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Market Analysis by Abhishek Goenka: Global Risk sentiment holds positive

Overall global risk sentiment was positive heading into the weekend with China reaffirming its commitment to adhere to the one phase trade deal with the US.

EU leaders failed to reach an agreement over the EUR 750 bn European Recovery Plan and would meet in person in mid-July to iron out differences and to try and get the plan through.

The euro, which has rallied on France and Germany cobbling together a proposal to aid recovery in the EU could slide as quickly if EU leaders are not able to get the plan through.

RBI’s FX Reserves rose another USD 6bn in the week ended June 12th to a record ~USD 507.5 billion. A huge reserve buffer alters the structural dynamics in the Rupee and gives the RBI greater power to influence Rupee price action, it’s relative valuation and volatility should it so decide.

We expect the RBI to continue absorbing Inflows, accumulating Reserves, and strengthening its balance sheet. Inflows related to strategic investments by foreign investors in Jio and month-end exporter selling could cap upside in USDINR this week.

However, continuing reserve accumulation by the central bank should limit the downside as well. The key risk to the Rupee stems from an escalation in border tensions between India and China.

The rupee is likely to open around 76.20 and trade in the 75.95-76.40 range. Asian currencies are flat against the USD. Indonesian Rupiah is the worst performer. Nifty is likely to trade with a positive bias.

Production cuts by OPEC+ and a pick-up in demand with economies gradually opening up have balanced oil markets. We could see crude prices inch higher as demand picks up further towards pre-pandemic levels.

With President Trump restarting his campaign, the focus will now shift to the November US presidential elections. Polls on average currently show Biden having a 9 percentage point lead over Trump.

The lead has widened as many in the US are unhappy with Trump’s handling of the pandemic and the protests against racism.

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