Today is a big day for currency markets. China has fixed CNY above 7.0 and it indicates trade war turning into currency war. We had highlighted this risk in one of our earlier research report. INR opens at 70.14 and now at 70.47. Since morning, it has tried breaking above 70.50 but may be RBI intervention is there. RBI may not let INR remain stable, if CNY is weakening. It would be fired to let INR also weaken.
It being a first day of retaliation from China, Trump may also reach via tweet or any substantive statement. Troubles in Honk Kong over its independence are also brewing and China feels that US is behind the protests.
All in all, it is difficult to give an estimate of where the situation will lead to. It is a political issue and which is very difficult to judge. As of now some more weakness in CNH and CNY is not ruled out.
Domestically, J&K issue is also playing on mind and we don’t know the actions being planned by government. There could be actions beyond what is in public domain.
For now, it appears that 70.80 could certainly be seen. and view of 67 in near future is now ruled out. As a strategy, suggest to hedge imports using options and wait for export hedging with stop loss of 70.30.