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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
INR
The rupee has started the week tracking a very tight range. The pair tried to dip below 79.80 in early trade but we are now back close to 79.85, little changed on the day.
- The pair still looks too high relative to the oil price dip, this has been the case for sometime. Onshore equities are starting the week softer, down -0.7%, but we did positive inflow momentum last week of just over $1.25bn.
- Friday's speech from RBI Governor Das, which was a defence of the rupee, may leave the speculative market reluctant to chase the pair through 80.00 in the near term.
- The RBI continues to be prepared to run-down FX reserves to manage the pace of rupee depreciation. As at the middle of July, RBI FX reserves were at $572.7bn (a $7.5bn drop from the previous week). We are now at lows for reserves back to late 2020, although the DXY peaked around mid July, so is likely to have played a role in the headline FX reserve dip from a valuation standpoint.
- The INR has also likely benefited from some softness to broader USD sentiment last week. A fresh may come if we see the DXY rebound, which could see USD/INR re-test 80.00.
- Any break above 80.00 is not expected to kick off a dramatic surge higher in USD/INR, at least judging by vol and risk reversal trends. The chart below shows both the 1 month implied vol and risk reversal continue to trend lower.
Fig 1: USD/INR 1 Month Implied Vol & Risk Reversal Trends
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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