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Citi Cautiously Biased for Lower USD/INR

INDIA
  • Citi note that their EM traders are cautiously biased for lower USDINR. In the event that the dollar keeps moving higher, they do not expect USDINR to break 83.0 support level. On the flipside, Citi say this would be the best environment to be long INR on a NEER basis - short USDINR vs long USDCNH, KRW, TWD, THB.
  • The RBI's strong FX reserves and INR's carry-to-vol profile all make it a high-carry USD proxy which will outperform during periods of DXY strength, Citi say.
  • Following the hawkish RBI hold, Citi Economics changed their RBI call earlier this week, and now see a longer hold for policy until a first cut in October. This has been pushed back from August previously. They see fiscal consolidation and bond inclusion-related inflows seeing bond yields head lower.
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