Markets brace for heavy falls as Russia-Ukraine crisis escalates

Abhishek Goenka IFA Global

Global developments

The risk sentiment has deteriorated overnight on the escalation in tensions between the West and Russia on Ukraine. Russia ordered troops to be sent to the separatist-controlled areas in Eastern Ukraine. This may likely invoke a response from the US in the form of new sanctions. Safe havens have rallied overnight. Yields on US treasuries have dropped about 7-8bps at the longer end. There is a chance that the Fed may recalibrate its tightening plans given the risks to growth from geopolitical tensions. Crude has surged about 3.5% to USD 97 per barrel. Gold has crossed the USD 1900 mark amid risk aversion. Safe haven currencies JPY and CHF have strengthened. The dollar is otherwise stronger against the commodity, EM, and Asian currencies. US equities were shut yesterday for a holiday. Asian equities are lower with Shanghai down 1.5% and HangSeng lower by 3.3%.

Domestic developments

Equities

The Nifty ended 0.4% lower yesterday at 17206.

Bonds and rates

Gsec yields ended a couple of basis points higher across the curve yesterday with the yield on the benchmark 10y ending at 6.70%. Today the impact of lower US treasury yields could be offset by higher crude prices. Money market rates could be higher by around 5-7bps on account of the Sell-Buy USD/INR swap announced by the RBI as it would withdraw liquidity from the banking system.

USD/INR

The Rupee has strengthened yesterday to 74.35 at one point before the nationalized banks stepped in aggressively to buy Dollars likely on behalf of the RBI. Rupee eventually ended the session at 74.51. The RBI announced a 2y USD/INR Sell-Buy swap for USD 5bn yesterday. We could see the 1y forward spike by around 12-15bps to around 4.20% as a result of the announcement. We expect it to trade a 74.60-74.90 range with an upside bias.

Strategy: Exporters are advised to cover near 75.10 levels. Importers are advised to cover on dips towards 74.30-40 The 3M range for USDINR is 74.30 – 76.40 and the 6M range is 73.50 – 76.50.

Download The Full Daily Currency Insight

Author

Abhishek Goenka

IFA Global

Mr. Abhishek Goenka is the Founder and CEO of IFA Global. He pilots the IFA Global strategic direction with a focus on relentlessly improving the existing offerings while constantly searching for the next generation of business excellence.

EUR/USD meets initial support around 1.1800

EUR/USD remains on the back foot, although it has managed to reverse the initial strong pullback toward the 1.1800 region and regain some balance, hovering around the 1.1850 zone as the NA session draws to a close on Tuesday. Moving forward, market participants will now shift their attention to the release of the FOMC Minutes and US hard data on Wednesday.

GBP/USD bounces off lows, retargets 1.3550

After bottoming out just below the 1.3500 yardstick, GBP/USD now gathers some fresh bids and advances to the 1.3530-1.3540 band in the latter part of Tuesday’s session. Cable’s recovery comes as the Greenback surrenders part of its advance, although it keeps the bullish bias well in place for the day.

Gold remains offered below $5,000

Gold stays on the defensive on Tuesday, receding to the sub-$5,000 region per troy ounce on the back of the persistent move higher in the Greenback. The precious metal’s decline is also underpinned by the modest uptick in US Treasury yields across the spectrum.

RBNZ set to pause interest-rate easing cycle as new Governor Breman faces firm inflation

The Reserve Bank of New Zealand remains on track to maintain the Official Cash Rate at 2.25% after concluding its first monetary policy meeting of this year on Wednesday.

UK jobs market weakens, bolstering rate cut hopes

In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months.

Ripple slides to $1.45 as downside risks surge

Ripple edges lower at the time of writing on Tuesday, from the daily open of $1.48, as headwinds persist across the crypto market. A short-term support is emerging at $1.45, but a buildup of bearish positions could further weaken the derivatives market and prolong the correction.