Risk sentiment has soured as investors turned their focus back to surging cases, possibility of fresh restrictions and delay in passage of second stimulus in the US.
The Trump White House is stepping back from stimulus negotiations and it would now be up to the Congress to take it forward. In typical risk off moves, the US Dollar strengthened against commodity currencies while 10y US treasury yield fell 9 bps on safe haven demand; US equities were also down by 1-1.5%. Domestic CPI rose to 7.61% in Oct, higher than expectations of 7.3%, primarily on higher food inflation which could dampen sentiment in the bond markets. Sticky headline inflation and a combination of huge surplus banking system liquidity, higher trending crude prices, higher USD/INR may start becoming a bit disconcerting for inflation hawks.
The FM yesterday announced a series of stimulus measures under Atmanirbhar 3.0. USDINR was well bid through yesterday's session.
Today, we may see it trade in a range between 74.45 - 74.85. Nationalized banks could come in and offer Dollars around 74.90 on behalf of the RBI to smoothen volatility. US core CPI rose by less than expected in October while UK Q3 GDP data came in lower than expected which resulted in a correction in the recent Sterling move.
Strategy: Exporters are advised to build long term exposure in 74.60-75.50 range. Importers are advised to cover through options. The 3M range for USDINR is 73.00 – 75.40 and the 6M range is 73.00 – 76.00.
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