Short USD/MXN @ 12.93
Capital Ratio: 12.66
Still sitting tight and earing carry off my short USD/MXN position, after booking a modest profit on a USD/INR short position Tuesday night. No changes in the fundamental picture. On election night, the Peso soared in Asia and Europe then gave up all its gains stateside as risk off sentiment overwhelmed markets. Many believe that it was due to fears over the 'fiscal-cliff,' but profit taking most likely was a significant factor, at least with the USD/MXN shorts, since this is the second time in a week the peso has failed to consolidate big gains.
On Asian FX, watch USD/INR which may make a further run at the summer highs if fears that post-election paralysis will send the US off the cliff continue to weigh heavily on markets. On the fundamentals, Prime Minister Singh continues to push liberalization reforms, and the RBI remains more concerned with inflation than growth. That said, the reserve bank would certainly begin to cut rates aggressively if inflation eases. This seems unlikely however if the Rupee continues to depreciate. The much more likely scenario is the attempt of the central government to spur Rupee appreciation via reforms aimed at boosting India's competitiveness. Such a scenario would certainly take the enormous pressure currently on the RBI and give it more room to maneuver on the monetary policy front. In sum, I remain a cautious seller of USD/INR on rallies in light of a probable deal on the looming US fiscal adjustment. I look to initiate a small short position at 54.75, and hopefully earn some nice carry over a month or two. My target will be the early October lows of 51.05. More commentary on India to come.
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