INDIA: RBI’s Position Limits Trigger Short Squeeze, But Rally Quickly Unwinds
Mar-30 08:50
The swift reversal of the INR spot move on the RBI's latest intervention points to growing market concern over the bank's options to combat currency weakness in the face of high oil prices and growing pressure from a swollen forward book, estimated to be nearing $100bn. INR rallied by as much as 1.4% at the open after the unexpected instruction to banks to cap net open INR positions at $100mn, replacing the previous limit of 25% of total capital and effectively forcing balance sheet compression. Banks have been given a tight deadline: compliance by April 10th.
- Complicating matters, the INR strength has almost fully reversed, highlighting the RBI’s increasingly constrained policy flexibility and, in particular, the pressure to preserve FX reserves. The surge in 1-month INR NDF points (hitting multi-year highs) indicates offshore markets are continuing to price sharp near-term weakness and tighter USD liquidity. The RBI therefore faces a trade-off: it can either roll over maturing forwards at a higher cost – tightening offshore USD liquidity further and potentially adding further upside pressure on USD/INR – or settle the contracts, which would further deplete FX reserves.
- The curbs announced Friday target basis-trade arbitrage, which had grown as offshore markets priced sharper INR weakness – partly due to the Iran war – relative to onshore markets. Banks were short INR offshore and long USD onshore, and since the RBI’s cap applies only to onshore positions, the measure forced an unwind, driving spot USD sales at Monday’s open. Reuters estimates these arbitrage positions at $25–35bn. Meanwhile, Bloomberg reports pushback from banks, warning that unwinding $30bn+ could generate substantial losses.
- The subsequent rebound in USD/INR – now approaching Friday’s record highs – highlights the dominance of underlying macro pressures on the rupee. In particular, the energy price shock constitutes a significant terms-of-trade shock for India, which imports around 90% of its oil consumption. Bloomberg also notes that oil importers took advantage of Monday’s dip to buy USD at more favourable levels, further accelerating the pair’s recovery.
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US: President Trump To Deliver Remarks On His Energy Agenda In Texas Shortly
Feb-27 21:29
President Donald Trump is shortly due to receive a briefing on Texas's energy production and deliver remarks from the Port of Corpus Christi in Texas. At a yet-to-be-announced time, Trump will also sit for an interview with local TV in Texas. LIVESTREAM The remarks will be closely followed for any clues on Trump's strategy regarding Iran.
- The appearance, Trump's first since his State of the Union address on Tuesday, comes shortly before the closely watched Republican Senate primary between incumbent John Cornyn (R-TX), state AG Ken Paxton, and Rep. Wesley Hunt - all of whom will be in attendance at the event.
- Trump has yet to endorse in the race, with GOP leadership calling on the president to endorse Cornyn. PBS notes, "Cornyn is unpopular with a segment of Texas' GOP base, in part for his early dismissiveness of Trump's 2024 comeback campaign and for his role in authoring tougher restrictions on guns after the 2022 school shooting in Uvalde, Texas. But Senate GOP leadership and allied groups see Cornyn as the stronger general election candidate, in light of a series of troubles that have shadowed Paxton."
- Silver Bulletin has a useful roundup of the Texas Senate primary, which could determine control of the Senate in November, here.
- In the evening, Trump will depart for his Mar-a-Lago resort in Florida, where he will hold two events for his MAGA Inc SuperPAC on Saturday.
LOOK AHEAD: US Macro Week Ahead: Building To Friday's NFP/Retail Sales Double
Feb-27 21:00
It’s a busy week ahead for US data with ISM manufacturing and services reports for February before February nonfarm payrolls and January retail sales reports on Friday.
- Consensus sees a return of typical figures in the 60-70k region for monthly nonfarm payrolls growth after January’s surprisingly strong 130k increase that was more impressive still with private payrolls rising 172k.
- It left private payrolls growth at an average 103k in the latest three months for an impressive recovery having bottomed at 0k in August, whilst the six-month average sat 62k. That said, private payrolls continue to see a large contribution from the cyclically insensitive healthy & social assistance category, which surged 124k in January and has seen three- and six-month averages of 77k and 60k respectively.
- Expect just as much focus on the unemployment rate after a second month surprising lower in January at 4.28% after 4.38% in December, 4.54% in November in a shutdown-distorted report and 4.44% in September. The recent improvement in the unemployment rate has gone against consumer-focused metrics such as the Conference Board’s labor differential which continues to point to a trend increase in the unemployment rate ahead.
- It will be the last payrolls report before the Mar 17-18 FOMC meeting with its new SEP. Comparing with the December SEP, the unemployment rate averaged 4.47% back in 4Q25 to nearly undershoot the median 4.5% and also importantly rule out a 4.6-4.7% scenario that seven members had pencilled in (with an important caveat that the October value is interpolated having never actually been collected). Looking ahead, the median participant eyed 4.4% in 4Q26 before levelling out at 4.2% in 4Q27 and beyond.
US TSYS: Jun'26 Month End Contract Highs, Middle East Tensions Simmering
Feb-27 20:35
- Treasury futures climbed to contract highs Friday (Jun'26 new lead), driven by a combination of month end buying and rising geopolitical tensions between the US and Iran. Trump said as he left the White House, on using military on Iran: “sometimes you have to” but “would love not to use it” and said Iran “not negotiating in good faith and conscience.”
- Reuters has published sections of a new report from the International Atomic Energy Agency, the UN's nuclear watchdog, that is likely to add to the US case that Iran's nuclear programme represents a threat to US and regional security. The report notes that there has been no independent oversight of Iran's four declared nuclear enrichment facilities since June last year, which it characterises as a "matter of proliferation concern".
- Treasuries are scaling off late session highs after the bell, TYM6 +13 at 113-24.5 vs. 113-27.5 high - technical resistance at 113-29+ (High Oct 17 ‘25 high and a key M/T resistance) followed by 114-00 (round number resistance). Curves steeper: 2s10s +1.085 at 58.078, 5s30s +2.785 at 111.385.
- Final demand 0.48% M/M (sa, cons 0.3) in Jan after a slightly downward revised 0.43% (initial 0.49%) in Dec. However, it was boosted by another strong increase in the volatile trade services category (2.5% after 1.8%).
- The Chicago Business Barometer™, produced with MNI, climbed 3.7 points to 57.7 in February. Extending January’s strong increase, it saw a second consecutive month in expansionary territory after a run of twenty-five months below the key 50 mark.
- Monday’s calendar is highlighted by US ISM Manufacturing PMI, and the focus next week will be on Friday’s US employment report.
