US weekly jobless claims came in at 744k, higher than expectations of 680k. Elevated jobless claims have pushed back the market's expectations of the Fed's tapering and lift off. US yields have cooled off across the curve, and that is reflected in USD weakness particularly against Euro and JPY.
The Rupee which was quite steady through most parts of the session yesterday got spooked on break past 74.50 as stops got triggered. A global outage in Reuters interbank dealing system led to an exaggerated move as banks scampered to take stops in exchange-traded futures. April futures traded a high of 75.13. and were 5-7p above corresponding OTC levels. While the bonds and equities rejoiced RBI's move of capping long term yields, the Rupee had to bear the brunt as the move would reduce the carry. FPIs who had been receiving carry in offshore unwound their positions causing the Rupee to weaken. Stop losses also got triggered along the way causing the spike to become even more vicious.
The forwards have come off significantly with 1y forward yield now at 4.60%. The fall in carry has reduced the cost of going short Rupee against the Dollar and has triggered an unwinding of carry positions in offshore and has also triggered stop losses onshore.
The RBI announced the details of securities it would purchase through G-SAP. The purchases are spread across the curve. Domestic bonds continued the post-policy rally with the yield on the 10y benchmark ending at 6.03%. The RBI also announced the 14 day variable reverse rate repo for Rs 200000crs which it had not rolled over the last time to help markets tide over year-end liquidity stress. Details of long tenor VRRRs are awaited. Focus today will be on the Rs 32000cr Gsec auction.
Strategy: Exporters are advised to cover a part of their near-term exposure on upticks towards 74.80. Importers are advised to cover through forwards on dips towards 73.50. The 3M range for USDINR is 72.50 – 75.00 and the 6M range is 73.00–76.00.
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