Markets brace for heavy falls as Russia-Ukraine crisis escalates

Abhishek Goenka IFA Global

Global developments

The risk sentiment has deteriorated overnight on the escalation in tensions between the West and Russia on Ukraine. Russia ordered troops to be sent to the separatist-controlled areas in Eastern Ukraine. This may likely invoke a response from the US in the form of new sanctions. Safe havens have rallied overnight. Yields on US treasuries have dropped about 7-8bps at the longer end. There is a chance that the Fed may recalibrate its tightening plans given the risks to growth from geopolitical tensions. Crude has surged about 3.5% to USD 97 per barrel. Gold has crossed the USD 1900 mark amid risk aversion. Safe haven currencies JPY and CHF have strengthened. The dollar is otherwise stronger against the commodity, EM, and Asian currencies. US equities were shut yesterday for a holiday. Asian equities are lower with Shanghai down 1.5% and HangSeng lower by 3.3%.

Domestic developments

Equities

The Nifty ended 0.4% lower yesterday at 17206.

Bonds and rates

Gsec yields ended a couple of basis points higher across the curve yesterday with the yield on the benchmark 10y ending at 6.70%. Today the impact of lower US treasury yields could be offset by higher crude prices. Money market rates could be higher by around 5-7bps on account of the Sell-Buy USD/INR swap announced by the RBI as it would withdraw liquidity from the banking system.

USD/INR

The Rupee has strengthened yesterday to 74.35 at one point before the nationalized banks stepped in aggressively to buy Dollars likely on behalf of the RBI. Rupee eventually ended the session at 74.51. The RBI announced a 2y USD/INR Sell-Buy swap for USD 5bn yesterday. We could see the 1y forward spike by around 12-15bps to around 4.20% as a result of the announcement. We expect it to trade a 74.60-74.90 range with an upside bias.

Strategy: Exporters are advised to cover near 75.10 levels. Importers are advised to cover on dips towards 74.30-40 The 3M range for USDINR is 74.30 – 76.40 and the 6M range is 73.50 – 76.50.

Download The Full Daily Currency Insight

Author

Abhishek Goenka

IFA Global

Mr. Abhishek Goenka is the Founder and CEO of IFA Global. He pilots the IFA Global strategic direction with a focus on relentlessly improving the existing offerings while constantly searching for the next generation of business excellence.

AUD/USD gains traction near 0.7100 as the post-Fed USD rally pauses

AUD/USD finds fresh buyers and retakes 0.7100 in the Asian session on Thursday as the US Dollar pauses its hawkish Fed-inspired rally to its highest level since late July. However, RBA rate-hike bets and hopes for US-Iran diplomatic efforts lift risk sentiment and support the risk-sensitive Australian Dollar and the major.

USD/JPY reverses a dip below 156.00 as focus shifts to BoJ

USD/JPY is reversing a brief dip below 156.00 in the Asian session on Thursday, looking to snap a three-day winning streak to a nearly two-week top set the previous day. The US Dollar pauses following the post-Fed rally to seven-week highs, while a more hawkish repricing of the BoJ's policy normalization path supports the Japanese Yen. This keeps the pair's upside limited, with the focus now shifting to the BoJ policy decision due on Friday.

Gold bounces but not out of the woods yet

Gold is facing fresh sellers above $4,300 early Thursday, stalling its recovery from six-week lows of $4,235 reached soon after hawkish US Federal Reserve monetary policy announcements.

XRP and XLM rebound amid mixed signals

Ripple (XRP) and Stellar (XLM) extend their recovery at the time of writing on Thursday after finding support at key technical levels. However, mixed derivatives and on-chain data for both altcoins suggest that traders remain cautious and have yet to show strong conviction in a sustained rebound. Derivatives data shows a mixed and cautious outlook among traders.

The Fed rate hike: What happens now?

The dust has settled on tonight’s Fed meeting and the market reaction is clear: the Fed’s signal that there could be a series of rate hikes has spooked financial markets. Bonds sold off at the short end of the Treasury curve and US stocks also fell, led by the Dow Jones Industrial Average, which slipped more than 1% on Wednesday night.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.