India's June CPI breaches RBI's tolerance band of 6%

India June CPI rose 6.09%. The higher than expected print was primarily on account of higher food prices, especially pulses. Despite the print being above RBI's tolerance band of 6%, the RBI is likely to continue with its accommodative stance and prioritize growth at this point. We expect the RBI policy to remain accommodative until significant demand side pressure on prices becomes evident and there is a perceptible uptick in core inflation. The RBI is quite likely to overlook higher prices if they are on account of supply constraints. 

Global equities that were marching on, turning a blind eye to rise in cases in the US and simmering US-China tensions completely reversed intraday. S&P 500 had become positive for the year and had hit a post Pandemic high before reversing. The Nasdaq hit a fresh record high again and slid thenafter. The Dow lost almost 600pts from day highs to close flat. The Chinese stock market is approaching it's highs of five years ago and is within striking distance of USD 10tn mark. Asian indices are down 1%. The Nifty is likely to trade with a negative bias. Rupee is likely to open around 75.30 and trade 75.10-75.45 range. 

The US Dollar too recovered yesterday as equities plummeted. The Euro hovering shy of its recent highs around 1.1420. The Sterling too is making an attempt at a crucial 1.27-1.2750 resistance zone. 

UK May GDP, Germany July ZEW economic sentiment and US June CPI data is due today. 

Strategy: Exporters are advised to cover between 75.00 - 75.40 through forwards. At lower levels only cover through option strategy. Break below 74.50 may possibly take rupee to 73.80. Importers are advised to hold maintaining a stop loss of 75.50 or cover through risk reversal option strategy. The 3M range for USDINR is 73.60 - 76.50 and the 6M range is 73.00 – 77.00.

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