Overall risk sentiment is upbeat. US yield curve has steepened with longer-end yields higher. US 10y yield is back above 1.60%. The US Dollar has weakened across the board as shorter end rates continue to remain anchored. The Euro breached the 1.20 mark while the Sterling advanced to 1.40. Asian and EM currencies too have strengthened with USD/CNH dipping to 6.50. Crude prices are a tad higher. Weaker Dollar is supporting Gold prices. US equities ended the session marginally in the red yesterday. Dow futures are however trading higher.
The government has liberalized the vaccine program, opening it up to people above the age of 18yrs from 1st May and has also decided to make available advance funds to vaccine manufacturers to boost production and has decided to allow vaccine manufacturers to supply vaccines to states and in the open market.
Domestic equities were dealt a blow as the impact of the imposition of lockdowns by more states and more stringent restrictions got priced in. Equities however recovered through the session to trim losses. 14100-14200 continues to remain an extremely strong support zone for Nifty.
Bonds were mostly steady with a Yield of 10y ending flat at 6.08%. The government was able to switch around 7000crs of short-term securities to longer tenors out of a notified amount of Rs 20000crs. 3y OIS fell 8bps to 4.52% as expectations of withdrawal of policy accommodation by RBI were pushed back.
The Rupee was the notable underperformer amid broad Dollar weakness on domestic COVID concerns. This has caused Cross/INR to spike up. EUR/INR breached 90, GBP/INR rose past 104 and CNH/INR advanced back to all-time highs around 11.50.
Near month forwards continue to remain elevated. The forward curve is inverted at this point. We expect the long term forwards to get paid with 1y forward yield likely to bounce back to 5%
Strategy: Exporters are advised to cover a part of their near-term exposure on upticks towards 75.50. Importers are advised to cover through forwards on dips towards 74.50. The 3M range for USDINR is 73.50 – 76.00 and the 6M range is 73.00 – 76.50.
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