USD/INR price action to be flow driven this week

Abhishek Goenka IFA Global

This truncated week is likely to be a week where USDINR price action is driven by flows. Bharti Telecom, parent company of Bharti Airtel is expected to offload a 2.75% stake worth USD 1bn via a block deal today and we could see inflows to fund the purchase over the next couple of days.

A net inflow of ~USD 250mn is also expected on account of MSCI semi annual index rebalancing which will take effect from 1st June onwards.

Inflows pertaining to Facebook' acquisition USD 5.7bn in Reliance Jio is also in the pipeline.

If the USD is holding up globally, we can expect the central bank to absorb a significant portion of the inflows to further bolster FX Reserves. This could lend support to the USDINR pair.

On the global front, US-China relations will continue to remain in focus. US secretary of state Mike Pompeo has condemned China's imposition of a national security law in Hong Kong which could threaten to undermine Hong Kong's autonomy. The Hang Seng fell 5.6% on Friday, it's worst crash since July 2015. 1m USDHKD forward points also shot up on Friday.

US air travel, hotel bookings and mortgage applications are seeing a pick up, a sign that the US economy is in recovery mode.

Domestic flights have resumed in India and that would be a big positive for the sector which is feared to have been the worst hit as a result of the crisis. One will have to closely monitor the improvement in high frequency indicators onshore alongside the Corona Virus curve to see whether there is a significant bump up in crisis as the economy reopens and restrictions on movement are relaxed.

USDINR 1y forward points came off by around 15bps after the RBI rate cut on Friday. We could continue to see forwards remain under pressure.

It will be interesting to see the cutoffs on the Rs 18200cr SDL auction today. The weekly statistical supplement indicated that the RBI did not purchase any government bonds in the secondary market in the week ended 15th May. It had purchased close to Rs 30000cr of government securities in each of the previous two weeks.

Likely range for the USDINR pair is 75.50 – 75.95. Asian currencies are stronger against the USD. Overall risk sentiment is positive. Asian stocks are positive. Hang Seng is up 2%.

Strategy: Exporters are advised to cover orders in hand around 76.00 levels. Importers are advised to cover on dips around 75.20 - 75.00. The 3M range for USDINR is 74.00 - 77.50 and the 6M range is 74.00 – 80.00.

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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.

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