Biden says the US seeing 'near-term inflation' as economy recovers

Global developments

The global risk sentiment has revived over the last couple of sessions as US corporate earnings continue to beat estimates. The COVID situation though continues to remain concerning with a surge in delta variant cases. The Australian Dollar has not quite participated in the risk-on rally as three states are in lockdown. Other commodity currencies such as the Canadian Dollar have done well with Crude bouncing back 5%. US treasuries have sold off with a yield of 10y higher by 8bps. The Dollar has weakened across the board. The focus today will be on the ECB policy. A revision in policy guidance to align it with the revised monetary policy framework is likely. Under the revised framework, the ECB is to target a symmetric 2% inflation target. The policy guidance could therefore become more dovish. US weekly jobless claims are also due today. The USD 1.2tn infrastructure bill failed to pass a vote in Senate yesterday. The Democrats would however bring the bill up for a vote again in the near future.

Domestic developments

Equities

After a strong show by US and European equities yesterday, Asian equities are trading with gains of 0.5-1%. The Nifty continues to trade the broad 15450-15950 range.

Bonds

We may see a bit of a sell-off in rates given the uptick in US yields and crude prices. It will be interesting to see how aggressively the RBI buys bonds in the Rs 20000crs GSAP today. 3y and 5y OIS had ended at 4.66% and 5.21% respectively on Tuesday.

USD/INR

The Rupee had recovered on Tuesday on account of selling related to investment in Flipkart. Asian currencies are trading stronger against the Dollar today. 

Strategy: Exporters are advised to cover a part of their near-term exposure on upticks toward 75.30. Importers are advised to cover through options. The 3M range for USDINR is 73.20 – 75.50 and the 6M range is 73.50 – 76.50.

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