and the DOW fell by 0.9%. The ISM services data came in better than expected, but the ADP private payroll number was lower than expected. This week’s US jobs data and the ensuing inflation figures become very critical now, after the comments from the Fed members.

The Covid situation remains uncertain, and markets have to weigh this against the inflation threat. USDINR has benefited for the past few days due to the positive sentiment in equities and general Dollar weakness. Now that the rate hikes are back on the radar and the Dollar has reversed some of the weakness, USDINR bias has turned neutral and we can expect the pair to remain floating directionless.

Global Markets and INR around 7:30 am (4th August 2021)

INR is likely to open around 74.25

The Dollar is on the backfoot as general risk appetite improved in global equities despite the Covid delta threat. EUR is at 1.1870, GBP at 1.3920, and USDJPY is at 109. US 10y yield remained steady around 1.18%. US equities rallied with around 0.8% gain for the DOW. Indian equities reached all-time highs as traders seem to bet that the worst is over for the Indian economy. Nifty shot up 1.55% yesterday.

This week’s US Non-Farm Payroll is keenly awaited, but irrespective of the actual data, markets might still give the benefit of the doubt to the Fed’s view of slack in the labor market given that the Delta variant is picking up pace in the US. The US is seeing 100k new cases a day consistently and deaths are increasing. In the UK and some other EU countries, the daily case figures are falling consistently and in the UK hospitalizations have stabilized. Perhaps, Indian markets are taking the view that the third wave in India might not be a devastating one, given the large antibody presence in the serosurvey and going by the UK experience.

INR remains in a stable zone, until at least the next global triggers such as inflation/jobs data. While a sharp appreciation bias is unlikely for the Rupee, lack of pressure points could lead to USDINR drifting in the range with a downward bias until such time there is a change in global risk appetite due to Covid or due to macro data.

Global Markets and INR around 8:00 am (3rd August 2021)

INR is likely to open around 74.30/40

The Dollar is slightly weaker, especially against JPY, as markets seem to move towards mild risk aversion. USDJPY is at 109.25, EUR is trading at 1.1875 and GDP at 1.3890. US equities closed yesterday in slight red, but Indian equities had a positive day of 0.75%+ rise. US 10y fell to 1.18% due to safe-haven buying in US treasuries. Oil fell to 73.00.

There is a general concern in markets about the Delta variant which is now rampant in many countries including China. Further, the US data is showing that the economy might have reached its peak-growth of this phase and the growth rate would start to fall in coming quarters. The ISM manufacturing index came in just shy of 60 and below consensus. India’s July trade deficit was 11.23 billion – the highest this FY, indicating that the unlock is leading to higher trade deficits. Even with these numbers, the Current Account Balance for this quarter might turn out to be positive (surplus), but it is a matter of time before the trade deficit reaches 15 billion a month, turning the current account into a deficit.

USDINR range is very much intact, as markets are in that phase where there is uncertainty but not a strong risk aversion/appetite. The longer the docile behaviour of Rupee continues, the more volatile the next move could be. For now, markets would wait for data points indicating the potential inflation and economic growth trajectory – the first being the US jobs report. Until then, the range-y behaviour of INR might remain the base case scenario.

Global Markets and INR around 7:30 am (2nd August 2021)

INR is likely to open around 74.35/40

USD has opened the data-loaded week stable. EUR is at 1.1865, USDJPY at 109.65, and US 10y is at 1.23%. US equities closed negative on Friday, but futures are positive as are most Asian indices. Brent has been inching up higher on the back of a weak Dollar.

Macro data and Covid delta strain remain the primary drivers of markets this week. On the global data front, US ISM and Jobs data are important. On the domestic side, we have the trade balance data and then the RBI monetary policy to focus on this week. The Covid picture remains uncertain. The UK is slowly moving out of the third wave despite the easing of lockdowns, but, the US is seeing a sharp rise in cases, and this week could prove to be the decisive period for the third wave there. India is seeing worrying signs of the start of a third wave, but models point to a lower peak this time around.

USDINR’s recent range is still intact. After the FOMC, markets have started to believe the Fed, but any unexpected data release can throw a spanner into the works. The bias is neutral for now but would vary with the incoming data.

Global Markets and INR around 7:30 am (30th July 2021)

INR is likely to open around 74.20/25

USD is at its lowest in a month, after the FOMC signaled that the dovish stance on rates and bond purchases would continue. EUR is inching closer to 1.19 and USDJPY is at 109.50. US frontline indices managed gains of 0.4% odd, but the broader market remains uncertain. US 10y is holding a level around 1.25%. Brent is above 74.60 as a result of the Dollar weakness. Indian equities also had a 0.4% kind of a day.

Dollar weakness of yesterday has been a direct result of the FOMC dovishness. While markets believe the Fed, for now, the next set of data points in the first week of August can again lead to concerns on inflation and have to be watched out for. But, the US Q2 GDP estimate came in at 6.5%, which is much lower than expected, and this data puts a question mark on whether there is a slowdown creeping in and whether the coming data points would be as strong as expected. Covid remains a threat still, and the latest figures firmly indicate that US is going through a third wave.

USDINR is still in its recent range and is looking to break the range on the downside. Given the momentum, it might be possible for the pair to move toward 74, but the fundamental risk factors remain in play and the next set of triggers come in the form of the US jobs and inflation data next week. Until then, INR is at a slight advantage.

Global Markets and INR around 7:30 am (29th July 2021)

INR is likely to open around 74.40

The dollar is weaker and US yields lower after a dovish FOMC refused yesterday to indicate a start to the tapering process. The statement seemed to acknowledge progress in the economy, but also mentioned the risks of the virus. In the press conference, Powell said that discussions on the taper process did happen, but felt that substantial progress needs to be made still, before any such action can begin. The FOMC kept the rates unchanged and kept the bond purchases at 120 billion per month. In all, it was a very dovish stance and USD fell post the FOMC. US equities fell slightly, but not by much. EUR is now at 1.1845 and JPY at 109.75

INR is placed comfortably now, from the inflation risk perspective. Taper might not start getting discussed until the next month’s Jackson Hole symposium and then officially announced in the September FOMC to be implemented from December. Since the FOMC meeting kept the status quo intact, USDINR would move in tandem with the economic data points such as the inflation and jobs data and the covid case numbers. Further, since the Fed acknowledged the Covid risks, any sharp rise of the Delta variant in the US would be a cause of risk aversion. For now, USDINR range-bound movement between 74.20 and 74.90 is the base case scenario until the next set of data releases or until the caseload in the US does not lead to lockdown discussions.

Global Markets and INR around 7:30 am (28th July 2021)

INR is likely to open around 74.50

Currencies were fairly range-bound yesterday, with a slight bias towards USD weakness. But USDINR remained in its recent range waiting for the FOMC statement due today. EUR is trading at 1.1820 and USDJPY is at 109.85. US equities fell yesterday by around 0.2% as did Indian indices. US 10y is lower – at 1.25%.

Today’s FOMC statement is keenly awaited, especially to see if the Fed talks anything about taper. The delta variant is now sharply rising in the US, with the latest count being 62k new cases. India is not also out of the woods yet, and it seems the Kerala outbreak is picking up steam again. The next few weeks could potentially see lockdowns returning to the US, in which case a bout of risk aversion is a possibility. INR is not yet out of danger yet, and is vulnerable in both scenarios – of rising inflation/economic growth/fed taper and fall in growth/covid lockdowns.

Global Markets and INR around 7:30 am (27th July 2021)

INR is likely to open around 74.30/35

The Rupee strengthened slightly on the back of a calm global backdrop and stable USD yesterday. Markets are waiting for the FOMC outcome due tomorrow. EUR is at 1.18 and JPY at 110.25. US 10y is stable at 1.28% and Brent is trading at 74. US equities had a positive day and are hovering near all-time highs due to a good earnings season till now. Indian indices fell slightly, but not enough to warrant concerns.

USDINR could drift in the current range until the FOMC decision tomorrow. Other data points of interest include the US GDP release on Thursday. The Covid situation in the UK is improving, providing hope that vaccines and the previous infections can reduce the stress on health care systems during future waves. But, the US covid numbers can pick up steam in the coming weeks, and this is a risk factor for INR. For the next few days though, it is all about FOMC and their inflation outlook.

Global Markets and INR around 7:30 am (26th July 2021)

INR is likely to open around 74.40

Currency markets opened stable today. The Dollar is slightly stronger, with EUR at 1.1770 and JPY at 110.40. US equities had a solid day on Friday, and the DOW reached a fresh all-time high. Asian equities have opened in a subdued fashion. US 10y is trading at 1.27% – similar to last week’s close. Brent is slowly inching up again after falling sharply during the bout of risk aversion early last week – now trading at 73.30.

USDINR has remained stuck in a range for some time now, hovering between 74.90 and 74.25. The Rupee is waiting for the next big trigger – the FOMC meeting due on Wednesday. Markets are keen to listen to Powell and FOMC to eke out any clue on the potential starting point of the QE taper. While the narrative has been that there is no urgency to tighten monetary policy, inflation has been fairly persistent in the US. The Rupee has been benefiting from the IPO-related flow expectations, but the direction can easily change with the FOMC. The current range USDINR might prevail until the FOMC.

Global Markets and INR around 7:30 am (23rd July 2021)

INR is likely to open around 74.45/50

Yesterday was a calm day in currency markets and the USD remained stable. EUR is at 1.1770 after being higher at 1.1830 post ECB meeting. USDJPY is at 110.20. US equities ended slightly positive while Indian equities rode the previous day’s optimism and ended 1.2%+. US yields remained in a tight range. ECB meeting was fairly dovish in that they changed their inflation forward guidance higher and did not even mention tapering.

USDINR remains in a range, waiting for the next leg of the move. Yesterday’s sudden increase in US jobless claims did lead to some concern on a potential slowdown in economy, but was then ignored. Covid related concerns remain lurking as are the inflation fears. Until the next week’s FOMC, the base case remains that of a range-bound INR.

Global Markets and INR around 7:30 am (22nd July 2021)

INR is likely to open around 74.45/50

Risk appetite is back in markets and USD has stagnated. EUR is close to 1.18 and JPY is above 110. US equities moved higher by 0.8% odd yesterday. US 10y shot up to 1.29% after flows moved out of the safe-haven US treasuries into risk assets. Brent has risen to 72 levels after being in the 68 handle couple of days ago.

The covid related concerns seem to have abated for now, but the high case-growth in various countries could again bring them front and center. The Covid daily growth rate in the UK has slowed down slightly, and hospitalizations remain much lower than the previous wave. But, the US caseload is rising as is the situation with France and Spain. India’s position remains vulnerable as some states have positivity rates of more than 10%. The country-wide serosurvey points to 67% of the population having antibodies and we estimate that close to 300 -400 million were infected in the second wave. Hence, the possibility of a large third wave seems less, which is a positive for the Rupee.

The next week’s FOMC is the next stop for the markets. USDINR continues to be in its recent range and the short-term bias has turned neutral as risk appetite has returned. But, the medium-term outlook is uncertain for the Rupee as both Covid and inflation-related concerns are very much alive.

Global Markets and INR around 7:30 am (20th July 2021)

INR is likely to open around 74.85/90

Just as the economic data triggers were finished for the month, markets were hit by a wave of risk aversion yesterday. Dow fell more than 2% – for the first time in months as inflation fears are compounded by concerns around the spread of the Delta variant. The Dollar is stronger, JPY is also stronger and US yields are lower due to the safe-haven buying. US 10y is now at 1.21%. Indian indices were also down 1%+. While the DOW futures are indicating some stability now, markets would remain vulnerable today.

USDINR is now exposed to both growth concerns and inflation concerns at the same time now. While the Rupee is still in its recent range, the probability of depreciation has increased now, with strong risk aversion setting in. Today’s equity behavior is important and we have to watch whether the markets would continue to fall or are revived into the green. The volatility index has risen sharply, indicating potential pain still in equities. The risk of a good Rupee depreciation is now real, but the next couple of days could set the tone.

Global Markets and INR around 8:00 am (19th July 2021)

INR is likely to open around 74.70

The week started with mildly stronger USD in general and a stronger JPY. Markets are risk-averse due to the continuing inflation scare and the unmitigated spread of Covid in Asia and in the UK. On Friday, US retail sales came in much higher than expected – at 0.6% MoM against an expected decline. Equities fell post the data release as fears of overheating of the economy surfaced back. DOW fell 0.85% and today’s Asia open has also reflected the negative sentiment. US 10y fell to 1.27% on Friday as risk aversion led to safe-haven buying of US treasuries. Nifty ended flat on Friday, but is likely to open in the red today.

USDINR is still in a range, and the bias remains towards INR depreciation. In this week, data releases being sparse, the Rupee will react to daily news on Covid numbers. The inflation scare is here to stay for some time and the next week’s FOMC meeting would be crucial now, for their take on this subject. For the next few days, there are no triggers for a sharp appreciation or depreciation of the Rupee, and USDINR is expected to drift along in a range.

Global Markets and INR around 7:30 am (16th July 2021)

INR is likely to open around 74.50

USD is slightly stronger, with EUR at 1.1805 and USDJPY at 110. US markets were subdued, and EU markets were in the red yesterday, as concerns around the spread of the covid variant remain at the forefront. Indian equities rose by 0.5% odd, but today’s Asia open is muted. Markets would focus on today’s US retail sales to gauge the economic recovery speed and the potential for overheating.

Covid cases are rising sharply in many countries. The UK had 48k new cases yesterday, but the hospitalization rate is not even 1/10th of the previous wave providing hope that countries which had a severe wave and large proportion of the vaccinated population are relatively safe from mortality due to the disease. Indonesia is not able to arrest the covid mortality rate, probably due to the relative ineffectiveness of the Chinese vaccine in comparison to other vaccines being used. With the Tokyo Olympics approaching, the spread in Asia is a point of concern for markets.

USDINR continues to trade in a tight range, as markets are yet undecided on the US inflation evolution. For now, there are not many new triggers to take USDINR on either side until the FOMC meeting. But, if the Covid situation gets more worrisome in the US in the next few days, it could open a new point of worry for markets and pull USDINR higher. For now, a range-bound USDINR is the base case.

Global Markets and INR around 6:30 am (15th July 2021)

INR likely to open around 74.45/50

The Dollar eased yesterday, despite a sharply higher US PPI. EUR is at 1.1830 and JPY is at 109.90. US yields also fell, with the 10y now at 1.34%. Powell, in his testimony to the US Congress, said that inflation has been more sticky than expected, but is expected to come off and that the answer to this question would soon be found out. There was some uncertainty in his tone regarding the evolution of inflation and it seems that at least a discussion on the potential taper timelines is slated to start soon. US equities managed to eke out some gains, and Indian indices had a 0.25% gain. On the domestic side, India WPI came in at 12%, indicating continuing price pressures and that even the CPI inflation is likely to be elevated for some time to come.

The covid case numbers across the world are jumping up sharply, with the latest data showing a 42k increase in the UK and 34k in the US. Further, Brazil and Indonesia continue to see a brutal wave. Indian scenario is showing signs of worry as Kerala caseload has again picked up steam. The next 3-4 weeks are critical for this aspect, and markets could again focus on this issue, especially if the US shows a sharp rise in caseload. For the Rupee, both the inflation scare and the potential Covid related risk aversion are causes for worry. While USDINR is range-bound for now, the bias remains towards INR weakness. Among the data releases, US retail sales is the next important point leading into the FOMC meeting on the 28th.

Global Markets and INR around 7:30 am (14th July 2021)

INR likely to open around 74.60

Dollar regained some strength after a sharply higher US CPI print yesterday. The inflation index came in at 5.4%, the largest increase in 12 years. Further, core CPI also jumped 4.5%, the highest in two decades. EUR has fallen to 1.1780 and JPY is at 110.50. US 10y rose to 1.39%. US equities fell by around 0.38%. Indian equities jumped 0.75%, taking cues from the previous day’s US equity performance.

Today’s Powell’s testimony would assume more importance in the light of the higher-than-expected CPI data. The modest reaction of equities suggests that the market still wants to believe in the Fed narrative of transitory inflation. But, the broad-based price increases do not look to be transitory and few more months of this trend can get inflationary expectations entrenched in consumer minds.

INR remains in a range, but the bias remains towards some depreciation. Covid scare is still very much intact and even the US is seeing a sharp increase in daily cases now. The Rupee remains sandwiched between two problems – risk aversion due to potential covid situation and if not, the potential for a sharp rise in inflation. Either way, at least the possibility of a sharp INR appreciation seems minimal.

Global Markets and INR around 7:30 am (13th July 2021)

INR likely to open around 74.50

Currencies saw mild moves yesterday and INR was stuck to a range. EUR is at 1.1860 and JPY is trading at 110.35. US 10y remained around 1.37%. US equities had a 0.3% kind of a day and Indian markets ended flat. India’s CPI came in 6.26% – lower than the market consensus. The print is unlikely to cause any flutters in markets.

Today’s US CPI is a crucial data point for the markets. Inflation remains a concern for risk assets such as INR. This data point is likely to play a role in the month end’s FOMC meeting as well. For now, USDINR is expected to trade in a range, reacting to US CPI and retail sales later in the week.

Global Markets and INR around 8:00 am (12th July 2021)

INR likely to open around 74.50

Risk appetite returned to markets on Friday after a surprising reversal in US markets buoyed sentiment. USD weakened, and US yields moved higher. EUR is at 1.1870 and USDJPY at 110.10. US 10y jumped to 1.36% after being as low as 1.25% on Friday. The DOW surged 1.3% after being in the red intra-day. Indian equity indices were down 0.2% odd, but are expected to recover well today, in line with other Asian markets, fuelled by the US market performance on Friday.

INR can breathe a sigh of relief as the unrelenting Dollar strength has paused, even if for a brief period. This week has the critical US inflation data and would also see testimony from the Fed chairman. Markets would be very sensitive to both events and any indication of an impending taper can again lead to some risk aversion. India CPI is also due this week, but, the data is not going to directly impact USDINR much.

Even though the covid situation was ignored on Friday, the UK surge is being keenly watched, especially for hospitalization data. It seems vaccines are 90% effective in protecting from hospitalizations (1% hospitalization rate against 10% in the previous wave), though the rate can change with time. If indeed the efficacy holds, markets might not bother much with the potential covid waves anymore.

USDINR could remain in a range, gyrating with the incoming data. The strong risk aversion momentum has stalled for now but is a matter of the next economic data point and hence the Rupee is not yet out of woods.

Global Markets and INR around 8:00 am (9th July 2021)

INR likely to open around 74.75

Risk aversion hit equity markets yesterday due to Covid worries, and indices across the world suffered losses. DOW ended at -0.75% after being down more than 1%. European equities suffered 1.5%+ losses and Indian indices saw a 1% fall. USD remained weak, with EUR back at 1.1840 and USDJPY at 109.90. US 10y is at 1.31%, similar to the previous day’s level. The covid surge in the UK and the fact that Tokyo declared a state of emergency ahead of the Olympics soured sentiment. As we mentioned yesterday, the sharp fall in US yields could be a sign of creeping risk aversion, which came out yesterday in the form of a sharp equity fall. Futures are also indicating more red for equities today.

The Covid situation in the UK is worsening as far as the case count is concerned, the latest being an addition of 32k daily cases (the previous peak was 60k). It is a matter of 2 weeks before the UK would see 60k cases again, despite vaccinating 50% of the population. The solace is that hospitalization numbers remain around 1/10th of the last peak, and the hope is that it would remain so. Given that the US has a lesser proportion of the vaccinated population, and that the delta variant is picking up steam, markets are worried that the economic recovery would again be stalled.

INR is between a rock and a hard place now. If covid related risk aversion persists, potential outflows would keep the Rupee under pressure, and if risk aversion settles down, inflation trade could push the Dollar higher. The bias remains towards more INR depreciation, but markets might wait for more data in the form of CPI, etc. before a material move could happen in USDINR. The general sense now is that the Rupee remains vulnerable as the global environment is uncertain in multiple ways.

Global Markets and INR around 8:00 am (8th July 2021)

INR likely to open around 74.75

Dollar strengthened further yesterday, especially against EUR, after the FOMC minutes confirmed market expectations of the taper timeline. The minutes revealed that members felt that the need for tapering bond purchases would be felt sooner than they had anticipated. US long-term yields though continued to crash, with the 10y falling sharply to 1.31%. The message from the bond market seems to be that the inflation worry would be temporary and the economic recovery is not going to be as sharp as the market feared. Even though the yields have not been supportive of USD, the currency continues to remain firm and it remains to be seen as to how long it can hold on without support from yields. EUR is trading at 1.1790 and USDJPY is at 110.60. US equities managed a 0.3% day as did Indian indices.

The sharp fall in US yields is slightly worrying, especially if there is an underlying safe-haven buying demand. While other risk assets have not seen a sharp correction yet, a continued fall in yields despite high inflation might indicate a deepening sense of worry about market valuations. For the Rupee, the situation continues to be tenuous as the global Dollar strength seems to be more durable than expected earlier. A very sharp INR depreciation or appreciation seems unlikely immediately, the Rupee could meander in a range, with a slight depreciation bias for few more days until the next inflation data hits the wires.

Global Markets and INR around 7:30 am (7th July 2021)

INR likely to open around 74.60/70

Rupee suffered a sharp rebound yesterday, as risk appetite diminished from markets ahead of the release of FOMC minutes. The Dollar rallied against EUR but stayed flattish against JPY indicating risk aversion. US long tenor yields also fell sharply, and the 10y now is at 1.35%. The fall in the yields accelerated after the ISM services data missed expectations. Further, the market expects the FOMC minutes to be more balanced and less hawkish. USD strength might find some hurdles post the minutes, as the economic data has not been strong enough to continuously support the Dollar. US equities fell sharply yesterday (-0.6% for the DOW), despite managing to recoup some of the intra-day losses towards the close. Indian equities also fell mildly. Commodities, including crude, fell in tandem with a risk aversion theme.

Rupee could not hold on to the appreciation momentum, and yesterday’s move back higher clearly indicates the underlying pressures. FOMC minutes are expected to provide a window into how serious were the discussions on the taper of bond purchases. The sharp fall in yields can also indicate a rising risk aversion in markets, leading to INR weakness. The next few days would reveal if this broad risk aversion is here to stay. The Rupee is in a tricky zone now, and the 74.25/30 area could now become a strong support for USDINR. The Rupee appreciation momentum is now all gone, and the INR is not out of woods by any measure.

Global Markets and INR around 7:30 am (6th July 2021)

INR likely to open around 74.30/35

Rupee managed a sharp appreciation from the Friday’s low by piggybacking on the global reversal in USD strength. Yesterday being a US holiday, overnight moves in currencies were minimal. EUR is trading now at 1.1870 and JPY at 110.80. US yields remain flat, with the 10y at 1.44%. Indian equities had a good day with the Nifty registering 0.7%. Worries about the overheating of the US economy have subsided for now, and INR has enjoyed the maximum benefit of the post-payroll Dollar weakness. Oil continues to surge, and Brent has now crossed 77.50. Surging oil prices would bring back the trade and current account deficit back into focus soon.

Markets now await other data points such as ISM, Fed minutes to understand the potential Fed move on interest rates. While the inflation trade has faded temporarily, there is still that uncertainty that those concerns can again rock markets if the coming inflation data surprises on the upside. The momentum of the INR appreciation can carry the USDINR pair lower from here, but the background theme has not yet changed and hence the medium-term outlook for risk assets including INR seems shaky. The July FOMC meeting becomes very important now for the next leg of the currency moves, as would other important data points like the US CPI.

Global Markets and INR around 7:00 am (5th July 2021)

INR likely to open around 74.50/60

After moving higher on Friday, USDINR is set to give up some of those gains today. Global Dollar stalled after the US jobs report on Friday, which was just right for risk markets. While the jobs added came in higher than expected (850k vs 700k expected), the wage growth and unemployment rate were worse than expected. Markets decided that the report is not hot enough to force the Fed on rate hikes. US equities jumped on Friday by 0.5%+ after the report, and US yields fell (10y now at 1.43%). EUR is now at 1.1860 and USDJPY at 111.10.

India’s trade deficit for June was at 9.4 billion as per the release on Friday. Even as exports increased, unlocking means higher imports also. There is a clear move higher in the deficit, with the economy opening up, and with oil prices high, one can expect the deficit also to reach 15 billion per month soon.

INR has some relief now after the US payroll data. But, the underlying global theme of higher inflation is intact, which might prevent a sharp INR appreciation. Today will determine if the weakening momentum of the Rupee would stop or not.

Global Markets and INR around 7:00 am (2nd July 2021)

INR likely to open around 74.50/55

The Rupee continues to be under pressure and the global Dollar strength remains the ongoing theme. EUR is at 1.1845 and USDJPY is at 111.60. Though the US 10y yield has remained fairly stagnant at around 1.46%, currency markets are signaling a potential change in interest rate regime in the US and are expecting some divergence between the US monetary policy and others’. US equities had a 0.5%+ kind of a day, and Asia open has been positive, following on from the US markets. Indian indices had a mild fall yesterday, though. Brent is higher, trading close to 76.

Markets are waiting for today’s jobs report. ADP private payrolls print was better than expected, raising the expectations for a good non-farm payroll release today. For the Rupee, today’s trade deficit data is also critical. As the unlocking process has picked up steam, and oil prices continue to be high, there is a chance that the monthly deficit can move again towards the 15+ billion mark in the coming months. The weakening pressure on the Rupee could take a decisive direction next week, as US data can provide more clues on the potential fed action.

Global Markets and INR around 7:30 am (1st July 2021)

INR likely to open around 74.35/40

USD is trading firm on the back of strong economic data out of the US. Home sales data and more importantly, ADP payroll data came in better than expected paving the way for expectations of a solid non-farm payroll print on Friday. EUR is at 1.1850 and USDJPY is above 111. US yields remained flat, with the 10y at 1.46%. Equities were mixed yesterday, as the markets are taking note of the potential for the Delta variant to cause an infection wave in the US. DOW ended positive, while NASDAQ was negative. Asia has opened mixed. Nifty was slightly lower, by 0.17%.

The pressure on INR remains intact, as worries about the third wave are compounding the US inflation fears. The UK wave is being closely watched, especially for any sharp rise in hospitalizations. Israel, the country with the highest proportion of the vaccinated population, is seeing the start of a new wave, and markets are focused on how the situation unfolds there. For now, USDINR would continue to drift mildly higher until the data releases confirm or deny the inflation scare.

Global Markets and INR around 7:30 am (30th June 2021)

INR likely to open around 74.30

The dollar crept up higher ahead of important data releases, and the Rupee remains under constant pressure due to the global Dollar strength. EUR is trading at 1.19 and JPY is at 110.50. US yields are flat, biding for time before the data releases. US equities ended flat, but Indian equity indices had a fall of around 0.5%. Brent has inched up again and is hovering around 74.70.

Covid lockdowns remain in place in some parts of Asia and in the UK. The third wave in the UK remains under control and the current daily caseload remains within 30-40% of the previous. Further, the comforting fact is that the number of people in hospitals is just 1/25th of the previous wave (around 1600 against 38k in the previous wave). Given that 90% of the cases are of the more dangerous Delta variant, the UK data provides a template to the world in managing the situation. Vaccinating around 60% of the population within 4-5 months of the previous wave has the potential to curb future surges. While markets are taking note of the lockdowns, the lack of severe wave in the UK is a positive factor for risk assets and INR.

In all, USDINR would continue to be in a range and drifting higher until there is clarity on the US inflation and job dynamics. The coming few days could be volatile as new data comes in.

Global Markets and INR around 7:30 am (29th June 2021)

INR likely to open around 74.25

The dollar is trading mixed and Asia has opened slightly lower, but in all, markets are waiting for the series of economic releases. EUR is lower at 1.1920, but JPY is stronger at 110.50. While the DOW fell 0.4%, tech stocks continue to do well. European markets fell and there is caution in Asian markets as the covid related restrictions are again on the rise, especially pertaining to the UK. Indian equity indices also fell 0.2%.

The Covid situation in UK is clearly pointing to a large third wave, but hospital admissions have been significantly low (almost 20%) of the previous wave after adjusting for the case numbers. While this is a comforting fact, the risk of large third wave in countries which have not yet vaccinated well, and which saw the previous wave 6 months ago is the worry for markets. As for the Indian situation, once more data comes up on the sero-positivity in the population, a determination of the possibility and timing of the third wave can be made.

USDINR could remain range-bound until there is some clarity on the US jobs front. Also important are the trade deficit numbers slated in the first week of July.

Global Markets and INR around 7:00 am (28th June 2021)

INR likely to open around 74.20

USD has opened flat against most currencies ahead of an important week. EUR is at 1.1925 and JPY is at 110.70. Equity markets ended the previous week on a high note. US yields are higher, with the 10y back above 1.53%. Given the variations in the messaging from the Fed speakers, yields would continue to be volatile until there is clarity on the taper possibilities and potential timelines.

This week has the crucial US jobs data in addition to ISM. On the domestic front, the trade deficit data for India could give a hint about the impact of unlocking and higher oil prices on the CAD.

The bias has shifted against any strong Rupee appreciation, as the global paradigm has shifted and this is the first time in years that inflation has become a concern. USDINR could be in a range for the next few days until some direction emerges based on the incoming data.

Global Markets and INR around 7:00 am (25th June 2021)

INR likely to open around 74.15/20

Currencies are flattish compared to yesterday’s levels. EUR is at 1.1940, and USDJPY is at 110.90. US equities jumped after the announcement of the 600 billion infrastructure plan by Biden. DOW was higher by 0.95%. Indian equity indices also had a positive day with around a 0.75% jump. US 10y is higher at around 1.5% due to an expectation of higher fiscal spending in the US. Crude continues to inch higher on expectations of high demand due to economic growth, now at 75.90. Higher crude prices would become a detriment for INR, especially if the coming Current Account Deficit numbers start to go higher with the unlocking process.

INR remained in a tight range yesterday owing to calmness in global markets. US Durable goods data came in slightly lower, and jobless claims were higher than estimates. Markets would have taken the data to mean that the economy is not yet overheating. Until the next set of important data releases in July’s first week, INR could continue to meander in a range.

Global Markets and INR around 7:30 am (24th June 2021)

INR likely to open around 74.15

The Dollar continues to be subdued, as markets seem to be adjusting to the Fed messaging that inflation pressures are transitory. EUR is higher at 1.1920 and USDJPY is at 111. US 10y moved higher again yesterday, but had no impact on the Dollar. US equities were down as were Indian equities, as there is still some uncertainty about the taper discussions, and this uncertainty is set to continue until the next data releases due in July 1st week. Crude continues to hold well, and Brent is now at 75.20.

The Covid situation across the world is deteriorating again, with UK seeing a firm third wave and Brazil again seeing a large wave with significant deaths. The UK wave is at around 1/4th of the previous peak, but the daily hospitalizations are still at 1/20th of the daily peak of January, giving the world a hope that vaccines can indeed prevent serious disease. If the data remains similar for the next couple of weeks, markets would take it as a sign that there is a way out of this pandemic. Brazilian wave is of concern as the country seems to be badgered with large number of deaths again and one would have expected herd immunity by now, given the long-drawn infection wave there. The current global picture is hence, a mixed one and clarity can only emerge in the next couple of months.

USDINR fell yesterday consistent with improving global sentiment towards Fed taper. While the bias remains towards slight INR depreciation, the base case scenario is of a range-bound Rupee until the next set of data releases determine the direction. The FII flow situation in India has not turned for the worse yet and continues to be neutral. The momentum of INR depreciation has stopped for now.

Global Markets and INR around 7:30 am (23rd June 2021)

INR likely to open around 74.30

The Dollar was sluggish yesterday, and EUR rose to 1.1930. USDJPY is at 110.80. US yields were steady at 1.46% on the 10y. US markets moved higher, supported by Powell’s testimony to the US Congress that inflation would be a temporary issue and that there is good scope for unemployment and the labor market to improve. S&P 500 jumped 0.5% and NASDAQ moved higher by 0.8%. Indian equities were flattish yesterday, but INR saw a sudden move towards 74.30.

USDINR momentum is still continuing on the upside, but given that the short-term global Dollar strength has stalled and that equities have begun to stabilize from the FOMC shock, there is some positivity that the Rupee can take from the current situation. July is now critical for global markets and the Rupee as the next set of data points on US inflation and jobs are now important, and the next Fed meeting is also scheduled that month. In all, it looks like there is a fundamental shift in market perception about the start of a Fed taper and eventually the interest rate hike cycle, despite assurances from the Fed. Over the medium-term, risk assets such as the Rupee are at risk, especially if the July Fed meeting does move towards a taper discussion. In the short-term though, USDINR could be volatile, as the momentum of the current move could be offset by the improving global sentiment and a range-bound USDINR (within a higher range) is the base case.

Global Markets and INR around 7:30 am (22nd June 2021)

INR likely to open around 74.10/15

Yesterday saw the return of risk appetite in markets. US equities jumped 1.4%, and the Dollar fell slightly. EUR is at 1.1910 now and USDJPY is at 110.30. US 10y yield jumped 5 bp. Indian equities had a positive day with a 0.4%+ jump, and today is expected to be a good day for Asian markets owing to yesterday’s US market performance. Fed members, Bullard and Kaplan, opined that it is time for the Fed to start the tapering process and adjust to the upcoming inflation risks.

Now that a persistent equity market fall due to a risk aversion wave seems to have been averted, the prognosis has improved for the Rupee. While the bias still remains towards INR depreciation, there is a possibility of some recovery from this move to 74.15. But, a developing risk for INR is the increase in crude prices. Brent has crossed 75 USD per barrel. As India begins to import more in the unlocking process, oil could be a potential factor for higher CAD in the coming months. For now, the sharp Rupee depreciation momentum seems to have stalled.

Global Markets and INR around 6:30 am (21st June 2021)

INR likely to open around 74.15

The post-FOMC Dollar surge was supported on Friday by increasing risk aversion in markets. US equities (DOW) fell sharply by 1.5%, in what can be the start of a taper tantrum. EUR has fallen below 1.19 and is now trading at 1.1875. USDJPY is flattish at 110.20, as the USD strength was offset by JPY strength due to risk aversion. Indian equities managed to end flat on Friday, but are in for a lower open today, consistent with other Asian market openings. The US yield curve flattened, as long-term rates fell due to a change in risk appetite, while the short-term rates are held up due to expected rate hikes. US 10y is now at 1.44%. Brent is holding around 73.80 now, despite the strong Dollar.

The mere mention of a discussion on tapering QE purchases has started to affect markets negatively. One has to watch whether this is the starting of a long-drawn taper tantrum by markets and whether the risk aversion would persist in markets in the coming days. The next stop is the first week of July as markets would wait for the next dose of jobs data. The Rupee is now vulnerable as global risk appetite seems to have been dented meaningfully. The next few days could see INR under pressure if global markets continue their downward journey. Among the events this week, Powell’s testimony to Congress and some Fed member talks would be watched for how strong would they support the taper angle. For now, USDINR could be on an uptrend.

Global Markets and INR around 7:30 am (18th June 2021)

INR likely to open around 74.15/20

The post-FOMC Dollar surge continued yesterday and the Dollar is set for one of the best weeks this year. EUR is trading close to 1.1910, USDJPY is at 110.23 and the Dollar Index is closing in on 92. US yields, though, have given up part of the post-fed move and the 10y now is at 1.52%. DOW fell 0.6%, but S&P managed to end flat thanks to the jump in tech stocks. Indian equity indices fell 0.4% odd.

USDINR broke its recent range and has broken important technical resistance zone around 73.75 also. The momentum is strong and can carry the pair even higher temporarily. But, the US yields are already showing signs of reversal and a sustained fall in yields could put a stop to the Dollar surge. Whether the Fed hawkish stance has bought about a paradigm shift in the market’s thinking about inflation or whether the Fed would again try to downplay the inflation threat is the question that would drive the medium-term move in Dollar and currencies. July would be the month for determining this question, as the new US jobs and inflation data would be followed by the key FOMC meeting in July. For the next few days, there is some depreciation bias for the Rupee.

Global Markets and INR around 7:30 am (17th June 2021)

INR is likely to open around 73.40/50.

Dollar surged, US yields shot up and stocks fell after a hawkish FOMC raised the prospect of increasing interest rates in the future. The FOMC statement was fairly unchanged from the last meeting, but the dot plot now shows a median of two rate hikes by 2023. FOMC raised their inflation forecasts also and now sees inflation at 3.4% in 2021, 2.4% in 2022, and 2.1% in 2023 – not so transitory as they initially forecasted. Though Powell sought to downplay the dot plot by saying that it has to be taken with a grain of salt, it is clear that the FOMC thought process is now changing with regard to inflation. Powell said that they would have to start a discussion on tapering the 120 billion bond purchases sometime.

US yields jumped sharply, and the 10y is now at 1.58%. USD jumped higher, with the Dollar index trading at 91.35. EUR is at below 1.20 and USDJPY is at 110.65. DOW fell 0.75%, after recovering from the intra-day lows post the Powell press conference. Indian equities fell 0.5% yesterday and look set to fall more today on the signals from the FOMC.

USDINR range is now in danger of breaking on the upside, after the FOMC hawkish surprise. While the actual tapering is still a long way away, the market is fully pricing in a rate hike by 2022, which implies that the taper has to be completed by that time. With the global Dollar strength back on track, INR could be under slight pressure in the coming days.

Global Markets and INR around 7:30 am (16th June 2021)

INR likely to open around 73.30

Even as the Dollar is trading flat, USDINR has crept up slightly higher, probably owing to higher crude prices and persistent US yields. US retail sales came in lower than expected and even the core retail sales and the control group sales (which flows into GDP calculation) came in much lower than expected, dowsing fears of a sharp economic overheating. EUR is flat at 1.2120, and JPY is at 110.10. US yields are at 1.50%, waiting for today’s FOMC for further direction. Brent is trading higher, at 74.75, owing to hopes of economic revival. The DOW ended slightly lower (0.3%) while tech stocks fell more (0.7%). Indian equities had yet another positive day yesterday with a 0.4% jump for the frontline indices.

Markets are keenly awaiting the FOMC statement due today. Primarily, the focus would be on the potential path for interest rate normalization and tapering of bond purchases. With this month’s retail sales providing some solace to inflation fears, the FOMC decision would be watched for their take on inflation in light of the recent CPI jump. For the Rupee, while the range is holding, for now, the pressure is slightly building up both due to higher crude and due to the global Dollar strength holding. The next leg of the move could be apparent after the FOMC.

Global Markets and INR around 7:30 am (15th June 2021)

INR likely to open around 73.20

The Dollar is stronger and US equities mixed as markets await the US retail sales today and the FOMC meeting outcome due tomorrow. EUR is at 1.2110, and JPY is weaker at 110.10. The Dollar Index is inching up towards 90.50. While the DOW fell 0.25%, S&P managed to gain 0.2%, driven by tech stocks. Indian equities jumped 0.15%. US 10y has slowly inched up towards 1.5% again, as markets await the FOMC statement.

Indian CPI for May came in at a higher than expected 6.3%. The core inflation also jumped by 6.6%. The fact that supply-side pressures were dominant in the inflation can be gauged from the WPI inflation print of 12.94% for May. Rising global commodity prices including crude prices and labor shortages are going to keep CPI and core CPI higher for more time, but as states unlock more, the labor pressures can settle down a bit. RBI had projected the CPI at 5.1% for this FY, but this print is certain to take the year’s CPI average higher. While we can expect the RBI to ignore this jump as transitory, the higher inflation could create discomfort for the RBI in releasing too much INR liquidity. The data is unlikely to drive INR in the short term, but a medium-term inflationary pressure is detrimental for the Rupee.

INR range is intact as global Dollar strength seems to be holding still and is compensating for the healthy risk appetite. The next major stop is the FOMC.

Global Markets and INR around 7:30 am (14th June 2021)

INR likely to open around 73.20/25

The dollar is holding strong at today’s open with an important week ahead. EUR is at 1.2100 and JPY is at 109.80. INR has been under slight pressure driven by the global strong Dollar, though it is still trading in a range for some days now. This week has the important FOMC meeting and the market expects them to at least broach the subject of tapering the bond purchases, given the recent sharp rise in inflation. Another important data point to watch this week is the US retail sales. A strong print can reignite inflation concerns, especially since the last data point came lower than expected and cooled inflation concerns. India CPI is also due this week and it would influence the Rupee indirectly in that a lower print would make the RBI comfortable with high liquidity and more amenable to buying up FX reserves and prevent Rupee appreciation.

Asia’s open has been fairly flat. US equities had a mild rise on Friday as did Indian equities. US yields inched up on Friday and the 10y is trading at 1.47% after a low of 1.43%. Brent is creeping higher with each day and currently is at 73.00. Continuous rise in crude does not augur well for INR, once the import level picks up as a result of unlocking.

The Dollar has held well post the reversal last week after the inflation data. There is natural support for USDINR forming in the 72.50-72.75 region as the pair has bounced twice from those levels. USDINR could remain in the current range below 73.50/60 until the FOMC decision on Wednesday, though the bias has shifted more towards Rupee depreciation.

Global Markets and INR around 7:30 am (11th June 2021)

INR likely to open around 73

US yields fell and the USD slightly weakened even as US CPI came in higher than expectations. The CPI came in at 5% and even the core CPI jumped 3.8%. But markets judged that the increases are driven by items related to opening up of the economy and that the entire economy is not overheating. This view takes the market in line with the Fed view that inflation is going to be transitory. US 10y is now trading at 1.43%. EUR is at 1.2185 and JPY is at 109.40. US equities had a positive day with S&P and NASDAQ moving higher by 0.4% and 0.8% respectively. Indian indices also had a good day, and Nifty traded 0.6%+ higher.

Another event of the day – the ECB meeting – saw them pledge to continue with bond purchases despite projecting higher inflation in their projections. This is similar to the familiar narrative of the US Fed. In all, it was a good day for risk assets, in that the market seems to be aligning completely to the central banks’ view on inflation. For INR, the market reaction to the CPI data is very positive as is the down move in the 10y yield. The bias has now shifted to neutral for the Rupee for the next few days. While the market reaction to this inflation print has moved towards the Fed thought process, all it would take is a sharp rise in other indices such as PCE inflation to bring back concerns about the rate hike.

INR could remain in the current range for some more days, at least until the FOMC meeting next week.

Global Markets and INR around 7:30 am (10th June 2021)

INR likely to open around 72.95/73.00

Currencies are fairly range-bound ahead of the US CPI data today. Equities had a mildly negative day, with the DOW seeing a 0.4% fall and Nifty also seeing a similar cut. Markets are looking forward to the ECB decision and US CPI today. The ECB policy outcome would be parsed to gauge their intention around tapering bond purchases. While the recent EU data has been mild, inflation concerns are relevant even for the EU region. If the ECB does talk about taper plans, EUR could move back above 1.22 and beyond, and INR could have some negative impact. Our view is that the ECB would also follow the Fed approach and wait to see if inflation is transitory or not. The US CPI release could reignite the Fed rate action debate if the print is more than the expected 4.7%.

INR continues in its range, and today’s data releases/events are unlikely to set off a sharp move outside the 72.50-73.50 range unless they come out way above or below expectations.

Global Markets and INR around 7:30 am (9th June 2021)

INR likely to open around 72.90

Yesterday was a fairly uneventful day for the markets. USDINR traded in a tight range, as did the Dollar globally. EUR is at 1.2180 and JPY is at 109.40. Equity markets also saw very muted trading, with both US and Indian market indices ending the day close to flat. Tomorrow’s US CPI is being keenly awaited.

The covid situation continues to improve in India, but there are some regions of concern in the UK which are seeing a sharp rise in cases caused by the Delta variant. The next one month would be a test for vaccine efficacy against the new variant given that the UK is a highly vaccinated country, and markets would be watching the mortality/hospitalization data to gauge the same.

USDINR forward premia have fallen to the January levels after the RBI has withdrawn some of its positions in the forward market. An implication of this development is that the RBI is not unhappy to keep intervening in the spot market itself to control excessive INR appreciation. From a REER perspective, the Rupee is already close to fair valuation, and historically INR was kept around 7-10% devalued. The data shows that the RBI might be fairly comfortable from a REER standpoint to let INR depreciate, but might intervene in case of a sharp appreciation. For now, the USDINR range of 72.50 and 73.50 could hold for a few more days, unless tomorrow’s CPI is significantly different from expectations.

Global Markets and INR around 7:00 am (8th June 2021)

INR likely to open around 72.80

The Dollar was mildly strong yesterday, and EUR is trading at 1.2190 and JPY at 109.40. US yields slightly fell, with the 10y now at 1.56%. Markets are keenly awaiting the CPI data out of the US, due on Thursday. Equities had a mixed day. DOW and S&P fell slightly while NASDAQ held a gain despite the proposed G7 tax deal, which could pave the way for increasing the tax rates on large multinational corporations. Indian equities continue to do well, as the Covid wave is receding as fast as it came on. Yesterday saw another 0.4% odd jump for the Nifty index.

INR is in a tight range, as global markets are now in limbo, looking for direction. While the Fed continues to talk down inflation, the ground reality in the US is that labor and material cost pressures are increasing significantly, and the phenomenon might not be transitory. The US CPI is expected to come in at 4.7% this week, higher than the last month’s print. The Fed beige book mentioned significant price pressures in various parts of the economy. One can expect the inflation narrative to pick up steam and put pressure on the Rupee soon. Given the long-term nature of the concerns, USDINR might not see a sharp up move immediately, and might still be in a range, albeit with a slight upward bias.

In the meantime, the forward premia have come off, seemingly because the RBI asked banks to unwind FX swaps it had earlier engaged in. This move shows that the RBI is not shying away from infusing more INR liquidity in the spot market and hence might not shy away from adding more reserves to prevent excessive INR appreciation. In all, USDINR could remain in the range, for now, waiting for inflation data and the FOMC meeting of next week.

Global Markets and INR around 7:30 am (7th June 2021)

INR likely to open around 72.90

Markets breathed a sigh of relief after Friday’s US jobs data came in below expectations, with the addition of 559k jobs as against an expectation of 900k. The data was just right for the markets as it bolsters the belief that the economy is not running too hot. USD fell post the data, as did US yields, and US equities had a 0.5%+ jump. The dollar has opened milder in Asia open today. EUR is now at 1.2160 and USDJPY is at 109.57. Indian equities had a negative Friday, with a 0.25% fall. Janet Yellen commented in a G7 meeting that the US should push ahead with the 4 trillion spending plan even if it stokes some inflation and risks higher interest rates and that higher rates are a plus for the economy.

With the Covid situation in India rapidly improving, and no major outbreak yet to be seen in the highly vaccinated countries, the entire focus of currency markets is on the economic rebound outlook now. This week’s US CPI data remains critical for the Dollar outlook until the FOMC meeting scheduled for next week. INR is in a good state as any lingering Dollar strength worries got subdued by the payroll data. The flow situation in India is good with June seeing more than a billion in FII inflows. The RBI reserve data shows consistent accrual, indicating that they are still continuing with the strategy of keeping INR appreciation to a manageable level. The range of 72.50 and 73.50 is likely to continue for a few more days.

Global Markets and INR around 7:30 am (4th June 2021)

INR likely to open around 73.05

USD traded sharply higher after the ADP private payroll release showed that US firms added the highest number of jobs in the past 10 months in May. Markets now expect solid non-farm payroll print today. EUR is lower at 1.2130 and USDJPY is higher at 110.20. US 10y is up 3-4 basis points. US equities ended the day slightly lower (DOW – 0.07% S&P – 0.36%). Indian equities had yet another positive day, with gains of around 0.3%. Futures are indicating a muted start to the Asian session ahead of today’s payroll data. US president’s order amending the previous ban on US investments in Chinese companies includes a list of 59 companies now, and markets would be watching the Chinese reaction.

India’s covid situation is improving fast, with the latest positivity rate at around 6%. The covid trajectory is in line to reach a minimal caseload by the end of this month. Markets have discounted the positive news on this front already, as reflected in the INR appreciation from 75 to 73 levels. Unless there is a material turn of events in this regard, the Covid situation is all but over as far as markets are concerned. INR is now heavily dependent on global data, especially those which pertain to inflationary concerns.

After a negative net outflow in May, June has seen good foreign inflows to date, helping INR stability. Forward premia have come off significantly over the past few days, probably as a sign that the market no longer expects heavy RBI presence in the forward market, implying that there is an expectation that INR might not appreciate too much.

Speaking of the RBI, today is the monetary policy decision, and the expectation is for a status quo on rates. The RBI is expected to announce its intention of keeping liquidity going despite the potential inflation concerns. INR might not see much immediate impact due to the policy. For now, 73.50 to 72.50 seems to be the range for the Rupee.

Global Markets and INR around 7:30 am (3rd June 2021)

INR likely to open around 72.95/73.00

USDINR moved to 73.20 intraday yesterday, before giving up some of the gains. The 72.40 level has proven to be strong support yet again. Otherwise, markets were fairly flat and range bound yesterday and the USD was mildly weak. EUR is at 1.2205 and JPY is at 109.65. US yields are slightly lower by 1 bp. Both US and Indian equity indices had a flat close. Oil continues to surge higher, with Brent now trading above 71.60. India’s trade deficit came in sharply lower, at 6.3 billion for last month, as slowdown crashed import activity. As the economy moves on from the Covid wave, high global oil prices could move the trade deficit back to higher levels in the coming months.

INR could remain in a range, with daily moves depending on incoming data and comments from Fed officials. There are already noises that the bond purchases should be tapered sooner rather than later. A Fed member yesterday commented that they should start discussing tapering the Fed QE. Markets are waiting for the US jobs data for further clues. The Fed beige book revealed price pressure in the US economy. As for the domestic situation, with the Covid wave on the wane, the RBI might continue to keep its easy stance on liquidity in tomorrow’s policy decision. For now, the Rupee could be in a range between 73.50 and 72.50.

Global Markets and INR around 7:30 am (2nd June 2021)

INR likely to open around 72.80/85

Just as the Rupee was on a path of consistent appreciation, yesterday’s sharp reversal has shown that the 72.40 area is a strong support area for USDINR as this is the second time that it has bounced from these levels. While global markets were flat and USD was trading quietly, USDINR moved higher probably owing to concerns that China might want CNH appreciation to stop for now and might indulge in some intervention. Another fact of concern with respect to the Rupee is the steady increase in oil prices, which are now above 70$, potentially impacting the current account deficit. Inflation concerns passing through due to the high oil price could lead RBI to be neutral on the policy front. Indian yields have a risk of rising from these levels if inflation comes back along with economic recovery and can impact the flow situation.

USD is flattish now, with EUR at 1.2225 and USDJPY at 109.60. US yields are slightly higher, with 10y at 1.62%. Indian 10y continues to hover around 6.02%. On the economic data front, US ISM came in mixed with the employment component showing some stress. This week’s jobs data remains very critical for assessing the inflation concerns and Fed action. Indian equities and US equities ended the day yesterday fairly flat.

Depreciation bias for the Rupee is minimal since the Covid situation in India is on track for the ending of the second wave by Mid/End June. Fundamental factors and rising US inflation concerns could keep Rupee from a sharp appreciation too. For now, the range for USDINR seems to be from 72.50 to 73.50.

Global Markets and INR around 7:30 am (1st June 2021)

INR likely to open around 72.50

The Rupee remained range-bound yesterday even as Indian equities surged close to 1%. Overnight markets were closed on account of being a US holiday and currency moves were fairly muted. Dollar is slightly weak, with EUR above 1.2230 and JPY at 109.40. US yields are slightly higher at 1.6%. Asia opened fairly stable and Nifty futures are indicating yet another positive start for the Indian equities.

Indian GDP estimates showed that the last quarter’s growth was 1.6% as against an expectation of 1%. For the full FY 21, Indian GDP fell 7.3%. Though this fall was lower than expected, the impact of the ongoing lockdowns could derail the resurgence expected this year, and all depends on the vaccination speed in the coming months. The covid situation is fast improving now, as reflected in the sharp fall in active cases to around 19 lacs from a high of 37 lacs.

Markets would be in a range ahead of a deluge of economic data including US ISM and payroll data coming this week. INR remains in an advantageous position in the short-term as both domestic and international factors favour risk appetite for now. There are concerns emerging on the Covid front in countries like UK, which are seeing the initial signs of another wave. The next month or so would be a test of vaccination effectiveness and any flare-up in covid cases in highly vaccinated countries is a risk factor for risk appetite. On the economic front, while US inflation is seen as transitory, persistently high inflation releases in the coming month could still lead to markets forcing the Fed’s hand. But, for the next few days, the path is clear for the Rupee and its potential appreciation, if any, would depend on the RBI’s stance.

Global Markets and INR around 7:30 am (31st May 2021)

INR is likely to open around 72.40/45 and trade with a bias towards the downside.

USDINR managed to break the pre-covid wave lows, as risk appetite continues to be strong in global markets. The dollar is stable after Friday’s PCE inflation measure came in much higher than the 2% threshold monitored by the Fed. For now, markets have bought into the Fed narrative that the inflationary pressure is transitory and have not reacted to the inflation data as much. This week’s US jobs data is important to judge if the US economy is running at too high a speed to become an issue for the Fed. EUR is at 1.2200 and JPY is at 109.70. US 10y is slightly lower, at 1.58%.

This week is loaded with market-moving data. US ISM, payroll data and Indian trade deficit and GDP, and RBI monetary policy meeting on Friday are all important events to look forward to this week. INR is in unfamiliar territory in that the move down for USDINR from here would heavily be dependant on the RBI’s stance. With the near-term stressors, especially the covid wave, are gone, the path for further INR appreciation is clear in the short term. The central bank has not let the Rupee move lower from these levels until now and the RBI’s stance could be crucial for further evaluation. From a hedging perspective, the long-term premium has shot up much higher when compared to the January levels (1y premium is higher by more than a Rupee). For exporters, long-term rates continue to be attractive (above 76.25) and can be looked at. Importers can use option structures with range protection to save cost.

Global Markets and INR around 7:00 am (28th May 2021)

INR likely to open around 72.65/70

Risk appetite continues to be strong in markets, and equities had another positive day yesterday. US economic data showed a solid rebound in the economy. The initial estimate of GDP growth came in at 6.4%, and the PCE indicator was slightly higher, at 2.5%. Janet Yellen commented that inflation would be transitory, but could be elevated until the year-end. US yields moved higher post the data, with the 10y at 1.6%. Dollar strengthened, taking the support of higher yields and good economic data. EUR is back to 1.2180, and JPY is at 109.90. The DOW gained 0.4%. Indian equities had a 0.2% gain yesterday. Today’s Asia open is carrying on the positivity of US markets. Brent is moving towards 70 on solid economic data.

The Rupee is clearly on the ascendency now, with no real threat to its stability in the short term. The momentum can carry USDINR even lower, but it all depends on how much the RBI is willing to let go. The Covid situation in India is improving very fast, with the new case numbers rapidly falling and the active case level going down at a pace of around 75k per day.

The next signal for determining the medium-term direction of markets would come in the first week of next month, as a fresh set of data could throw some light on the inflation outlook in the US. Until then, the next few days could see USDINR drift in a range with a downward bias.

Global Markets and INR around 7:00 am (27th May 2021)

INR likely to open around 72.75

Markets were fairly range-bound yesterday and the USD has strengthened slightly after a while. EUR is at 1.2180 and JPY is at 109.15. US markets ended yesterday flattish and Asia has opened fairly benignly. Indian markets surged 0.75% as the covid situation continues to improve with each day. Dollar is stronger ahead of the US economic data releases today. US GDP, Durable goods and more importantly the PCE deflator are slated for today. If the PCE inflation surges well beyond the expectation of 2.3%, it would solidify the view that the Fed would be forced to act on rates and taper by this year-end.

For now, INR is in a stable zone. Market’s expectation of INR stability is reflected in the increase in the forward premium. When the Rupee is expected to appreciate, forward premium has been jumping due to the potential for an RBI intervention in the forward market. The bias remains towards more INR appreciation, albeit the medium-term risks still remain. Flows continue to be positive and supportive of the Rupee. The next leg of Rupee move could occur in the first week of next month as US jobs data and inflation measures could trigger the next phase of USD behaviour. As of now, markets are sanguine about the Covid second wave impact on the economy. Next month’s indicators such as PMIs and other high-frequency data could determine whether this optimism is warranted or not. In all, USDINR remains in a range but with slight downward pressure.

Global Markets and INR around 7:00 am (25th May 2021)

INR likely to open around 72.80/85

USD fell slightly yesterday on the back of a strong risk appetite. S&P 500 had a solid jump of 1% aided by tech stocks. US 10y yield continues to hover around 1.6%. EUR is higher at 1.2215 and JPY at 108.70. Indian equities have steadied and today also looks to be a moderate day with no surprises. Fed officials continue to talk down any talks of inflation – that supply pressures can raise prices in the short term, but that increase is going to be temporary.

The covid second wave in India is moving towards closure by June end, if not early, which is helping the Rupee stability. The global covid picture is fairly stable for now, but there are problem areas such as in Japan. The next couple of months or so would determine if there is another wave and if vaccinations are indeed able to prevent a large spread. There is a cloud on Tokyo Olympics due to the Covid surge in Japan. If indeed postponed, there could be some bruising of sentiment, but not enough to topple markets.

USDINR remains in a range, but the bias remains slightly towards INR appreciation since most of the risk factors are in abeyance in the short term. The US core PCE release on Thursday might create a flutter, but the Fed speak is clear that FOMC would not bother with inflation for now. We can expect a few more days of range-y movements in USDINR until the next leg of the move is clearer.

Global Markets and INR around 7:00 am (24th May 2021)

INR likely to open around 72.90

USDINR broke 73 the first time after the Covid related INR depreciation and has now reversed all of its gains of the covid move. Aided by a weak Dollar, INR has managed to stabilize around the 73 levels for some time now. Friday saw some Dollar strength, but in all, the narrative is that inflation might not be as big concern and hence the Dollar strength has no legs to stand on. US markets were mixed on Friday and Asian markets are cautious on open today. EUR is at 1.2180 and JPY is hovering around 109. Indian equities had a very good day on Friday with around 2% jump, aided by the previous day’s positivity and the waning covid caseload in the country.

This week’s PCE inflation indicator is important for the ongoing debate on inflation. This is a favoured measure for the Fed and the last print came in at 1.8%. Any higher than 2% would stir discussions on the Fed’s interest rate hike possibility again. Also on the roster this week are a bunch of speakers from the Fed and markets would parse their comments for further clues.

INR is being helped by the stabilization of the FII flows, which have turned positive over last week, and other expected ad hoc flows from bond issues and such avenues. The extent to which the Rupee could appreciate now depends on how much would RBI let the Rupee appreciate. The bias is now towards slight INR appreciation but within a range.

Global Markets and INR around 7:30 am (21st May 2021)

INR is likely to open around 73.00 and potentially trade within 72.75 and 73.25 today.

The rupee is stronger in NDF as USD weakness continued with increasing risk appetite. US markets did well with 1% gains, and US yields continue to remain subdued despite some discussion in the Fed minutes about the taper of bond purchases. Markets seem to believe that inflation is contained for now, and in the Fed narrative around low-for-long rates. EUR is above 1.2230 and USDJPY is 108.80. The dollar Index is at 89.73, around a similar level as it was before the Fed minutes, indicating that markets are not concerned about the tapering discussions. Indian equities ended in the red (0.7%), despite positive flow and rating news, but could stabilize today due to a positive Asia open.

The Covid situation is fast improving as per official statistics. The test positivity rates (TPR) in Mumbai, Delhi, and UP are indicating that the crisis would be over for the country in another 3-4 weeks. Delhi’s TPR has fallen to almost 7% now from a high of 33%. Taking the lag of the rise in covid cases in southern states with Delhi into account, the TPR in these states should fall drastically in the next 2-3 weeks, thus contributing to a crash in the national caseload. INR is enjoying this optimism.

Even as FII flows are fairly muted, the expected green bond and such flows can help strengthen INR even more in the short term. The RBI, though, is likely to keep a lid on sharp INR depreciation and intervene aggressively since they could be fine with more INR liquidity infusion in this process. INR could continue to move in a range for a few more days. Optimum use of option structures is suggested for importers, given the high forward premium. Exporters could keep a moderate hedge ratio and hedge for as long term as possible given that the medium-term outlook for the Rupee is still uncertain.

Global Markets and INR around 9:00 am (20th May 2021)

INR trading at 73.20 and expect the days range to be 73.00 to 73.40

MSCI has included 6 new Indian stocks in their index and dropped one. That’s bringing around USD 300-400 Mn of net inflows to the equity market.

However, the Dollar index slightly strengthened and most Asian currencies fell today. The MSCI flows and some Green Bond-related flows are keeping INR stable while Asians drift down.

Bitcoin crashed to 35K and now at 38K. It is amongst the new signals for risk sentiment in the global financial markets.

Fed’s minutes showed that they can start discussing tapering of asset purchase in coming meetings. Market has a phobia to taper tantrum after 2012 experience. So far markets are holding on but increasing US yield and the possibility of QE tapering can lead to big corrections.

India Credit investors and Bond investors can feel little comfortable as S&P affirms that they do not see a material change in India’s credit standing in the next 2 years. Moodys and Fitch also maintain that impact of Covid on Indian output will be limited and rebound in the economy will be fast. Basically, all they are trying to say is that will not do sovereign downgrade any further.

On Fx, this is time for importers to buy more on forwards and some options, exporters to hold on for better levels or to explore options.

Global Markets and INR around 7:30 am (19th May 2021)

INR likely to open around 73.15 and remain within 72.95 and 73.5 for the day.

Dow fell yesterday again on US inflation concern and today signs are a bit on the negative side. Nifty likely to open a tad lower along with Asian equities.

Inflation concern is a real risk for markets which are thriving on liquidity. Inflation is the only animal which can derail the liquidity driven frenzy of financial markets. Especially commodity prices are further moving northwards as US and EU economies see some relief on virus infection.

Today the Fed’s minutes of the meeting will be released and wordings are important to assess concerns of policy makers and what possible steps they can take in the event of sustained inflation. Whether it will be a taper tantrum again derailing markets after almost a decade?

Covid infection in India is receding in some cities however some other cities and states remain significantly under stress. For financial markets, however, US and EU inflection matters more. There is a surge in Taiwan and Singapore. The UK is also fearing a possible third wave triggered by the Indian variant.

Last three days have seen a consistent outflow of FPI dollars from Indian equity. Overall around USD 700 Million has been taken out in the last 3 working days. There is a bit of nervousness in the equity market. USDINR movements will continue to be highly correlated with the Equity market in the coming weeks and months. A depreciation of INR without equity fall seems very unlikely.

VIX index is a tad higher showing spikes and Bitcoin crashed to 40K levels from 60K high after China categorically denied usage of cryptos for payments.

Global Markets and INR around 7:30 am (18th May 2021)

USDINR likely to open around 73.40

The Dollar continues to be under mild pressure globally. EUR is slightly higher at 1.2165 and JPY at 109.15. The past few data points including US retail sales and jobs data have given markets hope that inflationary pressures are temporary in the US economy. Various Fed speakers have been indicating their wait and watch approach. This week’s FOMC minutes could throw some more light on their thought-process, but for now, markets seem to believe the Fed narrative, and USD weakness is a reflection of that belief. US yields have been range-y within the 1.61-1.68% band for the 10y. US equities fell slightly after the 1%+ jump the previous day. Indian equities also had a 1%+ positive day following the previous day’s US equity performance.

INR has seen a reversal of the entire covid move, and the movement from hereon is more fundamental/economy/flows driven. India is at a disadvantage when it comes to an economic revival, as covid related lockdowns could continue for at least a month if not more. While the flow situation is stable, they are not yet enough to cause a sustained euphoria around India. While the depreciation pressure on INR is all but over, USDINR could remain in a range for a few days waiting for the next large move.

Global Markets and INR around 7:00 am (17th May 2021)

USDINR likely to open around 73.30

The Dollar slightly weakened on Friday and risk appetite was strong in US markets after the retail sales in the US stalled at 0% for April. The effect of the stimulus checks faded in April, and markets read it as a temporary pause which would alleviate some of the inflation concerns. US equities jumped 1%+ on Friday. EUR is higher at 1.2140 and JPY is at 109.40. US yields came off, with 10y back to 1.63% level, on improving risk appetite. Indian equities ended flat on Friday.

The covid numbers are improving slowly and India seems to be past the peak on May 8th. With Covid numbers improving, US inflation fears on hold at least for the immediate term, and with Dollar strength pausing, INR is in a safe zone for now. Large appreciation of the Rupee from here is still unlikely unless there is a significant shift towards a trend of Dollar weakness. Further, the RBI could play a role in holding a sharp INR appreciation. While US inflation fears have subsided due to both jobs data and lower retail sales, the actual inflation numbers came in higher last week and those fears would re-surface sooner or later. USDINR could remain in a range until there is a large shift in this perception.

Global Markets and INR around 7:00 am (14th May 2021)

USDINR likely to open around 73.45

The Dollar found new strength from the blow-out US CPI data released on Wednesday. The headline inflation came in at 4.2%, the highest since 2008. Core inflation rose 3%, much higher than expectations. US Markets fell sharply on Wednesday (2%) but managed to recover 1%+ yesterday. US yields have moved higher, with the 10y staying around 1.68%. While the Dollar picked up some strength post the inflation report, yesterday’s price action seems to indicate a pause to that strength, as markets seem to believe that, though this inflation figure is startling, it might be a temporary spike. USDINR rose to 73.60 in NDF but has fallen since. EUR is at 1.2075 and JPY is at 109.60.

INR is now in a range, with the appreciation momentum stalling. The inflation report makes a sharp Dollar fall difficult and in that sense, a large INR appreciation move from here seems a bit unlikely. The Covid situation seems to be moving towards a resolution by around June end. While the economic impact of the various state lockdowns could be significant, markets seem to be focussing on the post-covid economic situation and the easy fed liquidity. In all, INR could continue to be range-bound for some more time.

Global Markets and INR around 7:00 am (12th May 2021)

USDINR likely to open around 73.40

The Rupee remained steady as did most currencies and USD, despite a fall in equity market indices across the globe. Indian equities fell 0.6%+, reflecting the previous day’s US market sentiment, and today could see another fall, as US markets shed 1%+ yesterday. The Dollar, though, has held flat and currencies reverted to their levels after slight intra-day USD strength. EUR is at 1.2130, USDJPY is at 108.30 and the Dollar Index remains at 90.30 level.

Markets are nervously waiting for today’s US CPI data. The expectation is of a sharp 3.6% rise (core CPI at 2.3%). A short-term USD strength signal could be generated if the actual data beats the expectations. India CPI is also due today and the expectation is for a 4.2% print.

With the covid situation remaining stable, and with some states clearly reaching a peak (Maharashtra, Delhi, UP, etc.) with a dip in the test positivity rate, markets are looking past this wave now. Global events would dictate the behavior of INR in the coming days. The equity market jitteriness could keep INR from sharp appreciation in the short-term and a range-bound USDINR seems to be the most probable scenario.

Global Markets and INR around 7:30 am (11th May 2021)

USDINR likely to open around 73.50

USDINR held above 73.30 and steadied after days of sustained INR appreciation. Globally, USD is flat, with EUR at 1.2135 and JPY at 108.90. US equities had a red day yesterday as tech stock weakness continues unabated. NASDAQ fell 2.5% and S&P fell 1%. Indian equities held on, with a gain of 0.5%+. But, the overnight fall in NY would mean a negative start for Indian indices also.

The covid scenario is getting slightly better by the day, as the official caseload is lower than the recoveries for the first time in this wave. Though one might argue that the lower case growth is due to lower testing, the positivity rate for the country as a whole is slowly dipping to around 22%. The caseload is now concentrated in states like Karnataka and Kerala which have the highest test positivity rates and growth rates in cases. Markets are looking at the positives in the form of new drugs and potential revving up of vaccine drive over the next few months as the basis of sustained recovery, and have started to ignore the covid situation completely.

INR is now in a range, as the momentum towards more appreciation is stalled. One can expect few more days of this stability depending on how the global Dollar behaves and how the US inflation evolves. US CPI data due this week remains critical for assessing the potential Fed reaction in the coming weeks.

Global Markets and INR around 8:00 am (10th May 2021)

USDINR likely to open around 73.30

The Dollar crashed on Friday after a shocking miss on the US jobs report which showed that the economy added just 266k jobs against an expectation of 980k and that the unemployment ticked up higher. Yields crashed post the data, but have more than recovered since then (10y at 1.6%). US stocks were higher due to the relief that the data undermines any expectations of rate hikes for now. Markets are now looking forward to the inflation data this week. The Dollar Index has crashed to 90.22, EUR is at 1.2160 and JPY is at 108.90. INR has benefited from the data overnight and the ensuing Dollar weakness.

Now that the Covid news ceases to move the Rupee, global Dollar weakness has created yet another opportunity for sustained INR appreciation. It all now depends on the RBI’s activity and how far would they let the Rupee go. While the reversal of the Covid move is now complete, a sharp appreciation from these levels would require a major global factor such as significant Dollar weakness. Friday’s payroll data has provided that boost. Whether that momentum of Dollar weakness would continue in the next few days would determine the outlook for the Rupee in the immediate term.

Global Markets and INR around 7:00 am (7th May 2021)

USDINR likely to open around 73.60

The Rupee continues on its slow appreciation path as global risk appetite remains healthy. The DOW jumped 0.9% yesterday and Indian indices rose another 0.5%+. USD is weaker, with EUR at 1.2060 and JPY at 109.14. Today’s jobs report is expected to show the continuing improvement in the US jobs market but is unlikely to move the Dollar sharply up unless the numbers blow away expectations.

INR is now firmly detached from the Covid situation in India. The peak seems to be close for the country, as evidenced by the fall in the rate of increase in daily cases. Various models were projecting the peak around May 15th and it seems likely now given the recent slowdown in the growth rate. Markets are clearly looking ahead and unless there is a sudden change in daily case numbers, INR is in a stable zone in the short term.

Global Markets and INR around 7:30 am (6th May 2021)

USDINR likely to open around 73.80

It was a flattish day yesterday for the Rupee and globally, USD strengthened mildly. US ISM services and Markit PMI continue to indicate an upsurge in economic activity and starting of inflationary pressures. EUR is at 1.20 and JPY at 109.31. US equities were higher and Indian equities also had a good day with a 0.8%+ gain for indices. The RBI governor announced certain measures to help the economic impact of the current covid wave. Among them, the loan restructuring for individuals and SMEs can now be extended by banks for 2 more years and liquidity provision of 50,000 cr to health care sector. The measures had some impact on equities but did not provide much boost to the Rupee.

The Covid numbers in the country continue to increase, but the growth rate in numbers has been tapering fast indicating that the peak might be close. Markets have now moved on from the covid situation, and unless there is a surprise rise again, the ongoing numbers might have a limited impact on the Rupee. For now, USDINR could continue in a range waiting for a broader direction.

Global Markets and INR around 7:30 am (5th May 2021)

USDINR likely to open around 73.80

The Rupee continued to hold steady yesterday, even as risk appetite was shaky across world markets. Indian equities fell another 1% and US tech stocks had an almost 2% fall – largest since March. US treasury secretary Janet Yellen said that rate hikes might be needed to prevent the economy from overheating. The comments were taken back later, but equities reacted to them. The dollar is slightly stronger, with the Dollar Index around 91.25. EUR is at 1.2020 and JPY at 109.35.

Rupee remains at crossroads now, in that, while the Covid related move seems to have subsided, fundamental factors such as lack of flows, the economic impact of the second wave, and the high CAD might prevent a sharp appreciation. For now, a range-based Rupee is the base case.

Global Markets and INR around 7:30 am (4th May 2021)

USDINR likely to open around 73.90

The Rupee continues the appreciation trend on the back of a strong global risk appetite and stability in the Covid numbers in India. The Dollar was slightly weaker yesterday, with the EUR at 1.2050 and JPY at 109.20. US ISM manufacturing data came in lower than expected and caused the Dollar weakness.

INR appreciation remains the default play of the day, as the equities have stabilized and the covid situation in India seemed to have plateaued, at least in urban areas. But, the Rupee has reversed a significant portion of the covid depreciation move now and hence can be expected to stabilize around these levels for the time being. The forward premium shot up yesterday, probably in expectation of heavy RBI activity in the forward markets as INR sharply appreciated. The increase in premium has offset the appreciation in INR to some extent.

Markets would wait for ISM services and the important US jobs data later this week. The rupee is now placed well and could try and gain more and it all depends on how much would the RBI let it. The move seems to be a positional move i.e. trader position driven, rather than due to large sustained flows. The Rupee should find some resistance at these levels and USDINR might hold in a range in the coming days.

Global Markets and INR around 7:00 am (3rd May 2021)

USDINR likely to open around 74.10

The Rupee has been able to hold steady and appreciate last week despite the global Dollar strength, owing to a resumption in risk appetite in Indian markets. On Friday, Dollar surged almost 0.8% on the back of increasing signs of rising US inflation and comments from Fed’s Kaplan that QE tapering might need to start sooner than expected. Further, Indian equities fell sharply on Friday, reversing the days of sharp rise. The state election results saw BJP underperforming significantly compared to expectations, especially in Bengal. Markets and Rupee might react to the results today and INR might see some pressure on that account.

EUR is at 1.2030, JPY is at 109.40 and the Dollar Index is back above 91, now trading at 91.22. US 10y remains at 1.63%. This week has a deluge of economic data points such as ISM, and US jobs data to contend with. With the US economy racing ahead, the key question would be whether markets again start to worry about the potential for runaway inflation or whether they would treat the current economic data as a result of one-time stimulus and that of an economy coming up from a deep fall last year.

The trade deficit for India continues in the 15 billion bracket, which leads to around 60 billion CAD for the year as a whole. Given that the flows have all but stagnated, any further rise in the CAD would be rupee-negative. The covid situation in India is stabilizing as per the official case numbers and recoveries are picking up sharply from most states. There is a clear fall in the test positivity rate in Mumbai along with a sharp fall in caseload, which gives hope that the peak in most other states should be around 3 weeks away.

INR is now in a stable zone for now. While the sharp appreciation of last week is difficult to repeat, the bias remains towards stability. Given the BJP election underperformance, some risk aversion might affect INR. Further, if the US data surprises on the upside, there could be chance of a resurgence in USD strength and some pressure on the Rupee. But, in all, USDINR could be expected to drift in a range waiting for cues to the broad direction.

Global Markets and INR around 7:00 am (30th April 2021)

USDINR likely to open around 74.10

The Rupee has managed to turn to a path of sustained appreciation, riding on the continuing global risk appetite. Indian equities were flat yesterday but had a three-day run of 1%+ gains. US equities had a positive day yesterday with around 0.7% gain on the DOW, on the back of a solid US GDP growth of 6.4%. The Dollar fell slightly and EUR is now at 1.2125 and JPY is slightly above 109. US 10y jumped to 1.65%, after the GDP data, but could not help lift the Dollar. For now, there is hardly any correlation between US yields and currency levels/Dollar behavior.

The rupee has now delinked from the Covid situation in the country and is looking ahead. There are views from various modelers that the second wave could peak by the second week of May, as there are signs already in some states. It seems markets are now taking a view that this crisis would last another 2-3 weeks and hence Rupee has regained a significant portion of the lost ground. The sheer momentum of Rupee appreciation might take USDINR further lower, but there could be a natural floor to this move and the RBI might also again step in anytime to further hold the Rupee. The medium-term outlook still remains uncertain for the Rupee as factors such as the long-term economic impact of this wave, rising US inflation and potential pressure on FOMC and the relative strength of the US economy are all risk factors for a stronger Dollar potentially. But, the short-term is now safe for the Rupee.

Global Markets and INR around 7:00 am (29th April 2021)

USDINR likely to open around 74.40

There is a clear trend of INR stability/mild strength and a sharp rise in the Indian equity indices, as markets seem to put the covid scare behind them. The FOMC outcome helped cool off the Dollar even more yesterday. Dollar Index is now at 90.50 with EUR above 1.2140 and JPY at 108.45. While US equities fell slightly post the Fed, Indian equities had another raging day with a 1.5% rise.

The FOMC statement was more or less on expected lines. While the Fed acknowledged the strengthening of the economy they stated that there is a long way to go. The press conference was clear in its message that the recent inflation rise is transitory and there is still a large slack in labour market. Further, Powell ruled out any talk of tapering the QE bond purchases. From the statement and the presser, it is clear that the Fed is a long time away from even attempting to taper the QE, forget about any rate hikes. Dollar fell post the Fed, but US yields remained stuck, with the 10y at 1.61%.

The Rupee is in a stable zone for now. The bias has shifted towards mild appreciation, given the turn in Indian equity sentiment and the turn in global USD strength. But, as for the covid situation in India, it is still moving towards its peak and still is a potent pressure point for the Rupee. In all, the Rupee could keep drifting in a range for a few more days before the short-term direction is more apparent. Over the medium-term though, the outlook for the Rupee depends on how fast India comes out of this covid wave and manages to vaccinate a substantial chunk of the population, especially given that the US and other countries have reached material levels in the proportion of vaccinated people.

Global Markets and INR around 7:00 am (28th April 2021)

USDINR likely to open around 74.60

Riding on the stability in global markets, Rupee managed to gain some ground yesterday. Indian equities posted yet another 1%+ gain, helping INR in the process. The Dollar is trading mildly strong, ahead of the FOMC decision tomorrow. Dollar Index is around 90.95, EUR is at 1.2080, and JPY at 108.90.

FOMC is expected to again hammer home their message that inflation in the US economy is not yet a concern and that they would keep rates unchanged for the foreseeable future. Depending on the force of their conviction, the Dollar can further weaken from here and help the Rupee slightly in the process. US 10y yield rose to 1.62% indicating that the market is testing the Fed’s resolve to keep the rates low.

Despite the recent depreciation in INR, forward premia continue to be elevated as there is no reverse RBI activity of selling USD to prevent excessive INR depreciation. The forward premium continues to be very attractive for exporters in long-term hedging. For importers though, the high premium continues to be a deterrent and one can look at option structures that lower the cost with range-bound protection.

The covid numbers are slowly stabilizing for the country as a whole, in that the active case growth is now at 1 lac a day. Maharashtra’s behaviour suggests that other states should reach a stable state in the next 2-3 weeks, post which recoveries should overtake the official case numbers. The test positivity rate is also stabilizing at 20%. This crisis should therefore be on the wane from 15th to end May. In this period, the behaviour of INR would be linked to the global risk appetite and the equity market performance. If equities hold well enough, INR could also be in a range and not see a run-away depreciation in the very short term. FII outflows have been fairly muted despite the domestic situation and this is a risk factor for INR to be watched out for.

Global Markets and INR around 7:00 am (27th April 2021)

USDINR likely to open around 74.80

Yesterday was a fairly uneventful day in markets. INR remained in a tight range looking for the next direction, and globally, USD managed to eke out some gains. While US equities ended flat, Indian equities had a good day with a 1%+ gain, riding on the global risk appetite and ignoring the current covid situation. The Dollar Index is at 90.85, EUR is lower at 1.2080 and JPY is at 108.20. US 10y yield continued to hover around the 1.56% mark.

The covid numbers in India stabilized after a long time, with Maharashtra reporting more recoveries than new cases. The test positivity rate seems to be slowly coming down in that state (from 25%+ to 22%), indicating that it may be now closing in towards a peak of active cases soon. The recovery numbers have started to pick up in other states such as UP and Delhi. It seems that the peak for this wave could be seen by mid-May. But, the dent to the economic activity is clearly apparent, though equities seem to take this as a temporary hit. INR’s current move towards 75+ might be temporary if the decline in cases follows the rapid trend of ascendancy. For now, INR could continue to be range-bound at least until the FOMC meeting outcome on Thursday.

Global Markets and INR around 7:00 am (26th April 2021)

USDINR likely to open around 74.90

The Dollar continues to be under pressure as the market’s focus shifts to the Fed meeting this week. The Dollar Index is at 90.75 as EUR is trading above 1.21 and JPY below 108. The US 10y remains in the 1.55% handle. Asian markets are expected to open positive, though Indian equities remain under pressure due to the ever-worsening Covid situation in India. While the US markets were up 1%+ on Friday on continuing economic recovery, Indian equities were down 0.4%.

The covid situation in India is now international news and markets are focusing on the duration of this wave. Going by the Mumbai numbers, where the daily recoveries are now higher than the daily new cases and the positivity rate has started to decrease to less than 15% (from 25%+), it looks like the peak for the daily active cases in the country as a whole, is at least month way.

The Rupee would remain under pressure through this period, as there is always a risk of outflows from Indian markets. The FOMC this week is expected to reiterate their continuing accommodation and low-for-long rates strategy. The FOMC would be positive for risk assets including the Rupee. In all, INR could drift in a range, but biased towards depreciation.

Global Markets and INR around 7:00 am (23rd April 2021)

USDINR likely to open around 75.10

The Rupee managed to recover strongly from the NDF levels and traded firm all through yesterday. The Indian equity indices also managed to hold on to some gains, indicating that the risk aversion wave is yet to set in and markets are not probably treating the current covid situation as a temporary blip. In global markets, USD is fairly stable, with EUR at 1.2020, JPY at around 107.95, and the Dollar Index at 91.25. US 10y yield remained flat around 1.55%. US equities fell yesterday on worries that the US administration is considering a large capital gains tax. EUR is slightly lower after the ECB did not provide much comfort on the future course of action.

Even with the dire covid situation in India, risk assets are held stable due to the massive spending plan and stimulus from the US, and the bullishness in the US equity markets. Whether the Biden tax hike plan provides more ammunition for risk aversion to set in is to be seen. INR is still in a vulnerable zone until there is some light at the end of the covid tunnel. The trend seems to be that the NDF market takes USDINR higher, and part of that move is reversed in the onshore session, probably implying that Indian traders are not that worried about the domestic situation and are more optimistic. For now, the Rupee could continue in a range between 74.50 and 75.50, moving in line with the day’s events and global moves.

Global Markets and INR around 7:00 am (22nd April 2021)

USDINR likely to open around 75.40

The Rupee remained weak yesterday in NDF, even as the Dollar remained stable globally. EUR is at 1.2040 and JPY is at 108.05. INR traded just around 75 on Tuesday, but the NDF market moved USDINR higher despite stabilizing risk appetite in US markets. Indian equity indices are slated to open lower, as indicated by futures.

The US yields remained flat around 1.55% and are hampering any USD recovery. As a result, cross-INR levels have reached the last peak levels again. If USDINR does sustain at the expected opening levels and looking at the Indian equity futures, it appears that the Rupee could continue the weakening trend for more time to come. The Covid case count has moved to more than 3 lacs a day and the recovery rate is yet to pick up the pace, for the active case count to slow down. By next week, most of the high-burden states could see some form of lockdowns, and that is the immediate pressure point for the Rupee. That said, this move of INR could be a one to a two-month phenomenon, as one can expect that the covid wave to subside as quickly as it emerged, once the peak is reached.

Global Markets and INR around 7:00 am (20th April 2021)

USDINR likely to open around 74.85/90

The Rupee again fell yesterday despite the global Dollar weakness. The Rupee is tracking the Indian equities now, which seems to have started giving in to the Covid situation. Indian indices fell 1.8% yesterday on growing lockdown worries and the Rupee tracked this weakness. The Dollar fell yesterday against most global currencies, with the Dollar index now close to 91. EUR is at 1.2040 and JPY is at 108.15. Dollar yields were up yesterday, with the 10y trading above 1.6%. Until the yields reach the previous highs, currency markets might ignore the short-term moves in yields.

The Covid situation is now deteriorating rapidly in many states. The UP high court ordered full lockdown despite the government’s reluctance. It is a matter of time before lockdowns can become a reality in many other states if the current trend continues.

The Rupee is now vulnerable if equity indices also fall due to risk aversion. The FII flows can turn quickly if both equities and INR are weak, and kindle a cycle of more weakness. This week remains critical for both the covid graph and the INR direction.

Global Markets and INR around 7:00 am (19th April 2021)

USDINR likely to open around 74.50

The Rupee has managed to stabilize and move in tandem with the weakness in USD on Friday. The dollar index is at 91.55, EUR is at 1.1975 and JPY is at 108.65. Equities have been doing well in the US, and Friday also saw a positive close to DOW and other US indices. Despite the rapid surge in Covid cases in India, Indian equities are managing to stay stable, helping the Rupee regain from the earlier weakness. US yields remain weak and are dragging the USD down. US 10y continues to be in the 1.56% range.

This week is pivotal for the evolving Covid situation, in that there are some expectations that states like Maharashtra could possibly see some peaking of active cases. There is a clear trend in places like Mumbai, where active cases seem to have plateaued and the hope is that the same situation extends to other places. Going by the eventual serosurvey findings in the last phase, that cases were undercounted 40-80 times, and given the rapidly moving virus now, it is logical to assume that the actual case count in this wave could easily be 20 times the reported number (most of which is asymptomatic). Through, the actual mortality count seems to be higher than being reported officially, this wave seems to have a lesser mortality rate than the first one. This week could determine the potential duration of this wave and can provide some direction to INR. Until then, the Rupee could move in a range, unless equities give in to the Covid situation.

Global Markets and INR around 7:00 am (16th April 2021)

USDINR likely to open around 74.70

The Rupee managed to participate in the Dollar weakness and global risk appetite yesterday and turned the tables on the continuous depreciation move of the past few days. The Dollar is slated to close the second week with losses, as the US 10y slipped below 1.6%. Despite a very strong US retail sales number (9.8%) driven by stimulus checks, US yields remained under pressure, probably discounting the good data as a temporary result of the stimulus. But, there is a clear indication that the US economy is improving and with more than 30% of their population vaccinated, there is more upside to the recovery.

Total daily covid cases in India are double of the previous peak now and we expect the daily caseload to go to 3.5+ lacs if the large-burden states such as UP, Karnataka, MP, etc don’t manage to control the growth. There is a silver lining in the news that Mumbai has recorded a lower caseload than recoveries for two days now and the recovery percentage in Maharashtra is sharply rising. One can expect Maharashtra to cool off by this month-end, and since there was a lag of a month between Maharashtra and other states, one can estimate that this wave could peak by May 1st week and slowdown by May end.

Yesterday’s behavior of the Rupee suggests that the bad news on the covid situation is discounted now and the expected depreciation pressure has slightly lessened. Indian equities have been holding up well and this could help the Rupee stabilize at the current levels.

Global Markets and INR around 7:00 am (15th April 2021)

USDINR likely to open around 75

Despite the fall in USD globally, INR has been trading weak in NDF reaching even 75.30 level. India’s Covid situation is putting pressure on the Rupee, despite the global Dollar weakness. Dollar Index has fallen to 91.50 level, with EUR closing in on 1.20 and JPY at 108.83. Markets ignored the sharp rise in US CPI (at 2.6%), the US equities held on while the USD continued its fall as the Fed’s dovish message seems to have sunk in. India CPI inflation came in at 5.5% – slightly higher than expectation, but more or less in line.

India’s Covid situation has gone from bad to worse in a very quick time. The variant circulating now seems very infectious and the trajectory so far suggests that the peak in the country can come around 2.5 to 3 lac daily caseload. The situation in India is akin to the US in November 2020 period (which saw 3 lac+ caseloads daily). It is a matter of time before more states impose quasi-lockdowns soon and the economy has already been hit due to the sagging demand. The Rupee has been first to react and equities are still holding up despite the Covid surge.

INR is now in a vulnerable zone, and if equities catch up to the risk aversion, there is potential for more depreciation albeit at a slower pace than the move till now.

Global Markets and INR around 7:00 am (12th April 2021)

USDINR likely to open around 74.70

The Dollar recouped some gains against most currencies, and INR remains under pressure due to the ongoing Covid situation in India. The Dollar index is slightly higher at 92.20 and EUR is just around 1.19. JPY is at 109.70. US yields went higher on Friday and the 10y is trading at 1.66%. While the US equity indices rose on Friday by 0.7%+, Indian indices were in the red by 0.3%. Powell reiterated that they are unlikely to raise rates anytime soon and that the US economy is at an inflection point.

The Covid situation in India is getting out of hand very quickly as most large states have turned into hotspots. India reported 1.7 lac new cases yesterday. Even as Maharashtra continues to see a surge in cases with 63k daily additions yesterday, other states such as UP, Karnataka, Chhattisgarh, and Delhi are now showing 10%+ positivity rates, implying a deepening infection. Even though the government has assured about no country-wide lockdown, it is a matter of time before something of that sort is announced in our view. With news reports of lack of beds, oxygen and Remdesivir already circulating, the situation could turn more hostile in the coming days. The economic impact of this wave continues to be INR negative.

Markets expect this week’s set of economic data releases to confirm the economic growth and potential inflationary pressures in the US. Retail sales and CPI are due this week. India CPI is also due this week. INR is expected to remain under pressure in this holiday-shortened week for currency markets.

Global Markets and INR around 7:00 am (9th April 2021)

USDINR likely to open around 74.50

Even as the USD continues to weaken against its global peers, INR remains under pressure due to the ongoing pandemic situation in India and the potentially higher INR liquidity expected due to the RBI bond purchases. The India 10y yield has been down since the RBI announcement on bond purchases and can fall below 6% soon. The Dollar Index is down to almost 92, with EUR above 1.19 and JPY at 109.25. US equities were moderately higher yesterday on continuing economic improvements. Indian equities closed slightly positive, and the good news is that the slow fall in equities of the past few weeks has consolidated for now despite the surging covid cases. INR has, in a way, caught on to its peers when looked at from a medium-term perspective. The latest Fed minutes continued to point out to their dovish stance. US yields have fallen from the recent highs and the 10y has fallen to 1.62% now, dragging the USD also along with it.

Covid cases surged to 1.36 lacs yesterday and are on track to reach 1.5 lac+ very soon. A pattern seems to be emerging in that Maharashtra seems to be seeing a plateau in caseload and slight fall in the positivity rate, indicating that at around 20-25% positivity rate, the virus rips through most of the population and can slowdown post that. It also means that other states have long way to go before a peak and hence a 2 lac+ daily case load for the country as a whole is very possible. Rupee market would take some solace from the PM’s statement that lockdowns are not necessary now, but given the ad hoc localized lockdowns and the general risk aversion, this second wave is sure to effect a negative impact on the economy. In all, the pressure on INR remains, albeit the pace of the move is expected to slow down now given that the global environment is conducive to weak USD and due to the relative lack of risk aversion.

Global Markets and INR around 7:30 am (8th April 2021)

USDINR likely to open around 74.40

INR continued to get hammered yesterday, as key levels around 74 got taken out. The pace of the move from the 73 levels has been sharp since most of the market has been positioned for INR stability. We believe most of those positions would have been unwound in this move and the pace should now slow down. Despite the pause in the global Dollar strength, INR has been badly affected by the unprecedented Covid surge in the country.

Markets ended fairly flat yesterday. EUR is at 1.1870 and JPY at 109.70. Equities in the US had a flat close and Indian equities had mild gains. A positive for the Rupee is that Indian equity indices are still holding and a large risk aversion wave is not apparent.

The RBI announced a status quo policy. The repo rate is unchanged and the policy stance continues to be accommodative. The RBI announced a bond purchase program to support the long-term yields which have been under pressure due to large government borrowing. They upped the inflation forecasts, indicating that the rate situation is unlikely to change anytime soon. The India 10y yield fell almost 10 bp after the policy, but the Rupee did not have any tangible effect.

India’s covid situation is worsening by the day. At 1.25 lac cases a day, the surge is much faster than the previous wave. Given the pace of the move and the positivity rates, it would not be surprising that the asymptomatic spread could have been multiple times the official numbers. Recall that during the last wave the actual seropositive population turned out to be 20-40 times the official count. Lockdowns have already started in various states and it is a matter of time before more severe lockdown comes back to the majority of the country. INR is reflecting this fear.

While the pace of the move has surprised us, we always held that INR had no business appreciating given the relative economic performance of India and inflation differential. Now that the Rupee has moved back to the 74+ levels, the further depreciation pressure should lessen a bit. But, the bias remains towards more depreciation still given the Covid situation.

Global Markets and INR around 7:00 am (7th April 2021)

USDINR likely to open around 73.45

Even as the Dollar fell against most currencies, INR was under slight pressure. EUR is higher at 1.1875 and JPY is stronger at 109.60. The US yields fell with the 10y at 1.67%. Clearly, INR is being held from appreciation due to the lockdown fears amid the rampaging virus. US equities fell slightly and Indian equity indices ended around 0.3% higher.

The RBI is expected to be more accommodative in this policy despite inflationary pressures. While the repo rate is expected to stay the same, the RBI might talk about keeping liquidity ample and managing the long-term yields. Also important is their assessment of inflation and the covid situation. INR, though, is unlikely to see a large move, unless there is something very unexpected in the policy.

The Rupee could continue to meander in a range for some more time as the reversal of Dollar strength is offset by the rapidly deteriorating Covid situation in India. On balance, INR has a slight depreciation bias, but not as strong to take it above the current range in the short-term.

Global Markets and INR around 8:00 am (6th April 2021)

USDINR likely to open around 73.25

USD took a breather yesterday, as risk appetite helped other global currencies strengthen against the USD. Dollar Index fell slightly, now at 92.65. EUR is above 1.18 and USDJPY at 110.30. US yields held flattish around 1.7% on the 10y. US equities had yet another 1%+ day, driven by economic recovery hopes and the ISM data yesterday seemed to confirm those hopes. Indian equities had a red day yesterday with a 1% fall, reflecting the covid and lockdown worries. INR remained stagnant, being pushed and pulled between weaker Dollar and India-specific covid worries.

Covid cases are hovering around the 1 lac mark for the country as a whole and it is clear that this wave is much more infectious than the first one. While partial lockdown is announced in Maharashtra for now, the risk that more such restrictions in other states can hamper economic activity would keep a lid on any INR strength. In all, INR could remain under slight pressure despite the global risk appetite being strong.

Global Markets and INR around 7:30 am (5th April 2021)

USDINR likely to open around 73.35

The Dollar is holding well after a solid jobs gain in the US, which beat all expectations and shows a fast economic recovery after the March reopening. The US added 916k jobs in March, and the unemployment fell to 6%. Dollar Index is close to 93, after being higher earlier. EUR is at 1.1765, JPY at 110.60, and GBP at 1.3835. US equities are expected to react positively to this data. The US yields are now hovering around 1.7% on the 10y, and given the sharply higher jobs number, one can expect a potential up-move again soon.

INR continues to be influenced by the global Dollar strength and the balance is tilted sightly towards mild Rupee weakness. The COVID scenario in India is fast moving into an unmanageable state where lockdowns could be needed, thus affecting the economy. The daily incremental caseload has already crossed the previous peak, though the distribution is highly skewed by one state – Maharashtra. The state has already announced weekend lockdowns and night curfews. Given the pace of the new wave, the peak might also be reached within the next month, and hence the lockdown might be temporary. That said, this fact is clearly Rupee negative.

This week has important data and events. US ISM could show the progress in the economy and the Biden infrastructure plan details could occupy the market’s interest for some more time. The RBI monetary policy is due this week, though not expected to move INR in a major way. For now, the Rupee could drift in the range waiting for the next move in USD and US yields.

Global Markets and INR around 8:00 am (31st March 2021)

USDINR likely to open around 73.40

The Rupee finally reflected the global USD strength, even as Indian equities saw a sharp jump of 2.3%. EUR is closing in on 1.17 and USDJPY is above 110.60, reflecting the ongoing USD strength. US yields shot up to 1.77% before settling lower. Today’s Biden remarks on details of the infrastructure plan and its funding are critical for the next leg of US yields and hence the Rupee move.

The Covid numbers in India are worrying in that the positivity rate has reached 7.5% for the country as a whole and the wave is strengthening across multiple states now. While the bulk of the positivity rate is due to Maharashtra, other states have seen a sharp jump in the rate from <1% to 3%+. Given that most of the states are yet to reach the first wave peak in this rate (7%-10%), we are in for a potentially much bigger surge in cases for the country as a whole. One positive factor in all this is that the death rate seems much lower than in the previous phase. At a similar daily caseload, the previous phase had close to 800 deaths per day as against 300-350 now. Some sort of lockdowns is imminent now, though not to the extent of the last year’s. INR would be influenced by this and remain under pressure unless the relative advantage of the US in vaccinations is neutralized soon.

INR is still in the current range, and the sharp move of yesterday has to be followed up by another depreciation today for one to expect a larger directional play. If INR settles down over the next few days, then the range is deemed to be intact. The next leg of the US yield movement is now critical for the Rupee.

Global Markets and INR around 8:00 am (30th March 2021)

USDINR likely to open around 72.60

Yesterday did not see any large moves in markets. USD is stronger, especially against EUR reflecting the vaccine rollout advantage of the US compared to the Euro area. EUR is below 1.18, Dollar Index is 92.80. US yields are stabilizing around 1.62%. US equities had a green day, with the DOW and S&P jumping 0.5%+. Indian equity indices, though, continue to bleed and yesterday saw another 1.5%+ fall. Oil fell again, after being higher the day before, over concerns that the ship stuck in the Suez canal would disrupt the shipping traffic completely.

Covid situation has reached alarming proportions, even as vaccination drive remains stuck around 20-25 lac doses a day. There is a double mutant strain circulating in the country, which was termed “novel” as per the government, which implies that there is re-infection risk and also that the vaccines have to be retested against the strain. The positivity rate has reached 5-6% for the country, primarily due to Maharashtra, which is showing 22% positivity rate. It is a matter of time before this wave reaches the previous peak. There would be some economic impact and negativity for the Rupee due to the relative divergence between the US and India on the virus evolution.

INR could remain range-bound, but with slight depreciation pressure due to the ongoing USD strength and Covid surge in India. While the US yields have settled down, the incoming US data over the next few weeks could again trigger an optimism around the economic recovery and inflation pressures. For now, INR is reacting to the global Dollar strength.

Global Markets and INR around 7:30 am (26th March 2021)

USDINR likely to open around 72.60

Yesterday did not see any large moves in markets. USD is stronger, especially against EUR reflecting the vaccine rollout advantage of the US compared to the Euro area. EUR is below 1.18, Dollar Index is 92.80. US yields are stabilizing around 1.62%. US equities had a green day, with the DOW and S&P jumping 0.5%+. Indian equity indices, though, continue to bleed and yesterday saw another 1.5%+ fall. Oil fell again, after being higher the day before, over concerns that the ship stuck in the Suez canal would disrupt the shipping traffic completely.

Covid situation has reached alarming proportions, even as vaccination drive remains stuck around 20-25 lac doses a day. There is a double mutant strain circulating in the country, which was termed “novel” as per the government, which implies that there is re-infection risk and also that the vaccines have to be retested against the strain. The positivity rate has reached 5-6% for the country, primarily due to Maharashtra, which is showing 22% positivity rate. It is a matter of time before this wave reaches the previous peak. There would be some economic impact and negativity for the Rupee due to the relative divergence between the US and India on the virus evolution.

INR could remain range-bound, but with slight depreciation pressure due to the ongoing USD strength and Covid surge in India. While the US yields have settled down, the incoming US data over the next few weeks could again trigger an optimism around the economic recovery and inflation pressures. For now, INR is reacting to the global Dollar strength.

Global Markets and INR around 7:30 am (25th March 2021)

USDINR likely to open around 72.60/65

USD strength held yesterday, and risk aversion led to yet another fall in equity indices. EUR is weakening and is now closer to 1.18 due to the perceived divergence between the economic recovery of the EU and the US due to the relative spread of the virus in the two regions. USDJPY held around 108.90. US equities had a mixed day, in that while the DOW ended flat, NASDAQ fell more than 2%. Indian equities struggled with a 1% fall, tracking the previous day’s US equity performance. Both Powell and Yellen repeated the comments on the economy on the second day of their testimony. They reiterated that the economic growth in 2021 is likely to be high and the inflationary pressures are likely to be temporary. Oil jumped 5% odd after being oversold the past few days.

The coronavirus caseload in India has crossed 53k now and the positivity rate has crossed 5%, which is concerning. Maharashtra is seeing a much larger spread than the last peak as measured by the positivity rate of more than 20%. The risk of a lockdown is very much apparent given the pace of the spread. EU is clearly at the start of a third wave, primarily from the UK variant. In all, the risk aversion due to the virus is here to stay longer than expected, which implies that the medium-term INR outlook is not rosy.

The US yields have settled down around the 1.6% level on the 10y. The Dollar is consolidating now, from months of weakness, and in that regard, INR has some bias for mild depreciation. That said, until there is either a full-blown risk aversion due to the virus or a sharp move in yields again, Rupee is likely to be range-bound.

Global Markets and INR around 7:00 am (24th March 2021)

USDINR likely to open around 72.50

Moderate risk aversion took over markets yesterday on fears that the ongoing recovery might be jeopardized by a potential third wave of the virus. A new set of lockdown measures in EU countries spooked the markets and oil fell another 6%. The US yields settled lower, with the 10y at 1.61%. Dollar gained on the back of the risk aversion, with EUR at 1.1845, and GBP at 1.3730. JPY strengthened due to the risk aversion, at 108.60. The DOW fell 0.95% and NASDAQ fell 1.1%. Indian equities had a good day yesterday with a 0.5% growth, but are likely to stay in the red today. Powell again downplayed inflation concerns in his testimony to the US congress, and Janet Yellen said that there is some way to go for a full recovery. The speeches were more or less in line with expectations.

COVID cases have been increasing in the EU again, with 15k-20k daily reported cases for each country. Indian scenario is fast becoming worrying, with the test positivity rate shooting up in many states. While large-scale lockdowns are unlikely, some economic activity is sure to get affected due to this wave. The vaccine drive is not fast enough to cover the moving population (job-earners) quickly and unless the vaccines are opened up for everyone, the pace could stall at 20-30 lacs a day. In all, the next 3-4 weeks are critical for the economy and the worry here is that the second wave might be much bigger than the first, as happened in the US.

INR stability is intact for now. The correlation with rising yields is now broken unless there is a very sharp rise in yields. The fall in oil is positive for INR on the face of it, but the reason for the fall is not (worries about economic recovery). The rupee is fairly balanced and range-bound in the short-term.

Global Markets and INR around 7:00 am (23rd March 2021)

USDINR likely to open around 72.35

Markets had a good day yesterday as the US yields retreated a bit from the strengthening trend. US 10y fell to 1.67%, USD fell and equities rallied as a result. EUR is at 1.1930, and USDJPY is at 108.80. The DOW jumped 0.3% while NASDAQ rose 1.2%. Indian equities fell slightly (by 0.2%). Powell is expected to tell the US Congress today that the economy is growing well, and markets would watch out for any comments on yields and inflation.

Covid situation remains grim in India, with the positivity rate rising fast across states. Even in the US, there seems to be a renewed increase in caseload in many states. Unless the vaccine program is done before significant variants/mutations of the virus creep in, we have not seen the end of the pandemic yet. Covid related economic disruption remains a medium-term factor for markets.

INR would benefit from the calm on the US yields front. While the medium-term risks such as the inflation concerns, and potential Covid disruptions can disrupt the Rupee, the short-term seems to be stabilizing as yields have found a plateau at the 1.65%-1.7% level.

Global Markets and INR around 7:30 am (22nd March 2021)

USDINR likely to open around 72.40

The Rupee managed to hold despite the strength in USD. Friday saw US yields stabilize around 1.7% and USD jump marginally. EUR is now at 1.1880. JPY is flat at 108.90 as risk aversion related to the Turkish Lira collapse helped the Yen counter the Dollar strength. US equities fell on Friday and the futures indicate cautiousness. Indian equities surged 1.4% on Friday helping the Rupee on the way. US yields remain elevated and markets are looking forward to hearing Powell speak on three different occasions this week. Brent is stable at around 64. Turkish Lira crashed after the Turkish president replaced their central bank governor with a critic of high-interest rates. The Turkish situation is unlikely to cause major stress in EM currencies.

The covid situation in India is evolving fast, with more than 47k cases reported in the last 24 hours. The positivity rate is more than 20% in Maharashtra, which indicates a very large second wave. While other states such as Karnataka are seeing a surge in cases, the positivity rate is below 2%, which means that there is still a chance for containment. Given that there are no lockdowns now, the pace of the infection growth would be very high and one can expect that over the next month, the total caseload would be close to previous highs for the country as a whole. INR is ignoring this risk for now, but if lockdowns do come back in some form, some risk aversion can hurt Rupee and this is a risk factor to be watched out for.

INR is in a stable zone for now, as US yields have lost their correlation with risk assets in the short term. Markets might try to force the fed again with another spurt in yields soon. There would be a threshold point for yields, post which there would be panic, but the current levels are well tolerated by markets. Powell’s speeches are important events this week for INR. The Dollar strength against EUR and other currencies can be expected to hold for few days until there is clarity on the direction of yields.

Global Markets and INR around 7:30 am (19th March 2021)

USDINR likely to open around 72.65

US yields shot up despite the Fed’s dovish stance, as the market seems to believe that the projected inflation growth in the US might not be temporary, and force the Fed to hike. The rise in 10y to 1.72% spooked equities. S&P fell 1.5% and NASDAQ gave up 3%. Indian equities also fell 1%+. USD gained some strength on the back of rising yields. The Dollar Index is at 91.90 now. EUR is lower at 1.1910 and JPY is flat at 109.10. Oil fell 7% yesterday, and the belief is that the fall is due to extremely overbought positions in oil driven by the narrative of better economic prospects. The crash in oil is good for INR in one way, but a sharp fall is also associated with equity sell-off and potential risk aversion. For now, INR might ignore this move in oil.

The covid situation in India is fast deteriorating, with the country reporting close to 40k new cases yesterday. Even though the bulk of the cases are from Maharashtra (with a 20%+ positivity rate), other states such as Karnataka are fast picking up speed. The second wave seems to be much faster than the first, due to the absence of a severe lockdown and potentially new variants of the virus. The speed of transmission has been rapid, and at this rate, a lockdown could indeed become a reality in the next few weeks. This is a risk factor for INR.

For now, global inflation expectations have become the most important factor for markets. Given that markets are starting to test the Fed’s resolve to be dovish, there is more to go on the long-term US yields. Powell is slated to appear thrice next week and is expected to drive home the Fed’s dovish stance. There is a possibility of a further spike in yields to force the Fed to announce measures next week. Any further rise in yields is a risk for equities and INR and could lead to larger falls in both. There is a slight depreciation bias continuing for the Rupee.

Global Markets and INR around 7:30 am (18th March 2021)

USDINR likely to open around 72.35/40

The Dollar fell yesterday after the FOMC reiterated its stance of low rates for long. The FOMC statement acknowledged that the economy is turning, but pointed out the slack in certain areas of the economy. Inflation projections were upped to 2.4% for 2021 but then brought down in subsequent years indicating that the FOMC believes the inflation hike to be temporary. Despite the upward revisions to growth projections and expectations of a lower unemployment rate, the Fed said that it will stay the course on interest rates and bond purchases. The dot plot indicated no hikes till 2023. Powell said that they would give enough guidance on any tapering of the bond purchases.

Though yields fell slightly intra-day, the 10y is higher compared to yesterday – at 1.65%. The Dollar is lower, with the Dollar index at 91.50, EUR at 1.1970, JPY at 109.10, and GBP at 1.3950. Our view is that even as the Fed is dovish on rate hikes, markets would try and test the Fed with another round of spikes in yields soon. Equity market reaction, though positive, is not commensurate with the uber-dovishness of the Fed.

For now, INR is stable and potentially appreciating given the weakness in Dollar. But, the behavior of the US long-term yields suggests that there could be a rise again despite the Fed, and hence the weakness in USD could be temporary. Indian equities are also not in an exuberant state to attract large flows. Hence, the risks for the Rupee are fairly balanced at the current moment.

Global Markets and INR around 7:30 am (17th March 2021)

USDINR likely to open around 72.55

Markets are subdued ahead of the FOMC decision today. INR has been stable, waiting for the next direction for the US yields. US markets ended the day red (-0.4% on the DOW) and USD has strengthened against most currencies. Dollar Index is close to 92. EUR is below 1.19 and USDJPY is at 109.10. Indian frontline indices had a flattish day yesterday. Brent is trading flat at 68.30.

Today’s FOMC is an important event on two counts. First, markets would watch for any announcements on yield curve management strategies to lower the long-term yields. Second, it would be interesting to see if the dot plot changes in line with market expectations. Our view is that the FOMC would stay the course and point out the slack in the labor market and dismiss inflation pressures. The Powell press conference could provide some hints on the Fed’s thinking. Yields and currencies could be volatile overnight.

The coronavirus situation in India is moving towards a multi-state second wave, with Karnataka also joining the surge. We have to watch out for the potential lockdown situations again and the medium-term impact on INR.

Rupee could move without direction today, awaiting the FOMC decision today. Given the behavior of USD yesterday, it seems markets are expecting the Fed to be slightly hawkish. If they come out very dovish and portray a rosy picture on inflation, USD could correct slightly and benefit the Rupee. It is over to the FOMC now.

Global Markets and INR around 7:30 am (16th March 2021)

USDINR likely to open around 72.50

Markets stabilized yesterday and traded in a range and INR took advantage of the stability. But, the overnight Dollar slightly strengthened. EUR is at 1.1925, JPY at 109.20, and GBP slightly down at 1.3890. US yields stabilized around 1.6% level ahead of the FOMC meeting. The interest rate decision and the dot plot are due tomorrow and the markets are all focussed on whether the Fed changes its guidance in line with more aggressive market expectations of a rate hike before 2022. Brent is slightly down at around 69. Indian equities had a red day yesterday, but US equities managed to rise. Asia has opened stable implying that INR might push for more strength today.

The Covid scenario in India is clearly moving towards a second wave and states like Maharashtra have already started on partial lockdowns. It seems that the current infection is being caused by a variant and it all depends on whether the existing immunity is enough for the new strain. The next few weeks are critical to determining the economic impact of this wave and if indeed more severe lockdowns result from the wave.

While INR is pressing ahead, tomorrow’s FOMC narrative is critical for the currency. While we expect the Fed to downplay the yield movement and stick to its previous projections, the tone of the statement and the press conference can lead to some activity on US yields. Until then, INR is in a stable zone.

Global Markets and INR around 7:30 am (15th March 2021)

USDINR likely to open around 72.65

Markets have opened in Asia on a steady note after the stimulus bill passed in the US. The US yields though continued their rise, with the 10y rising to 1.64% before settling at 1.60% now. While NASDAQ slipped into the red, the other US equity indices did well despite the rising yields. USD is mildly stronger on the back of higher yields, with EUR at 1.1964, JPY at 109. Brent continues to hold near 70 aided by hopes of stimulus-led economic recovery.

While equities have been holding, there is unease due to the rising yields. With markets expecting inflationary pressures in the coming months, forcing the Fed to hike it is unlikely that a sustained risk appetite would continue even when yields are rising. Markets expect the Fed to do something around yield curve control and the longer the Fed waits, the higher is the chance of one more round of negative moves in risk assets including INR.

India inflation came in at 5.03% for last month, bucking the falling trend of the past couple of months. Higher oil and commodity prices would mean continuing inflationary pressures in the economy. For the time being, a rate cut is ruled out. The IIP data also fell short, with a 1.6% contraction. Worrying in the data is the decline in the consumer durables sector indicating that the pent-up demand after unlocking has run its course.

Coronavirus cases are clearly on the ascendency in India and talks of lockdowns are doing rounds. While Maharashtra remains the primary driver of the case growth, there is a clear pattern of increases in most states. There is a risk of a large second wave and potential lockdowns in the next 3-4 weeks and this could be a negative factor for INR.

As risk appetite is holding stable, the Rupee is now in a safe zone in the short-term. Pressure points such as rising yields and stronger Dollar tilts the balance towards INR weakness over the medium-term.

Global Markets and INR around 7:00 am (12th March 2021)

USDINR likely to open around 72.70

Risk appetite is back in markets as US yields stabilized lower (10y at 1.53%). US markets had a good day yesterday driven by a 2.5% surge in NASDAQ. INR is now in a stable mode, especially after the day before yesterday’s US CPI data. Markets are hopeful that the economic stimulus would kickstart the global economy also indirectly.

India is seeing a resurgence in the coronavirus numbers, with the last figure being 22k+ for the country. Maharashtra has started imposing total lockdowns, starting with Nagpur. If the numbers continue to surge, the lockdown news can impact markets again and would disturb the economic recovery. This is a new risk factor for INR now, as unlike in the previous lockdown phase, the problem is now specific to India since the other major countries are seeing a slowdown in cases.

INR, for now, is in a safe zone until US yields start to move again. Given that the Fed is yet to come up with an announcement on the handling of increasing yields, the natural direction for the yields is up. The medium-term outlook for the Rupee remains vulnerable due to the overvaluation of risk assets, and the potential for further move in yields.

Global Markets and INR around 8:00 am (10th March 2021)

USDINR likely to open around 72.90

The Dollar retreated yesterday, tracking the fall in US yields. The US 10y fell 5 bp ahead of today’s US CPI numbers. Dollar Index is now closer to 92. EUR is at 1.1880 and JPY at 108.75. Dow ended flat, but tech stocks (NASDAQ) rebounded 3.7%, after the past few days of continuous losses. Indian equities had a good day yesterday and futures are indicating another solid day. INR tracked the increase in risk appetite yesterday and might continue to stabilize today also.

While actual US inflation is yet to pick up steam, some measures such as ISM, etc. point to a coming surge in prices. The 1400$ stimulus checks, along with rising commodity prices can change the inflation dynamics in the next few months, and this is the concern for markets and yields. The Rupee is vulnerable over the medium-term as economies reflate from Covid lows due to already overvalued markets that banked on low yields and continuing support from central banks.

Covid numbers continue to fall across North America and the EU. India is on the verge of a second wave in some states at least. The vaccine program is picking up steam, at around 15-18 lacs a day and at this pace, it would take 5-6 months to vaccinate 30-40 cr people. While the risk of Covid to the Indian economy is almost negligible, it would continue to be a risk factor over the next few months, especially if a second wave breaks out.

The Rupee could continue to sway inside a range, tracking the US yields for a few more days.

Global Markets and INR around 7:00 am (9th March 2021)

USDINR likely to open around 73.30

USD is now on a wave of strength now, backed by high US yields. The Dollar Index is now at 92.50. EUR is below 1.1850 and USDJPY is above 109. GBP is trading at 1.3820. The US 10y held at 1.6% for the most part of yesterday and now is at 1.58%. Brent is down to 68.50 as fears around the Saudi-Yemen bombing receded. US equities are mixed, as DOW managed a positive day despite a sharp fall in NASDAQ (of 2.5%). Indian equities remained flattish.

INR is being put under slight pressure by the strong Dollar. This week has US CPI data which assumes importance on the back of the ongoing rise in inflation expectations and US yields. The prognosis for the Rupee is entirely dependant on the behavior of US yields and risk markets. As of now, risk assets have held on despite the surge of yields. But another bout of a sharp increase in yields can potentially lead to risk aversion in equities and INR. The next few days are important for the medium-term outlook of the Rupee.

Global Markets and INR around 7:00 am (8th March 2021)

USDINR likely to open around 73.15

The Dollar firmed up over Friday and today morning on strong economic data (US jobs data) and sharply higher yields. US Senate passed the 1.9 trillion stimulus package, leading to a surge in US yields. The US 10y is now at 1.6%. Even though equities did not react negatively to the rise in yields, USD has shot up, with the Dollar Index trading closer to 92 now. US equities jumped higher by 1.9%+, helped by better than expected US non-farm payroll release or Feb, which showed an addition of 379k jobs with an employment rate of 6.2%. Today’s Asian open shows potential for positive equity markets.

Currencies were more reactive to the surging US yields. The yield differential between the EU and the US increased 14 bp on Friday, and EUR is now closer to 1.19 due to this reason (EURINR at 87.25). USDJPY is higher at 108.38 (JPYINR at 0.6750). Oil has shot up on the back of Yemen-Saudi bombing news. Brent is above 70, indicating a potentially higher trade deficit for India.

INR could be under pressure now, both due to the surging Dollar and higher oil prices. While equity markets have shrugged off the rise in yields, for now, it is a matter of time before they take notice again and the potential for another bout of risk aversion would keep INR on the edge.

Global Markets and INR around 8:00 am (5th March 2021)

USDINR likely to open around 73.10

The US yields shot up yesterday after Powell failed to tackle the current issue of rising yields and did not mention fresh bond purchases or a yield curve control program. US equities fell sharply, with DOW down by 1.1% and NASDAQ more, by 2%. US 10y is at 1.56%. USD rose, with DXY at 91.70. EUR is lower, at 1.1970, and USDJPY traded above 108 for the first time since July. Indian markets fell yesterday on the back of negative global cues, and today’s futures indicate yet another day of subdued trading. In addition to the Dollar move, the sharp jump in oil price is also a negative for INR. Brent jumped almost 6% yesterday after OPEC decided to keep the supply constant.

The recent positive moves in INR are now at risk of reversal, as the yield surge has brought back an environment of risk aversion again. While there is an expectation that the Fed will eventually shift to action rather than just talk on the yields, any further move in yields could trigger the correlation strategies and potentially lead to another market panic. INR is vulnerable if the yields continue their move unabated. Today’s US non-farm payroll is important in that, a lower-than-expected print can help cool off inflation concerns, but a higher-than-expected data can trigger yet another wave of concern and move the yields up.

For now, Rupee would be slightly pressured due to the global backdrop and the bias is slightly tilted towards depreciation.

Global Markets and INR around 8:00 am (4th March 2021)

USDINR likely to open around 72.80/90

Rupee saw a 65 paise jump and Indian equities had a sharp up-move yesterday as general risk appetite returned to the markets. But, the overall USD strength is still intact, though the Dollar was slow to catch up to the rise in yields yesterday. US 10y is now at 1.48% and if the yields continue to rise today also, one can expect some reversal of yesterday’s Rupee move. US equities, especially NASDAQ continued to fall sharply and today’s futures indicate another slow start to Asian markets. The Dollar is slightly stronger, at 91.05 on the Dollar Index. EUR is at 1.2060 and JPY is above 107.

Yesterday’s Coronavirus numbers in India show a worrying trend, as the new daily infection count has reached close to 17.5k. Markets might not worry about the same yet unless the increased numbers are due to new strains and if vaccines do not keep pace with a potential second wave.

With US yields reversing their fall again, there is a bias towards some INR weakness. Today’s yield behavior would be critical in this regard.

Global Markets and INR around 8:00 am (3rd March 2021)

USDINR likely to open around 73.25

The Dollar weakened slightly yesterday on the back of stability in yields. The US 10y remained around the 1.4% mark. The Dollar Index is below 91. EUR is slightly higher at 1.21. JPY is flattish. US equities could not sustain the initial positivity and closed in the Red. Tech stocks tumbled, with NASDAQ falling 1.7%. Indian equities had another good day with a 1.5%+ jump, indicating that risk appetite is directly proportional to the stability in US yields. Futures are indicating a subdued start for equities today. Forward premia are slowly but surely coming off from the highs. The 1y now stands at 4.9% as against 5%+ a few days ago.

The trade deficit for February came in lower at 12.9 billion due to a fall in imports despite a jump in oil prices. Traditionally, Feb has been a month of a lower deficit, and we cannot project the same into the future months yet.

India is yet to see a second wave of the virus unlike other countries, but there are initial signs of the same in some states such as Maharashtra. The vaccination drive for >60y old people has started and it all depends on the pace at which the program progresses. This is a medium-term risk factor to keep in mind for the Rupee.

With the 10y yields stabilizing, INR is now fairly safe from a sharp depreciation for now. But, the US yields are not showing signs of a sharp downward correction yet, indicating that another up-move is always possible. The next few days continue to be critical for that assessment.

Global Markets and INR around 8:00 am (2nd March 2021)

USDINR likely to open around 73.40

With the US yields cooling off, risk assets performed well yesterday. Both US and Indian equities had solid gains and INR managed to recover some of the losses. The US 10y stabilized around 1.42% yesterday. While INR strengthened slightly, USD was strong against EUR, GBP, and JPY. The Dollar Index is above 91. EURINR is below 88.50, JPYINR is trading at 0.6875. The rise in the US yields has put the Dollar at an advantage. Brent Oil is down to below 62.50 ahead of the OPEC meeting, which is a positive for INR.

The coronavirus situation across the world is stabilizing, and highly vaccinated countries such as the UK are showing a good reduction in caseload. The Indian scenario is mixed, in that the potential for a second wave in some states such as in Maharashtra is offset by expectations of mass vaccinations soon. Markets are now more worried about what the economic stimulus would do to the world economy once Covid related stress is out in a few months. For now, algorithmic strategy flows such as from CTA, etc. are neutral on yields and any move above 1.5%+ again could trigger another rout in equities and depreciation of INR.

We are at a stage where the markets can turn either way due to technical trading in US yields and equities. INR is not yet out of the woods and all depends on the evolution of US yields over the next few days, and the continuous INR strength of the past month or so has halted.

Global Markets, US Bond, BIITS, Fragile Five and INR around 7:00 am (1st March 2021)

USDINR likely to open around 73.50 – This can be significantly different as today’s opening prediction is like a pure gamble.

INR was not the only currency which got beaten last week. Others are Brazilian Real, South African Rand, Turkish Lira, Indonesian Rupiah. Remember “Fragile Five” of 2013? Add to that Thai Baht and Korean Won.

Basically, these countries received significant inflows as the Fed kept interest rates low and pumped liquidity and these countries offered high-interest rates.

Obviously, the trigger for unwind of carry trade is the bond market movements in the USA. The US 10 year bond rose to record 1.60%, and near-end 5 year also moved up to 0.80%. Fresh auction of a 7-year bond by the US Treasury saw a very low bid-to-cover ratio of around 2.0. To add to that fear of further sell of in bond as part of convexity hedging by Mortgage Bond Holders. Specially countries with high CAD will be in focus and our estimate of CAD is around US 8 bn. a month. Once trade deficit data is released today, we will have a better estimate.

Such bond yield certainly spooks EM carry trades, Equities and other markets. Fed official’s officially brushed off increasing yield as a risk indicator. Instead called it healthy and a sign of future recovery in the Economy.

Good part is that the US 10Y bond yield fell to 1.40% in late purchase on Friday. Today we can see Australian bond yields are also decently softer and equities on the positive side so far.

However given that Indian banks have access to the NDF market and foreign investors have access to local onshore markets now, moves could be sharper. Most important player continues to be RBI. We have to see their action in containing volatility. Though RBI must be happy that finally, rupee is depreciating.

Global markets and USDINR 8:00 am (25th February 2021)

USDINR is likely to open around 72.75 and EURINR around 88.61.

Yesterday the US 10 Year yield traded as high as 1.55% and now at 1.47%. While Powell and other Fed officials assure the market about dovish rate and inflation outlook, even a 5 year yield moved up to 0.75% indicating that the market thinks otherwise about inflation and policy moves. Market thinks accommodation will have to be removed faster than stated because of inflation.

Tech stocks led the rally in the last 8 months, yesterday tech stocks declined significantly in the USA as NASDAQ fell 3.5% while Dow fell 1.75%.

Dollar index back to 90+ levels and USDCNH traded 6.47

Brent continues to be close to $66+/ barrel while base metals took a hit.

RBI announced INR 15,000 crores of long term bond buying and selling short term to reduce the steepness in the curve.

Global markets and USDINR 8:00 am (24th February 2021)

USDINR likely to open around 72.40 and EURINR around 88.0

Yesterday Powell in his testimony to congress made extremely dovish statements. He thinks inflation is not a concern at this stage and there will be plenty of warnings before the economy is close to having inflation. The unemployment % in the US ignores those not looking for jobs but now the Fed is focused on the number of people employed as a % of the total population. By that logic, many more people need to get jobs even if they are not looking for it now. Rates will be low for long and Bond purchases to continue for long. Powell also ignored concerns about the M2 money supply increase.

The most important driver for global markets at this stage is the US Federal reserve pumping liquidity which finds its way not just in US investments but in global investments. Powell’s extremely dovish stance has put Dollar back on the weak path and risk-assets to move up. Though I must say that inherent nervousness in the market about valuations and bubbles, prevented it from super cheering Fed’s ultra-dovishness. There has not been 1%-2% movement anywhere.

Power companies in India are getting a good amount of ECB inflows at this stage and that is making INR the best performing currency amongst Asian peers. March 18, 19 and even 20 witnessed a significantly high amount of ECB inflows compared to other months. A similar trend is observable here from Feb end in 2021.

6 Month USDINR forward premium has crossed Rs 2.00/ $ at 5.68% p.a. The phenomenon is likely to continue till March end when reporting of NDTL is over.

Global markets and USDINR 8:00 am (23rd February 2021)

USDINR likely to open around 72.50 and EURINR around 88.20

Yesterday Sensex fell 1145 points yesterday, Bond prices fell so that the 10-year yield increased to 6.20% and 5 years to 5.76%. However, the negativity was not present in the Fx market where INR appreciated to 72.30 levels after a long time in a sharp move. The appreciation was backed by large ECB inflows.

The dollar remained subdued as the dollar index slipped below 90.0 and EURUSD closer to 1.22 than 1.21. INR at this stage is the best performing currency in Asia on a weekly and monthly basis.

At the same time, risk factors are building up for a sharp reversal in Fx. However, that will only be triggered by global markets where FPIs pull out money.

Risk parameters to watch are US 10 year yield which is at 1.37% and Brent price which is now at $66+ / barrel. Global inflation remains a concern as commodity prices including edible commodities shoot up along with economic recovery.

Today is Powell’s testimony before Congress and he can be expected to turn a blind eye on inflation expectations and instead focus on Jobs and fragility to justify the ultra-loose monetary policy. The ultra-loose monetary policy has certainly helped the generation as a whole to come out of Covid with some hope. That is as much as Money can do the job of vaccination.

However, the imbalances and distortions created during 2008 have been taken to a new level now. The fear is that the markets will be more volatile during chaos going forward than in the past.

We did simple data crunching around Trade Balance and Current Account Balance and found that the current monthly CAD is around USD 8 billion which is an annualized run rate of around USD 100 billion. We can ignore it only as long as everyone is ignoring it.

Global markets and USDINR 8:00 am (22nd February 2021)

USDINR likely to open around 72.65 and EURINR around 88.00

The global market is in a mixed mood today morning with Dow futures down so far, US 10 year Yields up at 1.38%, Metals upward with Copper above 9000, Brent up at 63.60 and Dollar index flat at 90.34, EURUSD at 1.2119, and USDCNY 6.46

US 10 Years at 1.38% and 20 years at 2.16% put pressure on USD to be stronger as these seem to be decent yields compared to what investors have lapped up in recent times. Especially for long-term funds looking to balance duration and safety.

Indian Rupee is the second best-performing currency in India on a weekly and YTD basis. On Weekly basis, it’s TWD which is ahead and for the YTD it’s Chinese Yuan CNY.

So far USD 3.3 bn. has been invested by FPI in February into Indian equities. Debt however saw an outflow of around USD 300 Mn. on concerns of fiscal, borrowing, etc.

Indian 10Y bond yield hardened further to 6.13% as RBI’s OMOs did little to calm nerves on investors about inflation and Govt Borrowing. The curve is however very steep since the 1Y bond yield is 4.08%. INBMK swaps and similar swaps make sense to manage your loan portfolio.

Significant US Bonds, ECBs are happening in the market and that is bringing requisite flows to keep INR appreciation pressure on while the trade balance is decently negative.

Global markets and USDINR 8:00 am (17th February 2021)

USDINR likely to open around 72.65 and EURINR around 88.20

Another day of Risk-on with no specific economic data or news. The market continues momentum based on low virus infection, increased vaccination, and obviously stimulus expectation.

While the positives in the market are Fiscal and Monetary stimulus from Governments and central banks respectively. Also, post-pandemic economic activities are reviving – at least it cannot be worse.

Risks are high divergence between economic activities and asset prices only justified by long tenor discounting. The US 10 year at 1.25% certainly poses a risk to EM currencies. However for now USDCNH is trading around 6.40, Dollar index only a tad above 90.0.

Brent at 63.0 – Putting pressure on Indian growth as well as on CAD. CAD run rate is USD 100 bn per annum at this stage. Yes, CAD around USD 8.5 bn per month now which translates to a 100 bn annualized run rate.

Global markets and USDINR 8:00 am (16th February 2021)

USDINR Likely to open around 72.90 and EURINR around 88.10

10 Year dollar yield at 1.30% and this is a level not seen for the last 360 days and 10Y yield has a significant impact on the value of USD. We can see that so far it’s holding USD from sliding deeper but it has certainly stopped the momentum.

Oil prices holding on as a big snow storm in Texas disturbs production and increases short-term consumption.

Fed officials continue to ignore reality and seem committed to the path of an ultra-dovish stance on monetary policy. Mary Daly of the San Francisco Fed is not seeing inflationary pressures in the USA. James Bullard thinks there is no bubble in US markets and Bitcoin is not a policy concern for the Fed. He also feels there is no need to discuss “Tapering Bond purchase” at this stage. FOMC minutes tomorrow and would be keen to see even a tiny hint of hawkishness.

And the US Government’s plan for fiscal stimulus is on and getting closer to be passed.

With the clear approach of dovishness by fiscal and monetary authorities in the USA, only hard inflation data can derail them so going forward economic data specially inflation reading, growth indicators will become more important. Job narratives can be ignored like Yellen did during her days in Fed and kept shifting unemployment benchmark for stopping the policy accommodation.

Global markets and USDINR 8:00 am (15th February 2021)

USDINR Likely to open around 72.55 and will need RBI’s support to remain between 72.50 and 73.00.

Another positive beginning of the week globally with Dow futures up, Dollar down, Asian equities and currencies up, Commodities up including Brent at 63.50.

The market is happy with the monetary and fiscal stimulus and overvaluations of asset prices till there is a trigger.

USD 10 year is at 1.21% and that certainly means a risk for emerging markets but then again the trigger has to be there for global markets.

Today is the US holiday for president’s day. China is also partially closed this week for post new year celebrations. This week’s ECB meeting is there and EUR will be impacted by the same. German business sentiments will also be released.

FOMC minutes due on Thursday can be a big market mover since a small perceived change there will have a big impact on the market.

USDINR likely to open around 72.65 and EURINR around 88.20

Another day of Risk-on with no specific economic data or news. The market continues momentum based on low virus infection, increased vaccination, and obviously stimulus expectation.

While the positives in the market are Fiscal and Monetary stimulus from Governments and central banks respectively. Also, post-pandemic economic activities are reviving – at least it cannot be worse.

Risks are high divergence between economic activities and asset prices only justified by long tenor discounting. The US 10 year at 1.25% certainly poses a risk to EM currencies. However for now USDCNH is trading around 6.40, Dollar index only a tad above 90.0.

Brent at 63.0 – Putting pressure on Indian growth as well as on CAD. CAD run rate is USD 100 bn per annum at this stage. Yes, CAD around USD 8.5 bn per month now which translates to a 100 bn annualized run rate.

Global markets,NDF, FPI, Volatilities, and USDINR 8:00 am (12th February 2021)

INR is likely to open around 72.85 and EURINR 88.20

Yesterday in the NDF market, USDINR traded even 72.68 along with overall global market positivity. Positivity stemming from Fed’s hint to provide a monetary stimulus for long and US Govt’s fiscal package of USD 1.9 trillion. Add to that virus receding and vaccination increasing at a decent pace. 

Today morning, however, the global market trades in cautious mode, and almost all Asian currencies have depreciated against the USD. 

In February so far, USD 2.5 bn of FPI inflow has come to India however 100% has come in Equity and not in the debt market. 

India’s 1Y forward premium has almost reached 5.12% or 379 paise and that kind of ensures that the recent move of 73.20 to 72.80 has neither been much advantageous for importers nor too detrimental for exporters engaged in hedging. 

Given the one-sided speculative positioning of the market right now, it will be a mistake to over hedge exports under panic or to grossly underhedged imports. Similar skewed markets have been seen in the past along with widespread narratives and justification for continued skew by banks and others. 

Volatilities have crashed but volatilities come back in cycles. This could be a good time to buy opt of the money plain calls for imports and for trading. Also an exporter structuring can be done in a way where you get the premium, get the protection from INR appreciation, and at the same time not be stuck if large depreciation of the rupee happens. 

US Inflation, Global Markets including INR around 8:00 am (11th February 2021)

INR is likely to open around 72.90 and EURINR 88.30

US core CPI slid back to 1.4% compared to the previous reading of 1.6%. That makes a stronger justification for the USD 1.9 trillion stimuli. Market happy, equity, and bond in the US both holding on. The gap between real economy and asset valuation widens. The US 10 year yield was softer but still at 1.15%. Indian 10Y yield comes off to 6.01% after RBI’s OMO.

Powell’s speech also kind of justified dovish stance and fiscal stimulus so we have a dovish Fed for a while.

JPM joins GS and BankAm in predicting a commodity supercycle. So many heavyweights on one side make me jittery.

But well we need to remind ourselves from time to time that the best strategy is the strategy that helps you to make money irrespective of directional movements

Risk-on, Dollar, inflation, Brent and USDINR around 8:00 am (10th February 2021)

USDINR Likely to open around 72.90, EURINR 88.40

The global market starts on a positive note today morning with a backdrop of receding coronavirus, increasing vaccination, dovish Fed, $1.9 trillion stimuli in the US. Risk on means: Equity up, Dollar down, and commodities up.

Dollar index receded to 90.40, EURUSD 1.2130, USDCNH (Offshore Yuan) 6.4240, Base metals and oil up, Brent 61.0+.

Well, financial market narratives have started talking about inflation for a change. Today will be US M-O-M CPI and after a long time if 0.2% inflation is there on a MOM basis or if the core CPI holds at 1.6% or more – we will see some reckoning of risk. Also Jerome Powell will speak today and his speech is more important that f Biden for financial markets. Well after all dollar comes from there.

Just did the broad calculation and if Brent’s price stays at USD 60 / barrel then our Current Account Deficit run rate will be close to USD 100 billion a year. That will be quite a change from the surplus India has been enjoying during Corona. (More details coming up)

As a risk manager, I need to remind ” House of cards don’t correct itself – it falls” . Be cautious.

INR is likely to open around 72.90 and EURINR 88.30

US core CPI slid back to 1.4% compared to the previous reading of 1.6%. That makes a stronger justification for the USD 1.9 trillion stimuli. Market happy, equity, and bond in the US both holding on. The gap between real economy and asset valuation widens. The US 10 year yield was softer but still at 1.15%. Indian 10Y yield comes off to 6.01% after RBI’s OMO.

Powell’s speech also kind of justified dovish stance and fiscal stimulus so we have a dovish Fed for a while.

JPM joins GS and BankAm in predicting a commodity supercycle. So many heavyweights on one side make me jittery.

But well we need to remind ourselves from time to time that the best strategy is the strategy that helps you to make money irrespective of directional movements

Global Markets and USDINR around 8:00 am (9th February 2021)

USDINR likely to open around 72.90

Anyone who believes in the fundamentals of financial markets is surprised from time to time but now is the time to be Shocked. Tesla bought USD 1.5 billion of Bitcoin and also allowed Cars to be sold with Bitcoin. Both Tesla and Bitcoin’s value is not substantiated by any reasonable analysis. That’s the effect of easy liquidity.

Dollar down across the board, Equity up, Commodity higher interestingly yields have inched up. The dollar index moves back to below 91.0 levels and EURUSD above 1.20. Most Asians appreciated CNH at 6.44 levels. The market is looking forward to the USD 1.9 trillion stimulus bill in the USA. Also comforted by the dovish Fed.

Brent at 61.00! Well, that’s not good news for INR. The price increase in oil is backed by thoughts that the supply glut is receding.

The real good news is that corona infection numbers are receding fast globally. Last two days global infection has been close to 3.5 lakhs as against 7.5 lakhs reached a few weeks back. The fatalities have also come down to sub 10,000 levels. Vaccination is also increasing at a decent pace

RBI is doing OMO by purchasing long and medium dated Gov bonds worth INR 20,000 crores on 10th Feb. 10 Year is now at 6.04% and US 10 year at 1.16%. Elevated US 10Y yield typically makes good amount of investments to move back to the US.

Dollar index, Virus, US Stimulus, US yield , RBI and USDINR around 8:00 am

USDINR Likely to open around 73.00 and EUR around 87.30 as EURUSD trades between 1.1900 and 1.2000

With the expectations of US stimulus, of USD 1.9 trillion, the US equity market increases more than the Asian equities. Also, the stimulus bill has increased the US 10Y yield to 1.14% and that’s positive for USD.

Most Asian currencies are depreciated today including CNY, CNH. Dollar stronger against EUR and Dollar index further up at 91.58

Today is the RBI Policy meeting. Good possibility RBI will give an indication of rate cuts as actual inflation likely to be lower than the RBI forecast. Operation twist is a certainty to flatten the yield curve. On the Fx side, RBI will possibly reiterate the global imbalance created by easy liquidity of the developed economies and how that necessitates aggressive intervention by EMEs.

GameStop fell further with institutions having the last laugh and many retailers losing out. To think otherwise will be a mistake. A similar future awaits BitCoin as no Government will ever allow their money to be controlled by anyone else. Control over money printing is equally important as control over the Army.

On the virus front, the Global infection rate has certainly come down. Infection yesterday was 5 lakhs globally. 7-day moving average is down to around 4.8 lakhs as against 7.0+ lakhs a couple of weeks back.

Last 5 weeks, RBI has not accumulated any significant reserves. That signals a relatively reduced pace of inflows, increased import demand hitting the market. Overall importers are under hedged compared to exporters and that ensures increased dollar demand than the current account deficit run rate.

USDINR is still at crossroads looking for direction. However, our algo signals that if depreciation happens, INR will not stop at 74.00 but will move to 75.00+ levels.

EUR, Stimulus and USDINR (03/02/2021) around 8:00 am

INR is likely to open around 72.95 and EURINR 87.85

EURINR broke 88.00 as EURUSD crashed to 1.2040 levels. EUR sell-off came as the market recognizes relatively better US economic recovery as compared to European recovery from virus, Dollar index crossed 91.0 and trading at 91.10. This dollar strength is a correction but not a trend since the Fed has an ultra dovish stance.

The Biden Government took the first step for the USD 1.9 trillion fiscal stimuli to be passed by Democrats without support. Generally, a bill requires the support of 60 votes and hence should require republican support as well to be passed. But under reconciliation strategy, 51 votes should be good enough to pass the bill and Democrats can garner 51 votes. The stimulus package to be positive for Dow and other equity markets and for risk sentiments. Though it will also ensure increased bond supply from the US Treasury and hence negative for Bonds and Dollar.

Google and Amazon’s results were better than expected. Now Amazon’s revenue is higher than the GDP of over 150 countries in the world. Only 23 countries have higher GDP than Amazon’s revenue.

For GameStop, yesterday fell further USD 90.0 which is around 80% lower than the peak (USD 480) achieved in January during Retail Frenzy buying. GameStop may go out of the news but the issue of Retail grouped trading, as well as that of extreme volatility delinked with fundamentals, will continue.

Budget, Bond, GameStop, Dollar index, and INR (02/02/2021) around 8:00 am

INR is likely to open around 73.10 

The government will be borrowing INR 1200 crores from the domestic bond market and that has pushed the 10Y yield to 6.06%.  Even though RBI keeps supporting 10Y yield through Operation twist and OMO, the pressure is on. In our view, the 10Y bond is a safe and good medium-term investment as a diversification from high-risk equities. Expect RBI to soothe down the yields this week during the monetary policy meeting.    

Yesterday Sensex gained 2300 points based on an expansionary budget.  The banking sector saw rallies in the hope that the newly created Bad bank will help clean the balance sheet of banks and boost profit. The interesting thing to note is that FPIs pulled money out of the market yesterday to the tune of USD 600 Million so most of the investments which caused Sensex to rally are domestic money. 

USDINR traded 72.85 during the budget and then slid back to 73.00 during close and to 73.20 during US trading hours. EUR got sold and came below 1.2100 and is now trading at 1.2085. The dollar index traded 91.00 but now at 90.86. Debate continues over the US fiscal stimulus – whether to be a 1.9 trillion package or a 0.6 trillion package. Either way, US seems to be well poised for recovery and growth compared to many other peer countries in the world. Important to note since US growth will put pressure on USD to be stronger while Fed expansion point to it’s weakness. 

Economic data showed that German retail sales fell much more than anticipated. However, manufacturing PMI in most of the European Countries remained steady. Caixin Chinese PMI also fell moderately. A survey says US house price expectations remain strong and upwards. 

For GameStop, yesterday fell over 35% from the day’s peak. Now it’s the turn of Silver as the retail buying frenzy focuses on Silver.  Day’s movement 6% and the last couple of days have seen over 10% move. The linkages of market prices and their fundamentals are breaking down further. The game is completely about finding a greater fool. 

Budget, Global Markets, RBI and Indian Rupee (01/02/2021) around 8:00 am

INR likely to open around 72.95 but will be volatile during the day linked to Budget

This is Policy heavy week for INR as both fiscal (Budget( and monetary policy (RBI meeting) to be announced this week. 

While it is widely expected that the budget will be fiscally expansive and hence will put pressure on bonds and Fx adversely, A surprise can come in the form of increased openness to sovereign external borrowing. During last year’s budget, the idea was floated but not implemented. Now that RBI has USD 585 bn. of Fx Reserve and also since the need is for fiscal expansion, the Government may consider external borrowing to save the domestic bond market from crowding out effect. The government will also be interested in policies to attract foreign capital and investments to meet shortfalls/capitalization needs. 

In the global markets, GameStop is a big thing where retail traders are taking down hedge funds through collective buying. The Fed fuelled frenzy has given the confidence to retailers that they can fight with funds, but institutions have much stronger handles in the game and they will surely have a last laugh. So the significantly increased stock volatility in the US is something to be watched for as global markets run on the highest possible correlation at this stage. A crash in Dow Jones means a global crash and a stronger dollar. 

India’s trade deficit should come out in a day or two and I have a feeling this trade number will be alarming. A significant deficit can be expected as economic activities normalize and pent up imports show in the data.

Forward premiums are over 5% and exporters need to take advantage of the same. Importers to take advantage of spot and options. 

One interesting point, if you are investing in the UK under LRS for 3/4/5 years then Fx can give you an additional kicker of 5.00% p.a.. Five-year GBPINR forward rate is 130.00 and you can book it. Similar interesting kickers are available for other currencies as well. 

USD INR views today (29/01/2021) around 8:00 am

USDINR Likely to open around 73.10, Sensex likely to open around 47,000 

There are signs of a risk-off mode coming. Dow futures in red leading the world equities downward and the dollar stronger across the board

Gamestop continues to dominate news media.  After few brokers restricted trading in GameStop, it fell 44%. JP Morgan has identified 45 other stocks where such a short squeeze can happen. Retail orders are now 20% of the market in the USA and have many ex-bankers trading in an individual capacity.  

The GameStop issue also shows how using social media, retail or individuals can group and take large institutions head-on. 

India’s virus activity shows an increase in cases to around 19000 for a day but since that includes 6000 cases of Chattisgarh which are not new cases but past data adjustment, we can take comfort that new cases are around 12/13K.

Globally the new infection rate has come down to 6L a day however fatality is still upwards of 16K and the fear of new strain continues.

USD INR views today (28/01/2021) around 8:00 am

USDINR Likely to open around 73.15 and head towards 73.25. 

Yesterday USDINR traded 72.80 backed by FDI inflow even though the dollar strengthened and equities sold off. Yesterday during US trading time, INR corrected back to 73.0 Plus levels. 

Fed certainly kept the interest rate at zero and maintained an accommodative stance in statements as well as during press conferences. The Fed noted the positives and improvements of the US economy but maintained that it will need to remain accommodative since many people are still out of jobs. The asset purchase of USD 120 billion a month continues. Overall Fed meeting will be negative for USD however the same was broadly factored in. 

The dollar index moved up towards 91.00 (Now 90.67) and EURUSD traded below 1.2100. Dow fell by 2.00% or 633 points. We need to see how the momentum plays out today and tomorrow. 

In case you are interested,  the single most interesting thing in the US and financial markets now is GameStop stock movements. It has moved from USD 20 to USD 350 in the last 15 days. A few hedge funds did short selling in the stock and post that some retail investors in Reddit trading forums messaged about buying and squeezing the short-sellers. One hedge fund has gone down, overall hedge funds have booked around USD 5 bn. estimated losses so far. The GameStop is a video game making company with nothing fundamental to drive such valuation. But it’s like social media power over Wall Street. 

USDINR forward premiums have ramped up rapidly and 6M forward premium now trading at 5.25% p.a. 6M is 187 paisa, 1Y is 365 paisa and 2Y is 750 paisa.  This is the result of aggressive RBI intervention in the forward market. 

USD INR views today (27/01/2021) around 8:00 am

USDINR is likely to open around 73.00 and Sensex to trade between 48,000 and 48,400 during the day.  
Tonight, Fed will issue a statement as well as Powell will have a press conference. Financial markets will be looking for the tilt in the fine balancing of words that Fed will attempt. Any moderate signal towards slowdown of dovishness will lead to a stronger dollar, weaker commodities, EM and Equities. At the same time, any signal which surprises on the dovish side will bring renewed confidence of investors about the availability of continued dollar liquidity and dollar sell off.  
 
On the positives, the IMF has improved the growth forecast for the world from 5.2% to 5.5% in 2021. Revision for US has been from 3.1% to 5.1%.  Strong growth projection will act as one of the factors supporting the US Dollar while loose monetary policy badgers it. India’s growth projection is the highest in the world at 11.5%.  
 
India has received around USD 3 Bn. of FPI capital inflow in January already. Equity has to see inflow and debt has seen moderate outflow. 
 
Our algorithm signals stability/ appreciation for USDINR at this stage however rapid increase of long dollar position between 73.50 and 74.00.  If 74.00 is breached then we are also likely to see a further sharper move to 75.0 or 76.0 subjects to a quick breach of 74.0. We can discuss that anytime you wish. 

USD INR views today (25/01/2021) around 8:00 am

INR trading at 72.97

Overall global markets start the week with soft moves. Dolar down, Equities up, Commodities up – all in sync but moderately.

Presented below is an excerpt from the Nani Palkhivala memorial speech by Mr Das of RBI. It is a clear reading that whenever there is a risk-off globally, INR will be under pressure, and Reserve built up is to protect from such moves. Our sense is RBI will continue to be aggressive in intervening heavily in the market to prevent the Rupee from too volatile driven by global liquidity and sentiments.

External Sector Stability

Given that the domestic financial sector closely interacts with the external sector through various channels, it becomes a critical segment from a financial stability perspective. A weak external sector can pose a threat to domestic financial stability in the face of swift changes in the global economic environment as was the case during the GFC (2008) or the taper-tantrum period (2013). External sector conditions are generally captured through movements in current account balances, capital flows, exchange rates, foreign exchange reserves, and external debt position. Sudden changes in any of these indicators due to global shocks and/or domestic developments can impact the viability of the external sector and its interaction with the domestic economy.

Notwithstanding the worsening of both external and domestic demand conditions impinging on exports and imports since the onset of COVID-19, India’s external sector has remained resilient. The lower trade deficit is driven by a steeper fall in imports coupled with resilient net exports of services translated into a large current account surplus to the tune of 3.1 percent of GDP in H1:2020-21. With a surplus in the current account, the scope of absorption of strong inflows of foreign direct investment and portfolio investments by the economy was limited which led to a large accretion in foreign exchange reserves. 

Sustained accretion to foreign exchange reserves has improved reserve adequacy in terms of conventional metrics such as

(i) cover for imports (18.4 months) and (ii) reserves to short-term debt in terms of residual maturity (236 percent). Sound external sector indicators augur well for limiting the impact of spillovers of possible global shocks and financial stability concerns as investors and markets are credibly assured of the buffer against potential contagion. While abundant capital inflows have been largely driven by accommodative global liquidity conditions and India’s optimistic medium-term growth outlook, domestic financial markets must remain prepared for sudden stops and reversals, should the global risk aversion factors take hold. Under an uncertain global economic environment, EMEs typically remain at the receiving end. In order to mitigate global spillovers, they have no recourse but to build their own forex reserve buffers, even though at the cost of being included in the currency manipulators list or monitoring list of the US Treasury. I feel that this aspect needs greater understanding on both sides so that EMEs can actively use policy tools to overcome the capital flow related challenges. At the Reserve Bank, we are closely monitoring both global headwinds and tailwinds while assessing the domestic macroeconomic situation and its resilience.

USD INR views today (22/01/2021) around 8:00 am

USDINR Likely to open around 73.05, EURINR around 88.90, and Sensex to trade between 49,200 – 49,600 

Global risk sentiments remain mixed and jumbled up still looking for a direction. On the Fx still, the direction for the next 5% move is unclear. Today, on the one hand, the dollar index is close to slipping below 90.00 again and at the same time, most EM currencies are weaker against the USD. 
 
Bitcoin, which some consider as neo Tulip ( Ref: Tulip Mania), fell over 20% in a week’s time from 42,000 peaks to sub 30,000. Is it an early signal for the market to deleverage? 
 
Interestingly last 2 Fridays (8th and 15th) have been positive for the Dollar and a little negative for stocks. Fridays are important since if traders are concerned about sharper movement in any one side, they would try to adjust their position before the weekend. Let’s see how today’s market behaves.

USD INR views today (21/01/2021) around 8:00 am

USDINR Likely to open around 72.90 and Sensex has a good possibility of touching 50,000 today. 
Global risk sentiments remain positive with equity up in most countries, dollar down, EM currencies up, commodities up. The reason broadly cited as stimulus friendly policies of Biden. 
 
Global Virus related deaths saw a record number yesterday at 17,000+ in a day. Nowadays daily numbers are not accurate reading as it involves underreporting during the weekend and catching up during the weekdays. However on a weekly basis also the trend, unfortunately, is upwards. 
India seems to be out of the woods for now unless new virus strains start affecting. 
 
On the financial markets, the game is simple – Fed driven Liquidity driving all asset classes. Valuations are stretched but still positivity prevails. One of the way 2021 risk sentiments can pan out is as follows – 
 
Sometimes now or during the first half of 2021, markets correct decently with INR being around 76 or 77 ( Dow, Sensex down 20%) and then-Fed chips in with a larger stimulus to restart dollar decline. The Fed will not do further stimulus unless there is a justification in the form of equity crashes. 
 
The longer it takes to correct, the sharper the correction will be. If the first half of 2021 carries on in a stable manner with INR in a range of 72.00 to 74.00 then during the second half we should be seeing 78.0 / 80.0 kind of levels. 
 
US will not allow dollar collapse or too much of weak dollar since that starts a question mark on the dollar dominance as a reserve currency, savings currency of the world. So to maintain confidence on the dollar only a moderate dollar depreciation is palatable to the USA.

USD INR views today (20/01/2021) around 8:00 am

Hi –  Good Morning. 
USDINR Likely to open around 73.10 and Sensex around 49,500.  
Today so far looks to be a risk-on day as the struggle continues for market to assume any trend clearly. 
Janet Yellen,  who is likely to be Treasury Secretary under Biden Government has spoken about not having any weak dollar policy. We were expecting some rhetorics on these lines where someone will talk about strong dollar policy etc. However, Yellen has such a strong track record of being dovish on the monetary policy front, that we have to see what action she takes. As of now she is asking for more fiscal support is what appears to us.
Market Chatter about India’s NPA and shadow banking has reemerged after RBI’s financial stability report.  While NPA at September end 2020 been 7.5%,  RBI expects the same to reach 13.5% by Sept 2021. Now 13.5% will be a number not seen during last 20 years. 
On Virus and vaccine – Germany extends lockdown, US reaches 4,00,000 total deaths with last 1,00,000 coming in last 36 days. UK and Mexico fatalities continue to worsen. 
For the markets, I see one more round of virus related stress coming.  Trigger could be a) new strain 2) European lockdowns 3) Overestimation of vaccine related positivity. 
Indian markets have received around USD 2 billion of FPI inflows so far in January.  USD 2.5 bn. Inflow in equity and 0.5 bn outflow from debt. 

USD INR views today (19/01/2021) around 8:00 am

INR likely to open around 73.15

The Rupee slightly depreciated yesterday, but the overnight moves in USD were muted on account of the day being a US holiday. DXY is slightly lower at 90.70. EUR is at 1.2090, JPY at 103.70, and GBP is at 1.3590. Indian markets fell 1% for the second consecutive day yesterday, showing initial signs of a top forming.

The virus trends yesterday were distorted due to the weekend effect, but there is some evidence of moderating spread in the US and UK, albeit slowly. India reported <10k cases yesterday, for the first time since early June. The number of tests per day has also been coming down which is not necessarily a bad thing as it can be indicative of a lesser need for people to take the tests. The mortality count increase has been less than 200 for some days now. India is on track for an end to this wave of the pandemic by March-end.

USDINR failed to breach 73 yesterday and turned slightly up owing to risk aversion and the general Dollar stability. The events such as Biden’s inauguration and Janet Yellen’s speech (for confirmation process as treasury secretary) are unlikely to disrupt markets in a big way. We can expect a few more days of this range until there is a clear direction for the Dollar.

USD INR views today (18/01/2021) around 8:00 am

INR likely to open around 73.15

The Dollar held on to some gains on Friday, as US retail sales data for December signaled a dismal US economy. Retail sales fell 0.7% in December over the previous month, after being down 1.4% in November, despite the fact that this month is generally buoyed by holiday shopping. While markets rely on vaccination hopes, there was some acknowledgment on Friday that there are few more months at least of bad economic performance. US equities fell 0.5%-0.8% on Friday. EUR has fallen to 1.2075, USDJPY is stable at 103.80 and GBP is lower at 1.3580. Indian equities also dropped 1.1% on Friday after days of a continued surge.

The virus trends remain the same, and no large deviations occurred over the weekend to worry markets. While India starts its vaccine drive with the Oxford and Bharat Biotech vaccines (Adenovirus and inactivated virus vaccines respectively), there are news reports that some deaths have occurred in Norway after the Pfizer vaccine (which is an mRNA vaccine). Norway has decided to avoid giving the vaccine to the 75+ population as 23 deaths occurred in this age group, especially if they already had serious co-morbidities. One has to wait to see how such news would influence vaccine drives.

INR has been trying to move beyond the 73 mark, but the resurgence of Dollar strength has made it slightly difficult to do so. The range remains intact for now, but the bias is slightly pro-Rupee as the Dollar surge is not strong enough yet to create any sustained risk aversion. This week has Biden’s inauguration and markets would watch out for any violence in Washington on the day. While the US yields have settled lower on Friday after the Retail Sales data, if Biden manages to pass the Covid relief bill soon after the inauguration, one can expect some reversal in the yield again with accompanying Dollar strength. For now, the Dollar is at least holding the fort, and Rupee could continue to meander along in a tight range.

USD INR views today (14/01/2021) around 8:00 am

INR likely to open around 73.15

The Dollar managed to hold ground yesterday, with DXY slightly higher at 90.30. EUR fell to 1.2170, JPY weakened to 103.90 and GBP remained slightly weaker, at 1.3640. Equity markets ended flat in the US, even as Trump was impeached by the US congress for the second time (though it is unlikely that the Senate would convict him). Indian equities were also fairly flat yesterday. US yields fell yesterday as talks of tapering the Fed balance sheet by some officials were countered by others and markets seem to be convinced that the Fed would continue money printing for more time to come.

The UK reported 1500+ Covid deaths yesterday for the first time, and the US continues to record close to 4000 deaths a day. There is a slight dip in the number of cases, but we have to wait for a few more days to confirm the trend. India remains at a consistent trend of 15-17k cases a day and a positive test ratio of around 1.7%-2%. The bulk of India’s cases and deaths are being reported from Kerala and Maharashtra. The positive test ratio in these states remains at around 10% and 5% respectively. Maharashtra seems to be undercounting cases when one looks at the consistently higher relative mortality compared to other states. It seems India is still on track for negligible deaths by March 31st period.

INR is still in the current range, between 73 and 74, and has the opportunity to break the range to the downside if global USD strength does not gain any momentum. The short-term remains fairly balanced or slightly in favor of INR as the US yields have started to reverse yet again. The Dollar strength of the past few days is now stopped in its tracks due to reversing yields. The next few days could determine if the Dollar weakness trend starts again, in which case there could be short-term advantage to the Rupee.

USD INR views today (13/01/2021) around 8:00 am

INR likely to open around 73.20

The Dollar could not hold on to its gains yesterday and lost some ground. EUR is back above 1.22, at 1.2214. USDJPY is at 103.66 and GBP is higher at 1.3675. DXY is almost close to breaking 90 again. US 10y yield fell to 1.11% after rising as high as 1.18%, dragging the Dollar with it.  The Dollar move in the next couple of days could indicate whether the Dollar rally of the past couple of days was just a temporary aberration or is there some more momentum left to it still. US equities edged slightly higher, and Indian equities had yet another 0.5%+ day yesterday.

The virus trends remained the same across the world yesterday. While the caseload in the US was lower due to the weekend lag, the death count reached 4000+ again yesterday. The UK had 1200+ and Germany reported 1100+ deaths. Merkel talked about a 10-week lockdown in Germany, indicating that the risk to the economy is very much present. It is surprising that France, Spain, and Italy have peaked out sooner than expected, implying that countries that had a large phase-1 could have reached closer to herd immunity. In that regard, India seems to be at an advantage, in that the phase-1 here took a much longer time and was not localized to just one state like the US. India reported 15k new cases and 200 deaths and there is a clear trend downwards in the positive test ratio also (the latest being between 1.5% and 2%). Once Kerala sees lower numbers, the overall numbers could improve even more.

The turn of events with regards to USD evens out any bias against the Rupee. The current range between 73 and 74 is expected to hold, but the next couple of days of Dollar behavior could indicate whether INR could move towards 74 or not. The medium-term risks remain elevated for the Rupee, though not apparent now. Equity markets are behaving in a very typical way indicative of irrational exuberance. While the 10y yield has fallen today, the Democrat plan of large fiscal spending could again bring about some pressure on the yields. Further, once the virus issue tapers down in the next 2 quarters, the Fed has the task of tapering the QE down. With this sort of market valuations, any talk of taper could trigger another tantrum. The short-term though is now neutral and USDINR could again glide in the current range for some more time.

USD INR views today (12/01/2021) around 8:00 am

INR likely to open around 73.50

USD strength gained some more momentum yesterday. DXY is higher at 90.50, EUR lower at 1.2150, JPY at 104.15, and GBP flat at 1.3520. DOW fell 0.3% while NASDAQ saw a fall of 1.25%. US 10y yield continued its rise, now at 1.15%. Indian equities had yet another day of joy ride, with a 1% gain for the frontline indices.

The virus continues to bother the US and Europe. The vaccine rollout has not been up to speed in the US and the caseload continues to jump fast. While the weekend effect has depressed yesterday’s official count, the trend remains ominous. The US especially is seeing increasing deaths and the trend has reached 4000+ per day consistently.  India is slowly seeing a reduction in caseload, with the latest being just a 12.5k rise. But the positive test ratio remains at around 2%, indicating that the infection remains steady in its transmission rate and the low case count is due to fewer tests done.  But, the fall in tests done per day is also indicative of slowing infection, especially when there is no dearth in testing capability. Fewer tests mean fewer people are getting tested for lack of symptoms. The death count has now been below 200 for two consecutive days, and it seems the fatality count is finally converging to the lower case count. There is no evidence of the second wave in India. With winter over in a few weeks and the vaccine rollout slated for the 16th, things are looking up for India compared to the US, Europe, and Brazil.  INR can derive some positivity from India’s COVID advantage but is vulnerable due to the equity valuations relative to the economy.

The RBI’s latest Financial Stability Report (FSR) also points out the disconnect between the real sector and the financial markets. This remains the biggest risk factor for 2021. The surge in US yields is a critical development, as rising yields typically lead to quantitative strategy selling (such as CTAs etc) in equity markets. The Dollar has been battered for a long time now. The durability of the current reversal in the USD weakness trend is the short-term factor that would determine the INR path. Within the current range between 73 and 74, the bias has now shifted against INR, though the range is still intact.

USD INR views today (11/01/2021) around 8:00 am

INR likely to open around 73.30

The Dollar gained some strength on Friday, with the Dollar Index moving back above 90.  EUR is trading at 1.2185, USDJPY at 104.06, and GBP is at 1.3525. The Dollar gained back some ground after a long time, primarily driven by the spike in US yields post the Democrat win in Georgia. The US 10y is now trading at 1.11% on rising stimulus expectations. For now, the US and other equities have ignored the rise in yields, but cannot ignore it after a point in time. The US jobs data on Friday disappointed with a net job loss of 140k, an indication that the economy is being wrecked by the ongoing lockdown restrictions. Indian equities had a good day on Friday, with a 1%+ gain.

The virus trends have worsened in the US, with the daily addition to caseload crossing 300k. There is a talk of a US-specific mutation causing the surge, but the news has not received much attention as the UK strain. India has reported <200 deaths after a long time yesterday and there is no perceivable jump in infection rates despite the presence of the UK strain. In all, with the vaccine rollout from this week, things are looking up for India on this front, and this fact can help some economic recovery and more flows. But, the bleak global picture might hurt the Indian export segment and can increase the trade deficit and hurt the Rupee.

The short term direction of the Rupee depends on whether the reversal in Dollar weakness is a temporary phenomenon or is more durable. If US yields do surge more from here, and the Fed does not move in with the yield curve management strategy, USD strength might have some more legs. The sky-high valuations of risk assets is a big medium-term risk factor for all currencies against the USD. But, INR is still the favorite in the short-term, as risk appetite is healthy at least until the USD reversal proves more durable. The current range between 73 and 74 is expected to hold for some more time.

USD INR views today (08/01/2021) around 8:00 am

INR likely to open around 73.40

Yesterday saw a global Dollar reversal, with DXY back to 89.80 level, EUR to 1.2260, USDJPY at 103.81, and GBP lower at 1.3560. The DOW jumped another 0.7% after being higher by 1.4% yesterday. Equities are clearly discounting the possibility of a major change in economic policy in the US towards more deficits and higher taxes. Indian equities were flat yesterday. The ISM data (both manufacturing and services) surprisingly came in much better than expected, but the employment component was muted. The ADP payroll data indicated negative job growth and today’s NFP data is important for the markets to gauge the impact of ongoing lockdowns.

The virus continues to rampage in the US, Europe, and Brazil. The US saw a 246k jump in cases, and more than 3600 deaths yesterday. The UK and Germany saw 1100 deaths apiece. Brazil has been continually having periods of a sharp rise in deaths, with the latest figure for yesterday being close to 1500. The Indian scenario has been stable, and it seems that the risk of a second wave is slowly dwindling. Though 58 cases of the UK strain were already discovered in India for a few weeks now, there is no apparent jump in cases yet, probably indicating that India could have reached close to herd immunity threshold in many places through an asymptomatic spread. India is better off than most western countries in this regard, and this is INR positive.

The Rupee is completely dependant on the global USD behavior in the short-term. Yesterday’s Dollar strength reflected in USDINR, pushing it back firmly into the current range. Today’s NFP could provide some fillip to USD if job growth is bad (negative) due to risk aversion setting in. For now, it would continue to be a range-bound Rupee.

USD INR views today (07/01/2021) around 8:00 am

INR likely to open around 73.10

The dollar traded mixed yesterday, rising against JPY, but flat against EUR and GBP. EUR is at 1.2330, GBP is at 1.3624 and USDJPY is at 103.05. Dow ended flat, despite Democrat win in the two senate races giving them the control of the senate also. Markets were of the view that a mixed control of the congress and the presidency could keep policies such as higher taxes at bay. Now that Democrats have control of all the three power centers, chances of large stimulus, high budget deficits, and higher taxes have gone up.  US yields could slowly react to the changing scenario. Indian equities fell yesterday by 0.5% odd after being positive for some days.

The virus infection count surged in the US, with 235k case additions and 3500+ deaths. The UK reported 62k cases and 1000+ deaths. India reported 20k cases yesterday, probably owing to higher testing. Kerala and Maharashtra remain the key states which are contributing to the largest chunk of case additions and deaths. These states have a positive test ratio of 10% and 5% respectively, against the country average of 2%-. Markets have come to ignore the virus news as long as the trends are maintained and no new strain is discovered.

INR remains favored in the short-term, as the global backdrop is still benign and risk-rewarding. While USDINR is still within the range, the weak Dollar backdrop could push it lower anytime. The medium-term factors are against the Rupee. Astronomical market valuations could be questioned in 2021 if economies do not pick up soon enough and once the virus panic is overdue to vaccines, the Fed would not have much justification to continue pumping money. Further, structural factors like trade deficit could become relevant if export growth does not pick up soon. But, for now, the Rupee continues to be a slight favourite.

USD INR views today (06/01/2021) around 8:00 am

INR likely to open around 73.10

The dollar turned weaker overnight, with DXY falling to 89.40. EUR is around 1.23 now, JPY stronger at 102.60, and GBP higher at 1.3625. DOW rose 0.5% on rising oil prices, which jumped 5% after a surprise Saudi output cut. Indian equities had another good day with a 0.5%+ jump for frontline indices. No strong trend is as yet appeared in the new year yet.

The virus remains a concern for Europe and the US. The UK reported 60k+ case addition yesterday for the first time ever. The death toll in the US crossed 3300 for the day. While India remains at a lower level of cases, the fatality count seems to be stubborn around the 250 marks. India is still on track towards negligible fatalities by end of March, though.

USDINR has been very docile as there is no direction apparent yet. Macro data out of the US has been surprisingly resilient, as evidenced by the latest ISM data. Markets wait for the US jobs data on Friday, but the trend of USD weakness is very much intact.  All the previous worries such as around the China trade war are now irrelevant to the markets. In our view, two primary factors could determine the INR outlook and the global USD outlook. The first is the virus evolution. Until now, India is yet to face a second wave and if vaccines can thwart the virus in the next few months, it is advantage-INR. The second factor is the market valuation bubble. The Fed is already making comments that they may have to start tapering their QE this year and if such narrative becomes more pronounced, markets are at risk of a panic crash from the stratospheric valuations, and INR can get hurt in the process and USD can regain some strength. But, these are medium to long-term factors. In the short-term, the Rupee remains at a slight advantage as long as the flow situation does not turn.

USD INR views today (05/01/2021) around 8:00 am

INR likely to open around 73.10/20

INR is yet to breach 73 convincingly, as USDINR is likely to open slightly higher due to the overnight risk aversion and mild Dollar strength. In the first trading day of the year, US equities fell 1.3% odd, after being down more than 2% intra-day. Dollar Index is slightly higher, at 89.90. EUR is flat at 1.2250, USDJPY at 103.10, and GBP at 1.3570. Indian equities had a good day, with another 0.7%+ gain for the frontline indices.

The viral caseloads continue to increase in the US, EU, and the UK. The UK has announced a full national lockdown to contain the new strain, which is rampaging at an average of 58k cases a day. Even though the strain is not more deadly, the sheer number of cases could overwhelm the hospital system and create more mortality. Markets are worried that the new UK strain might be very prevalent in the US also. Indian Covid scenario is improving by the day, with the latest death toll falling to 200 after a long time. The positive test ratio is also below 2%. India is on track to NIL mortality by March-end. This is a positive factor for the Rupee.

The short-term INR outlook remains fairly balanced, with the global Dollar weakness offset by the sharp trade deficit jump. If the trade deficit for January also moves above the 15 billion December number, the structural demand for USD could lead to some up move in USDINR. But for the next few days, global factors such as Dollar strength/weakness are the primary drivers of the currency. The next few days of the new year could point out markets’ inclination towards USD weakness. The first day of 2021 has not been good for US equities, and one has to watch a few more days of market behavior before determining if there would be a pause to the global Dollar weakness trend. For now, INR is still the favorite to go stronger, but only slightly so.

USD INR views today (04/01/2021) around 8:00 am

INR likely to open around 73.10

The Dollar recovered some losses during the last trading day, but the broad trend remains that of weakness. EUR is trading at 1.2250, JPY is at 103.10 and GBP is up, at 1.3670. INR looked to breach the lower end of the range on the 1st and is set to do so today. As the new year starts, the primary factors relevant to currencies remain the same. The economic impact of the shutdowns could be more apparent with the data releases starting this week. Equity valuations are in the nosebleed territory and hence is always a risk factor to be aware of.

While positive news about vaccine approvals help the risk appetite, ongoing lockdowns, and no significant reduction in caseload are factors of concern. While India is clearly seeing a reduction in caseload, the fatality count, and the positive test ratio (<2% now), the US and UK infection curves continue to be stubborn.

This week is loaded with data – ISM, PMIs, and US jobs data. Any change in trends could be apparent as we move into the first full week of trading in the new year. The bias remains towards an INR appreciation against USD, and a Dollar weakness against other majors.

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