The Democrat controlled House of Representatives has voted in favor of the bill raising US stimulus checks from USD 600 to USD 2000. It will be interesting to see how the Senate votes.
The passage of the bill could weaken the Dollar further and would further fuel the risk rally. Speculative bearish Dollar bets have risen to a decade high on ultra-dovish Fed forward guidance and an extremely expansionary fiscal policy a combination of which has resulted in US real rates becoming more negative. The phase of weak USD, steepening US yield curve, lower US real rates, stronger equities, stronger commodities and stronger EM assets continues.
With positive cues from the Dow overnight (+0.7%), the Nifty today could scale the 14000 mark. Today is the December exchange traded currency derivatives' expiry. Given the high open interest on account of RBI intervention we could see a lot of selling interest at the RBI fix in OTC.
Yesterday itself the fix for today was offered at -2p which implies sellers were ready to sell at RBI fixing rate minus 2p. It will be interesting to see if the RBI is on bid through nationalized banks right from the outset. If it is not, then we could see the Rupee break 73.40 and that could result in stops getting triggered amid thin liquidity and an exaggerated move lower.
RBI so far has been protecting 73.40 with a lot of intent and we believe the RBI will either move it's long position to OTC or intervene in the Jan contract. We expect the Rupee to trade 73.40-73.70 intraday with the possibility of a brisk down move is 73.40 breaks. Asian currencies are trading stronger against the USD. Asian equities are trading with a positive bias.
Strategy: Exporters are advised to cover a part of their exposure on upticks to 73.80-73.90. Importers are advised to cover on dips to 73.40-73.50. The 3M range for USDINR is 73.00 – 75.40 and the 6M range is 73.00 – 76.00.
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