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Among EMFX, India appears to be less reliant on the global trade growth compared to peers, which leaves it better positioned to withstand concerns around renewed trade conflict between the US and China. To the extent that such concerns weigh on the global growth outlook and keep energy prices capped can also serve to benefit the INR.
Although we have already seen some outperformance of INR in NEER terms, whilst Indian equities and portfolio momentum have also outperformed relative to regional peers.
Although the Indian economy faces multiple constraints on growth, the price action in INR is encouraging, especially given the recent back-up in oil prices.
Against the dollar, INR direction is quite dubious as broader USD sentiment against EM currencies still remains reasonable.
Hence, we positioned short trades in 3M EURINR forward/NDF trades: We initiate this position for another three months at 80.07 (spot reference 78.69), maintaining our target at 75.00 with stop-loss at 81.50. The trade benefited from the positive carry, as the INR spot was largely unchanged over the past three months while the EUR gained thanks to a dovish US Federal Reserve.
We see EUR as a sell on rallies as disinflationary pressures in the euro area grows, prompting policy easing from the ECB.
Shorting EURINR has a positive carry of 8% annualized, which is very attractive in an environment of falling yields. INR is also the least exposed in Asia to US-China trade tensions.
An added advantage of shorting EURINR is that the INR leg would be the least impacted by ongoing US-China trade tensions. That is because the Indian economy is reliant on domestic demand rather than exports. The economy is not exposed to China’s growth, and in fact, could stand to gain from some shift in manufacturing production away from the Chinese economy. Courtesy: ANZ
Currency Strength Index: FxWirePro's hourly USD spot index was at 32 (mildly bullish) while articulating (at 13:00 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
