Domestic Manufacturing activity growth slows in Feb to 54.5 on weak demand
|The risk sentiment has improved in the Asia session. Commodities and commodity currencies have recovered sharply.
US yields however continue to plunge after Fed Chair Powell's comments that the Fed will act as appropriate to deal with Coronavirus induced threats to the economy. US 10y is precariously close to the 1% mark. The Market is pricing in 4 cuts by the Fed. A section of the market is even expecting the Fed to deliver a 50bps cut in the forthcoming policy on 18th March. US manufacturing and Non manufacturing PMIs are due today and on Wednesday respectively. US Feb payroll data is due on Friday.
The Chinese PMIs have fallen sharply in Feb. However things seems to be returning to some kind of normalcy in China as indicated by other high frequency data such as traffic. New Coronavirus cases emerging in the West is a matter of concern.
Saudi is considering cutting crude production by 1mbpd. The other OPEC members and Russia are in agreement to the cuts. The OPEC meet is scheduled to take place in Vienna this week in which cuts are expected to be announced.
Likely range for the pair is 72.00-72.40. The exaggerated move on Friday was triggered on account of stops above 72 after a long period of range bound trading. Further global turmoil and negative headlines would be required to take the Rupee past the 72.50 mark. We see low probability of the Rupee underperforming Asian and EM peers. After a tumultuous last week we expect the volatility to subside. We may see some short covering in the near term taking the Nifty to 11450 levels. Overall view remains bearish.
Strategy: Exporters are advised to cover exposure on upticks towards 72.40 levels. Importers are advised to cover near term exposure on dips towards 71.85. The 3M range for USDINR is 70.50 - 72.50 and the 6M range is 69.50 - 73.50.
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