INR likely to open around 71
Dollar recouped some of the post-FOMC losses. EUR is back to 1.1450 levels as some reports mentioned a possible recession in Italy. USDJPY is trading flat at 108.90. Crude is down, trading at 61.20.
Today’s Indian budget is an important event for INR. The market would wait to see the extent to which the government would go on populist measures and also the estimate of the fiscal deficit. While very large populist announcements can hurt FII sentiment in the short term, the budget might turn out to be positive for INR, if the market perceives that these measures increase the chances of a BJP win. Expected sops include a package for the agriculture sector, tax sops for the middle class and some measures regarding credit flow to MSMEs.
China-US talks seem to have gone well with China promising more imports from the US. Trump announced that he would meet with Chinese Premiere Xi before the finalisation of any deal. US Treasury secretary and the China deal negotiator are expected to travel to China by the middle of February. As expected, technology and intellectual property remain the critical issues. For now, markets continue to be hopeful that there might be an eventual deal before the March 1st deadline.
US jobs release for January is expected to show a 165k increase. ADP private payroll data was better than expected and even today’s NFP has the potential to come in better than expected. A consistent job growth is sure to put pressure on the Fed in the coming months in the wake of their ultra-dovish stance.
If the budget and today’s jobs data don’t throw major surprises, INR stability would continue for few more days at least till the next leg of China talks.