– Antipodeans and INR lead rally vs the USD, Asian equities mixed
– RBI announces further measures to support the INR
– A weaker German Ifo likely to weigh on the EUR
What to watch for today
EUR: Softer Ifo. Our economists expect the Ifo survey to show a notable decline in confidence, with the business climate headline falling from 106.4 to 105.9 in November. We also expect a sharp contraction in the expectations component to 115.7 from 116.7. This would be in line with the weak performance of manufacturing PMI data released yesterday. We expect no significant change from the final revision of Q3 German GDP
USD: Holiday. All markets in the US are closed today for Thanksgiving. Equity and bond markets reopen Friday for a half-day session.
What happened overnight
The selling of risk assets paused in the Asian session. The USD is slightly weaker, while Asian equities are mixed despite the more than 2% sell off in US stocks overnight. The Nikkei is down 1.5%, while the Kospi is up 0.5%. The antipodeans and the INR are leading the modest rally vs the USD. AUDUSD traded to a high of 0.975, while EURUSD is higher to 1.336. AUDNZD is unchanged at around 1.309 despite New Zealand reporting a lower than expected trade deficit of NZD282bn vs the consensus forecast of -NZD450mn. USDINR fell slightly to 52.2 following RBI’s announcement of more measures to stem INR weakness. The PBoC fixed USDCNY 72pips higher to 6.3570.
INR: RBI announces measures to support the INR. India’s central bank (RBI) today rolled out further measures on non-resident India deposits and external commercial borrowing (ECB). This includes a 25-100bps increase in the interest rate ceiling on non-resident Indian (NRI) foreign currency deposits, as well as modifying aspects of external commercial borrowing (Exhibit 1).
We note that RBI had increased the interest rates on NRI deposits back in 2008/2009 and was able to prevent further outflows. But the measures did not generate an increase in inflows until confidence had returned. While the increase in ECB borrowing spreads makes it easier to borrow, the current environment may not lead to an increase in borrowing, in our view. The amendment to bring ECB proceeds back immediate could have a larger impact. We expect the INR to remain under downward pressure until RBI takes more aggressive measures to incentive capital inflows and discourage importers from hoarding of funds.
Analysis of EURUSD moves over Thanksgiving.
As Exhibit 2 shows, the movement in EURUSD on Thanksgiving Day has never been greater than 1%, with only two years where the currency has moved more than 1% on Black Friday, one of which was also month-end. The average move on both days is just 0.1%, although the average absolute value is slightly larger at 0.5% on Black Friday.
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http://www.easyforexnews.net/wp-content/uploads/2011/11/document-804661950.pdf
Credit Suisse
FIXED INCOME RESEARCH & ANALYTICS