GS - Tariff Thoughts From the Goldman Florpdf
GS - Tariff Thoughts From the Goldman Florpdf
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  1. ** Connecting You to GS.. Thoughts from the Floor..FICC and Equities | 18 January 2025 | 9:09AM UTCThemes resonating with global clients at the moment and GS views/thinking on the topics. Reach out if there are comments, opinions and/or ideas you want to discuss with the people below. Click on hyperlinks to go directly to the section in the main body:1) Connecting you to GS: Sound-bites from last week’s GCEM Virtual Macro Conf (Replay of sessions can be accessedhere);In to Inauguration, what does the first wave of announcements from the new Administration look like (here)? How do you gauge positioning in the USD & what do you perceive as the 2-way risks to the trade over the next 1-2 months (here)? Globally higher funding-rate putting pressure on fiscally strained sovereigns has been a theme for the last few months... with Brazil, Hungary and UK in focus... how do we expect this theme to evolve over 2025 and which other countries are vulnerable (here)?How far can the INR sell-off extend & how do we see positioning (here)?2) Trades we like: 3 Themes from FX:From the Content we have sent out YTD 2025 (2025 Best ideas here, alsohere and here), 3 themes/structural trades that we likeand that are gaining traction with the franchise.i)Deep-value EM -> Owning the Right-Tail in BRL: BRL the worst 2024-performer in FX in 2024, a lot of ‘deep-value’ to be unlocked in Brazilian assets when authorities ‘do the right thing’ on the fiscal side: 1yr ~8-10x trades in USDBRL look good risk-reward to capture this rebound -> Buy 1y 5.55 USDBRL Binary Put for 10.75% USD (~9.25x leverage)(h/t Matt Traina)ii)The DM front-end you want to be Long -> H1 GBPUSD Downside:GS Trading think there is a risk the MPC move to follow a Feb rate-cut with further easing in March. The Bank voted 6-3 to keep Rates on hold at the last off-cycle meeting, despite a recent hot wage inflation print. With Headline + Services CPI printing lower last week, and March the low point of 2025 inflation forecasts, we think there is a tangible risk that weak activity data forces the Bank to frontload easing before higher inflation from May onwards (indexation, price resets, Water Bills) make it a more difficult trade-off. The market is currently not pricing this risk with Feb-March MPC Curve currently at around -5bp: Buy a 5mnth (19-Jun) 1.18 vs 1.14 (KI 1.10) vs 1.10 Knock-In Put Fly in 1x2x1 for 39.5bps GBP(~16.5x leverage)iii) Higher Global Funding Rate -> Short Rate-Sensitive Currencies (SEK, AUD, CAD): A higher US terminal rate environment raises risks that something breaks outside of the US, stay short the most rate-sensitive currencies - We think AUD, CAD + SEK are most vulnerable -> CAD: Buy a 5mnth (12-Jun) 1.46 vs 1.50 (KI 1.54) vs 1.54 USDCAD Call Fly in 1x2x1 for 35bp(~15x max leverage;SEK: Buy a 6mnth 11.75 vs 12.00 (KI 12.25) KI Call Spread for 41bps EUR(~10.25x leverage);AUD:Buy a 3mnth Dual Binary AUDUSD < 1.5% OTMS vs GBPAUD < 1.5% OTMS for 7.45% AUD (~ 13.5x leverage), buying 3mnth Implied Corr around -40% vs recent (2wk) realised around zero.Thoughts welcome – Adam----
  2. 1) Connecting you to GS:•GCEM Virtual Conf: Some Soundbites: GS Currencies & Emerging Markets hosted its Virtual Macro Symposium last week, with 3 days of insightful content. Some stand-out remarks from some of our speakers below. You can access a replay of all the sessions onthis link:Justin Muzinich (Former Deputy Secretary of the US Treasury) “... Trump himself has cared about trade deficits just for the sake of trade deficits for many decades.... My sense.. for what would count as a win.. is commitment from other countries to buy more from the U.S at scale.... That is ultimately what the Administration is looking for and what they want to achieve... .”Jan Hatzius (GS Chief Economist) “... I am a bit more optimistic that we're still on the path to 2% inflation.... Y/Y rates have gone sideways over the last six months, but the base effects are important.... We’re comparing with some very low sequential inflation rates in the second half of 2023which was always going to make it harder to bring down the year-on-year rates.... Obviously, there is plenty of uncertainty, but I think the going might be slightly easier than many people are now thinkingin wake of the last several months.,,, ”Steve Vaughan (Former Acting US Trade Representative + General Counsel for USTR):“.... The big distinction for people in Washington is going to be on the precedent and experience in terms of 301 and 232, especially how those work - I am referring to trades section 301 of the Tariff Trade Act of 1974 and section 232 of the Trade Expansion Act of 1962. He used section 301 to impose the tariffs on China and section 232 to impose tariffs on steel and aluminum..... People in Washington are very familiar with those statutes – they know there’s a process and are familiar with what it looks like as well as how it works... Now, there are some other statutes out there that have not been used before (that people are thinking of using) such as some of his emergency powers... . I think he is going to get less push back if he stays within 301 and 232; if he starts venturing into some of these other statutes that have not been used before, it will be a new dynamic that is more similar to about eight years ago where people were like, can you really do this? What does that look like?... ”Rick Waters (Former Deputy Assistant of State for China and Taiwan) on China and tensions around Taiwan...: “... I do think that for XI Jinping, traditional amphibious invasion of the island is a last resort.... He probably doesn't think he has the capabilities today because the PLA is in disarray, because of corruption and leadership changes over the past year... The second broad observation is that I think because of that dynamic, the near-term Chinese strategy is largely defensive from their perspective... If they see the Trump administration move beyond the traditional bounds of the US one-China policy, senior level visits to Taiwan are a good example or the training effort gets quietly underway on the island...you can see volatility, but again, I don't worry about an invasion in the near term... I think the framework we should use is not binary.... We should be looking more and more at China's development of higher end escalatory tactics: limited quarantines, island seizures, cyber affects, undersea cable cutting... The Chinese are moving increasingly into a grey zone escalatory space that could produce volatility and reactions from both the US and Taiwan and I think this will get worse as we get closer to the 2028 Taiwan presidential election, which will be 1 year into XI Jinping's fourthterm and it will be very difficult in Chinese politics, to accept the notion of a fourth consecutive Democratic Progressive Party victory on the island....”
  3. Geoff Okamoto (GS OGA + Former Assistant Secretary for International Finance and Development in US Treasury): “.. More countries in the world see this [multilateral trading] system as not really working well... In my view, that provides some motivation to engage bilaterally to try and work through some of these issues.... The US is not alone in trying to look for ways to do that through FTAs- the EU signed an agreement with Latin America (EU-Mercosur arrangement) just last month which concluded after many decades.... If countries want these trading relationships stabilized and want clear rules, they’re going to have to set them up bilaterally... . A patchwork of bilateral arrangements to some people may not be optimal but it may be better than a system that is just not functioning well in a multilateral sense..... ”Hui Shan(GS Chief China Economist):“.. If you look at the direct trade, then you’re right that China’s share of total US imports declined from about 20% to 13%.... Indirectly, however, because of Chinese investment in Vietnam and Mexico, if you look at the value added, it did not decline that much.... Over the past few years, especially with EM countries, China has been purposefully increasing trade ties and building relationships to increase its own resiliencebecause further down the road, it is seeing increasing tensions for a US-China potential decoupling. Building a stronger trade tie with other countries certainly provides a cushion for such situations... ” Anshul Sehgal (Head of US IRP Products) on rates market“.. After the Dec cut and what we saw in the SEP, we think the Fed has moved to a more neutral stance.... All of this makes some sense to us because our broader outlook is that this is going to be similar to Reagan's first term, so it was a very similar set up back then.... The way we're looking at the world right now is that over the last two years, it was really about how much fiscal came in, how easy were financial conditions instrumented by the Fed and that would tell you where macro assets would go.... Sitting here today, the dimensionality of the problem is much larger.... You've got regulations at play, you've got the Dollar channel working its way through the global economy, you've obviously got technology innovations, that are possibly ramping up in a very meaningful way.... That is the policy mix that will dictate what markets do and will also dictate what the Fed does.... So, for us, monetary policy isn't going to be in the driver's seat for the next 6 to 9 months.... ”Dominic Wilson (Senior Macro Advisor) on equity markets...: “... Given the US growth outperformance given the policy agenda, I would say the US still looks like the most reliable of the equity stories.... You know, non-U.S. markets clearly carry more risk, I think both given more fragile growth stories in Europe and China in particular, and given this potential challenge from US policy and tariff threats, which weighs disproportionately on some of those non-US markets... Set against that, there's also more risk priced into those markets already.... So, if the trade policy agenda ends up narrower than expected, there's a bit more resilience in local growth, that could definitely be some upside on that basis... I think on a risk adjusted basis it still likely leaves the US ahead...”Raj Venkataramani (Head of FX & Co-Head of Short Macro Trading) on FX...:“... If tariffs are just used as a threat and they actually don't get realized and the dollar weakens, it's actually kind of a lower vol environment.... So, in some ways I think it's more of a skew trade rather than “I think all FX vols are going to the moon” trade in some ways.... I think you almost in some ways want to buy lower delta dollar calls now, partially because it feels like post the Washington Post article, etc. the really volatile move is all in tariffs, tariffs on everything and that seems a little bit less likely, it seems a little bit more out of the money so you kind of want to own the wingier stuff.... ”Tony Kim (Co-head of EMEA and Asia Commodities Trading) on Commodities...: ”... We still like gold higher, seasonally in January, it tends to perform pretty well... The market was pretty cleaned up coming into the year, so we think it's going to be a strong first quarter, but you know, with the Fed maybe
  4. pausing a bit and not cutting to the same degree that they did in 2024, we think the upside is potentially a bit lower.... GIR recently put out a piece, they were calling for $3,000 an ounce by year end, they pushed that call back to the middle of next year. I don't know about an exact price target, but I would say in the general direction of the trend, we would agree.... ”Jared Cohen (GS President of Global Affairs) on the Middle East...: “... The US are inheriting a Middle East situation that is changing in quite a dynamic way and really sees Iran playing a less significant role than it has since the revolution in 1979.... What I expect the Trump administration to do is to continue that pressure, in collaboration with the Israelis.... I think you might see other forms of maximum pressure campaigns on Iran, but I think the feeling is that the regime is so weak, and the supreme leader is so old and its future is so uncertain that just keeping that pressure campaign on Iran continues to reduce its significance...”Rob Citrone (CIO & Founder of Discovery Capital) on the outlook for US rates and impact on the EM asset class..:“.... We think that 10-year rates in the US are going to back up to 5.25 sometime this semester, and probably early on..... We wouldn't be surprised by the middle to end the Feb .... Why do we say that? First of all, we think the inflation prints the next few months are going to be pretty disappointing on the high side...The other thing is that the policy that Trump wants to run is a reflationist policy.... It's a growth policy that's not favorable for fixed income and we think he's serious about tariffs...So it's going to increase investment and production here in the United States for sure. We see a scenario where rates are going to go higher and that growth rates are going to be probably pretty solid..... And we think that leads to a stronger dollar, higher rates, and probably ultimately stronger equity markets and capital flows still into the US.”Kerry O’Brien (Global Head of Insurance, Asset Management and Liability Solutions at Metlife) on the risks of the US policy mix..:“... I think we could look back somewhat to 2017 and what took place.... And we all know when the election outcome was announced, EM really took a hit, especially Mexico.... But if you held on, EM actually had a pretty decent year..... A lot of what he came out with, wasn't implemented, but there was a lot of shock and awe, and the markets responded to that. I think that we need to consider what Trump might do in this term, being more coordinated, although some of the messages that he's sharing seem illogical, irrational, and yet the market will respond to that type of dramatic rhetoric.... So, from an EM perspective, we need to factor all of that in but we know it's really tough to price in political risk.... With a lot of geopolitical conflict, war, the market does I think a pretty poor job of predicting political outcomes and pricing that into the market... So from where we stand today, EM has really not adjusted in price, it's still somewhat rich... .”Amer Bisat (Head of Emerging Markets and Fixed Income at Blackrock) on the winners and losers of US tariffs..:“... In terms of determining the winners.... : who's going to impose the tariff, who will the tariffs be imposed on, and who isn’t? Who has the capability of weakening its currency as to offset the higher tariffs? And clearly the impact will be larger the more of a manufacturer you are and more of an exporter you are to the US... Today it's a world all determined by the US interests and who allies itself politically to the US ends up being the winner out of this, and those are not necessarily the reformers.... These become much more of a transactional relationship.... Where there are not the traditional winners that we would think about.... Winners here would be places like Argentina, like Turkey, a place like India, certainly the Gulf and the Middle East.... “•US Politics: In to Inauguration, what does the first wave of announcements from the new Administration look like?
  5. Alec Phillips (Chief US Political Economist) paraphrased from Weekend Call... On Initial Focus + Energy: ... If you had to identify a couple of key topics.. the two things I would think will be a focus will be firstly deregulation and specifically, if you had to pick a piece of that, energy policy, and then secondly immigration.... On energy, I think we're going to get a number of executive orders, or at least executive actions, around increasing oil and gas production on Federal land.... So expanding, leasing offshore, oil drilling, expanding, or I should say, restarting, LNG export approvals..... And then probably also a number of things in terms of loosening some environmental rules around both electricity generation and emissions as well as fuel economy in the auto sector..... On Immigration:.... First, there will clearly be an emphasis on border securityat the southern border with Mexico and a variety of different policy changes that Trump is likely to announce there.... Secondly, a deportation policy and that's one where I think there is potentially a macro impact.... Our view on that is that while deportations are likely to increase, they are not certainly at the outset going to get anywhere near the sort of millions per year that has been implied by some of the rhetoric, given fiscal issues.... There isn't enough money in the budget right now.... Congress will need to approve more and then also logistical and legal challenges.... So this is clearly going to be a focus but the actual change on the ground might lag some of the announcementsthat we see over the next couple of weeks....On Tariffs: ...I don't think we are going to get immediate announcements on tariffs the way we will on some of these other issues... The reason I don't think that we'll get it, at least on sort of day one or day two, is that I think that the Trump administration is going to want to have a more uniformly positive reaction in financial markets in terms of the media coverage to some of the things that he does up front.... I do think though that we are likely to see quick action on tariffs and on imports from China.... There is an existing process that's still active - President Biden used it last summer to increase tariffs in some categories... . whether that's in the first week or whether it takes a few weeks is a little hard to say, but there's no real reason to think that they would delay implementation of that... ... I think there is more uncertainty around the global tariff.... There has been some media reporting that there might be a phased-in approach ... There has also been some reporting around the idea that there would be a more targeted approach, so it would apply to all countries, but only certain products.... I would take sort of two general things from all of that... . One is that there is a serious chance of some form of global tariffs.... We've said in the past we think it's a 40% chance... it's not the base case, but it's a clear risk..... The other thing I would take away is that the Trump team recognizes that there are risks - economic risks - around the global tariff and it is trying to figure out some way to mitigate that.... So there's sort of the bad news in the sense that it appears to be something that's being seriously considered but the good news is that there are also clearly active discussions underway to try to mitigate that..... So where is the middle ground? We've thought that that could end up in auto tariffs rather than doing a blanket tariff.... The Washington Post reported last week that maybe it would be just on so-called critical imports... . I think there is a sense that maybe they're trying to reach a middle ground of some sort.... I think after Inauguration, if we do get an announcement, my guess is that it probably would be more likely something around a process, so maybe launching the start of an investigation into some of those different import categories and not (at least as the base case), the announcement of a global tariff at least right away.... •USD: How do you gauge positioning in the USD & what do you perceived as the 2 way risks to the trade over the next 1-2 months?Kerem Cirpan (Senior FX Market Strat): “Our proprietary analytics show USD positioning to be fairly crowded(+1.9 s.d.):
  6. Source: GBMWithin our franchise, hedge fund positioning is most vulnerablefor reverse.... Real money still has roomto participate in USD upsideif anything.Source: GBMLong USD positioning is mainly vs short EUR, CNH and GBP.
  7. Source: GBMMike Cahill (Senior FX Strategist): “The biggest risk is I think I’ve gotten way too many questions about the schedule for 20th January: “when will he be signing the tariffs on Monday? Will they be in the speech?” That also probably tells you something about the nature of the positioning. Alec’s baseline hasn’t shifted since last year, but relative to the market that baseline has gone from being at the early end of expectations to now somewhat later. So I think there is some risk from impatience in the early going, and also that some attempt at mitigation will be over-interpreted. But, stepping back, I still believe that the majority of the Dollar move over the last few months can be attributed to shifting current conditions rather than tariff expectations. That means there is still more upside in our baseline scenario—we see the Dollar moving 5% higher, with a risk to more if tariffs are higher and wider than we expect, China’s currency response is more disruptive, or the back-up in US yields causes more indigestion.”
  8. Source: GIRAlan Stewart (Head of EMEA EM Trading): “Our FX flows since the start of the year have been very focussed on just four currencies : EUR, GBP, CAD and CNH. The notable breakdown in the strong correlation between EURUSD FX performance and front end SOFR/Euribor spreads late Dec/early Jan, after having been so tightly correlated for most of Q4 24, was already a signal to us that the market was refocussing on other factors as the drivers of USD strengthwhich we suspect was largely sanctions risk. It was also notable how quick the market was to sell the USD on any news/headlines suggesting the potential for more granular tariffs delivered step wise over a longer time frame - most notably following the WashPo article at the beginning of last week and on a Bloomberg article at the beginning of this. In aggregate we saw these as warning signs that as USD length had grown since the beginning of the year it had done so on a growing consensus expectation of a large, broad and early deliver of tariffs. Based on our flows, market performance, reaction to news and headlines and direct anecdote, I would estimate that the broad USD long that had been being carried by the market has now been reduced by up to 60%-70% from its peaklevels post- election and ahead of next week’s inauguration, but the soft US CPI print, dovish narrative from FED’s Waller and recovery in the UST market have also contributed to this. Overall our view has not changed and remains broadly supportive of a stronger USD. Whilst there may be a short term locational asymmetry in favour of an outsized reaction weaker in the USD in the event of an under-delivery of tariffs next week (maxing out at 1.07/08 in EURUSD and 7.20/25 in USDCNH in the event that no explicit tariffs are levied on Europe or China), we still feel that the threat of their delivery further down the line will retain an underlying bid for DXY and thus lead us to fade such a move.EMFX broadly has received little attention outside of CNH, where the short base is considerable, outside sporadic bouts of volatility in ZAR, MXN and BRL. This partly explains the surprising resilience in most EM currencies, with only the ZAR displaying a negative total return across the broader EMFX universe since the US election. Whilst Asian FX stability is clearly a function of regional CB willingness to smooth moves against the USD and led to them looking somewhat over valued on a nominal basket basis, with CNH the most obvious example, the notable pick up in beta of USD/MXN and USD/ZAR to broader moves in DXY make us feel that these two currencies have developed a degree of value aswell
  9. as defensive positioning which should give them the most potential to outperform in the event of a bout of USD weaknessfollowing a more benign tariff delivery next week.”•Fiscal Spillovers: Globally higher funding rate putting pressure on fiscally strained sovereigns has been a theme for the last few months... with Brazil, Hungary and UK in focus... how do we expect this theme to evolve over 2025 and which other countries are vulnerable?Mike Cahill (Senior FX Strategist): “I agree that the market environment of rising US real yields and weaker equity returns is negative for Sterling. But I think the market in G10 space has been too singularly focussed on the UK when in reality these shifts are difficult to digest for a number of countries, as the moves in EM, including INR this week, help highlight. People are looking at the UK because we have a recent playbook from 2022. But, relative to that episode, this time is very different. First and foremost, the market is functioning; there’s no forced seller of Gilts or forced hedging in GBP. Second, the domestic driver is at least less of an accelerant—the UK is not so unique in this instance. Third, the fiscal risk premium is less of an important driver. We saw the last one in action this week when the long end stabilised on weak data and the currency fell together with yields in typical G10 fashion. So, while the backdrop has shifted in a way that is makes us less constructive on Sterling, it’s also something that should be negative for any country that is more sensitive to higher yields and choppier risk sentiment. Relative to current levels, we thinkSEK could see a bigger adjustment and have recommended long $/SEK with a target of 11.60. Monetary policy divergence and rising yields is another reason to be cautious on CAD, in addition to the tariff risk, and we forecast 1.46 in 3m.Vitali Meschoulam (Global Head of Market Strats): “We scan both across primary balance and gross debt/GDP metrics from the IMF. In this regard, the countries with a relatively high (and rising) debt stock are likely to be most at risk in a more turbulent macro environment. G10 scans quite poorly on these metrics with Canada, US, UK, Japan, Italy, France, Spain all exhibiting some signs of vulnerabilities ahead.In EM, Brazil, China, Hungary, India, South Africa also exhibit problematic tendencies that could put them at a disadvantage in a risk-constrained world. Though absolute levels of debt in Israel, Poland, Romania and Thailand remain low, primary deficits are the largest amongst the sample group, also likely putting them on a weaker footing. In aggregate, the countries likely to see the largest negative focus on these dynamics includePoland, Hungary, Romania, Brazil. There is already material focus on fiscal dynamics that have tended to impact domestic asset prices in these from time to time. The most vulnerable isRomania in our view, but with well-known political resistance toward fiscal consolidation in Brazil, it also screens as one where this variable will continue to exert significant pressure on asset prices. Though South Africa has tended to be part of the vulnerable few in the past, recent positive fiscal momentum has alleviated concernsuntil the 2026 local elections at the earliest.“
  10. Source: GBM•INR: How far can the INR sell-off extend & how do we see positioning?
  11. Sun Lu (Senior North Asia Strategist): “TheUSDINR move has accelerated since Dec, trading 2.5% higher vs 1.6% move during Jan-Nov 2024. This is due to multiple macro headwinds:1) Growth slowdown since 3Q24; 2) Equity outflows accelerated since Oct, totaling US$14bn due to earning disappointment and expensive valuation; 3) Change in the macro environment post US election attracts real economy topside USDINR hedging. RBI has not been shy of using FX reserves to defend the currency, draining US$70bn reserve from the peak in 3Q. This has tightened onshore liquidity, unfavorable to the already weak growth picture. In reaction, RBI had to start daily VRR operation to inject liquidity, and we expect RBI may restart OMO to inject long-term liquidity soon.Meanwhile, the discussion sustainability of FX intervention has risen, especially with news report that new RBI governor did not expression objections to rupee slump in meetings. Indeed, INR REER stood at high-end of history as end of Nov, and RBI has incentive to maintain India’s manufacturing competitiveness by limiting expensiveness of INR REER. This is especially the case going forward given regional FX pressure (especially for USDCNH) on impending tariff risk, and even reciprocal tariff riskon India. Thus we may likely see continuation of accelerated move in USDINR higher. We estimate if USDCNH goes to 7.5, USDINR can move to 89.1 and 90.4 in the next 6 month if RBI allows INR to move to the mid and lower end of the REER band(for more detail, see our earlier notehere). Additionally, given RBI tends to buy back USD when USD weakens to replenish reserves, long USDINR is a high sharp ratio trade. INR implied vol remains the lowest in Asia (other than HKD), making topside USDINR expression attractive.”Based on historical REER trends, we have constructed a hypothetical REER band (with upper and lower band being 1 standard deviation from mean) -> We have observed a long-term mean reversion of RBI REER around the band.
  12. Source: GBMArjun Nagpal (Head of Asia Macro Trading): ”View/trade Idea: We expect INR to depreciate furtheron growth concerns/ overvaluation/ tariff risk and expectation of rate cut. Prefer toadd long $ INR position on dips for short term target of 87.50 1m NDF and medium-term target of 88.50 1m NDF. Forwards are expected to find support after moving lower by 10 bps on liquidity injection by RBI via VRR and B/S swap. We like to engage in paid 3mx6m fwds around 50-52 levels (implied ~6.6%) as we think 0.5p per day will be the base now for points given positioning/ incremental interest to hedge coming from importers with unhedged FX exposures.In order to address growth concerns, The RBI may cut interest rates at it’s February meeting (7 Feb MPC), which may again put further pressure on INR, as interest rate differential shrinks between US and India. The reduction in short term rates through liquidity measures and rate cuts( if any) will reduce the hedging cost for importers, and we could see more hedging demand coming in due to lower forward premia.We have seen shift in RBI’s FX intervention strategy afterGovernor Malhotra has taken office and RBI is now more comfortable with INR depreciation given REER overvaluation and increase in volatility. A more moderate FDI pipeline amid elevated core rates, along with expectations of further outflows from equities, will continue to hurt INR from flow perspective. INR overvaluation in REER terms vs weaker CNH and competitive export prices from China (chart below)will likely impact India’s export to international markets. INR depreciated by 1.9% vs $ strength of 0.9% in last 1m compared to 2.68% depreciation in INR vs $ strength of 5.2%.REER comparison: India vs China:Source: GBMUnder the scenario that a tariff of 10% is imposed on Indian exports to US (total services and merchandise exports to US around ~$300 bn) , INR can adjust by 1.5%-2% to absorb the shock(assuming 150p impact on $30bnn current account impact). Macro accounts do own USDINR topside but there is a real demand supply mismatch in the end user space with importers buying heavily and exporters staying away.”
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