USD/INR: Budget surprise to support Indian Rupee - CIBC
|Analysts at CIBC see the USD/INR pair at 68.0 in Q4 2019 and at 67.0 by Q2 2020.
Key Quotes:
“India’s new Modi government’s first budget delivered a surprise of a 3.3% of fiscal deficit, against a forecasted 3.4%, which was presented in the interim budget announced in February. A one tenth reduction may not appear significant, but the details were positive, as the step in the right direction was market-friendly. USD/INR closed lower, and the 10-year yield - now hovering around 6.70% - is at its lowest since October 2017.”
“We remain constructive on the outlook for the INR. We retain and extend our previous trade recommendation, though at the same time, remain cautious that this trade in particular is popular, and hence often crowded, thereby subject to short covering. This could be true, especially as spot approaches the relatively strong support at 68.30, and the USD continues to defeat consensus with respect to a trend decline. Moreover, an important resistance level for spot is around 69.10. In light of the reduced deficit, unchanged issuance plans, and positive investor sentiment, we expect bond yields to extend the current move lower.”
“Global trade tensions may have eased somewhat, but still pose a risk alongside the current track of global demand. Economic data has been mixed, and while still positive overall, a slower pace of GDP, a still wide trade deficit, and slower - though still positive - PMI, support an outlook tinged with caution. The RBI has shown a willingness to ease rates and so we expect another cut in August, an encouraging facet for the outlook of the Indian economy.”
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