The Rupee yesterday did manage to break 72.80 initially as nationalized banks seemed to be missing in action. However, USD/INR after printing a low of 72.66 quickly rebounded to end the session at 72.85. The RBI seemed to have intervened aggressively in OTC and on the exchange.
The special Gsec auction yesterday too was interesting. It appears the PDs bought both the papers up for auction (2025 security and benchmark 2030 security) aggressively and the RBI bought the stock from the PDs in the secondary market (approx 20000crs). This is as close to direct monetization as it can get. Even in yesterday's OMO, the RBI has bought the benchmark security aggressively. The 10y yield ended the session at 5.96%. It seems the RBI wants to cap the yield on the 10y at around 6% and is resorting to implicit yield curve control.
We believe nationalized banks will continue to protect the downside in USD/INR. The forwards saw some respite yesterday with 1y coming off 4p in absolute terms, primarily as the last day March over the First day March cooled off to 21.5p from around 24p.
US jobless claims came in higher than expected. The broader Dollar and Us yields are steady. The Dow too ended the session flat. The Sterling has come off the top of the range around 1.3850. China is on lunar new year holidays. Monday is a US holiday (President's day) and therefore no cash transactions would be possible.
Strategy: Exporters are advised to cover a part of their exposure on upticks to 73.40-73.50. Importers are advised to cover through options. The 3M range for USDINR is 72.50 – 74.40 and the 6M range is 73.00 – 76.00.
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