USDINR continues to rally as the rupee...>

DOLLAR-INR: USDINR continues to rally as the rupee comes under pressure over

fears that the country will become embroiled in the potential trade war between

the U.S. and China. 

- USDINR, currently at 65.67, looks set to test the September 2017 high and

potentially the gap at 66.40. In an additional blow, in its semi-annual FX

policy report released on Friday, the US Tsy placed India on the list of

countries that deserve further monitoring for potential unfair currency

practices, the first such time that India has been named on the list. 

- While this may encourage the RBI to reduce reserve purchases, which would be

bullish for the INR, it also increases the risk that trade tensions between

India and the U.S. will rise. That said, with exports representing less than 20%

of GDP and external debt liabilities largely covered by foreign reserve

holdings, the economy and currency should remain well insulated from global

shocks. With real interest rates high and rising, and the real effective

exchange rate falling to 2-year lows, there is potential for the INR to

outperform the region.