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FX – WEEKLY UPDATE :

FX – WEEKLY UPDATE :
  • By Goodwill
  • 118 Comments
  • December 26, 2023

FX – WEEKLY UPDATE :

WEEKLY SYNOPSIS: 22/12/2023

Currency Map:

Currency Pairs

WEEK CLOSE

PRIOR WEEK CLOSE

% change

USD/INR

83.15

83.02

 0.15

EUR/INR

91.56

91.36

0.21

GBP/INR

105.62

106.12

-0.47

JPY/INR

58.49

58.60

-0.20

Brent Crude closed at USD 79 VS prior week close of USD 77. Gold closed at USD 2053. Nifty closed at 21349 vs prior week close of 21456. 10 Year G-SEC Yield closed at 7.17%.

Major developments: USDINR traded in the 82.92-83.28 range last week and closed at 83.15, gain of 13 ps for USD as compared to prior week close of 83.02. EUR climbed 0.21% w/w and GBP declined 0.47 w/w against Rupee. Indian benchmark Equity index declined 0.54% w/w. 10 Year G-SEC Yield closed at 7.17%. 1-year fwd premia is at 1.73% p.a.

FX reserves stood at USD 615.97 bn as on Dec 15 th.  FX reserves climbed USD 9 bn. In Dec, FPI’S have bought Rs 47659 Cr of Equities and bought Rs 15636 Cr of debt . In 2022-23 fiscal year, FII’S have net sold Rs 27593 Cr of Equities and have net bought Rs 838 Cr of debt.

IMF report mentioned that India has intervened excessively in FX market. RBI, in its clarification stated that IMF has taken a view of 1 year period and a different picture emerges over 2-3 year period. However, IMF’S cautionary note may weigh on RBI’S mind on intervention. Rupee’s movement seems to be divergent of USD index performance. While USD Index has declined last week, USD gained against Rupee. There were no major economic data release last week.

Over the past few weeks, many positives have emerged for Rupee: 1) USD rates have peaked, 2) Crude Oil has been declining, 3) USD is still looking shaky against majors, 4) Heavy FPI inflows.

But for Chinese related worries, threat to Rupee seems to have dissipated.

Decline in US Yields has pushed USDINR fwd premia marginally higher with 1 year premia at 1.73%. Fwd premia could start climbing further as rate differentials favor Rupee over USD. Indian Equities took a pause last week.

Based on the recent Global and Indian macro situation, expect USDINR to trade in the 82.60-83.35 range in coming weeks.

Hedging advise: Imports be hedged closer to 82.80/82.65. Exports be hedged closer to 83.30/83.35.

Global developments: USD ended weaker, US Treasury yields declined and Equities rallied ahead of year close. US inflation continues to soften, raising market expectations of rate cuts in March 2024. Fed’s favourite PCE price index fell -0.1% mom, below expectation of 0.0% mom. Core PCE price index (excluding food and energy)rose 0.1% mom, below expectation of 0.2% mom. PCE price index slowed from 3.0% yoy to 2.6% yoy, below expectation of 2.9% yoy. Core CPI price index fell from 3.4% yoy to 3.2% yoy, below expectation of 3.4% yoy.

US durable goods orders rose 5.4% mom to USD 295.4B in November, above expectation of 2.7% mom.

Resilient consumer spending, slowing inflation and thaw in housing markets have triggered a further fall in mortgage rates. This has prompted Fed officials to push back as market enthusiasm could nullify Fed efforts to bring inflation down steeply.

BoJ decided to maintain its monetary policy unchanged. BOJ Governor reaffirmed the central bank’s readiness to take “additional easing steps if necessary,” highlighting the “extremely high” level of uncertainty surrounding the economy.

UK inflation slowed more than expected, triggering slump in Pound. Markets are now fully pricing the first 25bps reduction as early as May, with projections suggesting interest rates could drop to 4% or lower by the end of 2024. German Central bank Chief emphasized the importance of maintaining the current interest rate levels to ensure the effective management of inflation.  However, he did acknowledge that interest rates have likely reached their peak, suggesting that while an immediate rate reduction may not be on the horizon, the period of aggressive rate hikes should have come to an end.

Currency technical levels: USDINR: 82.80/82.65 (Supports), 83.30/83.40 (resistance),

EURINR:92(Resistance),89.50/88.75(Support),

GBPINR: Supports: 104.20/103.40( supports), Resistance:106.50(Resistance).

JPYINR: Resistance:59, Supports: 57.45/56.45 (support).

Hedging advise: USDINR imports be hedged on decline to 82.85/82.60. EUR and GBP exports can be covered.

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