Mar 07 2019

Trump calls India a Tariff king… Queen Rupee Resilient

US President Donald Trump has been in the news for trade war talks with China since July 6, 2018 when he first imposed 25 percent import tariff on Chinese products valuing USD 34 billion. This further escalated to about USD 250 billion and USD 110 billion from US and China respectively to each other. Now with the levels of truce talks increasing day by day, they seem to be nearing a solution on this.

But Trump’s twitter is probably never on a sleep mode. The focus has shifted from China to India since the beginning of this week. ‘Tremendously’ high tariffs on American goods and calling India a ‘Tariff King’ has prompted US to withdraw the preferential trade status, escalating the tension between US and India. Stopping duty benefits on USD 5.6 billion exports will probably prompt India to impose retaliatory tariff of USD 10.6 billion from April 1, 2019.

The IAF strike on PoK worked well for the Modi government locally and has attracted foreign flows in the equity indices since past few days. The Indian forex reserves have gained some strength since a low in mid October 2018. So much so that the withdrawal of the preferred state by US hasn’t bogged Rupee down, and rather it’s been on an uptrend.

On seeing the graphs of Nifty (Red) and USDINR (Blue), which generally move in opposite direction, show a deviation from that (blue ellipses). Momentum indicator – RSI is heading towards 30 mark, indicating an oversold zone. We might see some volatility round the corner as elections noise gets louder (with Indo-Pak war like situation on the sidelines for the time being). The immediate support is seen at 69.80 for the USDINR pair after which 68.45 could be tested. Alternatively resistances are seen at 70.10 and 70.36.

Importers may cover at USDINR pair lows, whereas exporters may watch out for 71+ levels for near term receivables. Options may be safer bets in these uncertain times.