Goldman Sachs Suggests Long INR vs TWD

Goldman Sachs recommend a long INR position vs TWD citing better levels, high carry, and still likely low vol looking forward.

They note a 3% sell off in INR vs USD since late March on a number of factors, most recently the dramatic surge in coronavirus cases. "For EM FX investors, who have now seen several episodes of sharp rises in Covid case counts that have coincided with new coronavirus variants, a key question is whether the situation in India will follow the established pattern of increased activity restrictions, followed by an eventual improvement in public health outcomes, and a stabilization in the currency. The degree of uncertainty is clearly elevated, but we think this is the most likely outcome."

The bank also notes "preliminary evidence suggests the potential of vaccine efficacy against the new variant, including encouraging results around severe disease, and, based on government removals of vaccine price caps, our India healthcare team now suggest that 60% of the population in India can be vaccinated by the end of the year."

Goldman Sachs surmises: "Given these factors, we recommend going long INR versus TWD, with an opening level of 100 (which corresponds to a TWDINR level of 2.67), a total return target of 108, and a stop of 96. This cross features nominal carry of roughly 8% annualized, and, while typically featuring very low volatility (and resistance to global shocks, including an increase in US rates), INR has depreciated by roughly 5% versus TWD over the past four weeks, which is a very large move for the cross, and suggests attractive risk-reward at these levels."