Currency Map:

USD/INR 71.08 69.77 1.87
EUR/INR 81.23 79.80 1.79
GBP/INR 93.02 88.76 4.79
JPY/INR 65.28/100 YEN 63.67/100 YEN 2.52


WT1 Crude: USD 53.80 vs 45.40 in Dec end.

Nifty: 10830 vs 10862 in Dec end.

Rupee declined 1.87% to close Jan at 71.08 vs 69.77 on Dec 31 st. Rally in Crude prices and pull out from debt funds contributed to Rupee weakness. Euro’s gain against Rupee is directly linked to USDINR gain. Pound rallied despite Brexit uncertainty. Equity indices wobbled, but ended almost flat as compared to Dec close.

FII’S have sold Rs 504 Cr of Indian Equities in Jan. FII’S have sold Rs 2601 Cr of Indian debt securities in Jan  .

Jan month was dominated by budget hopes, Brexit issue, US- China trade talks and Fed meeting.

Union budget was in line with expectations, providing relief to low income tax payers and direct transfer of funds to small farmers. Pension to unorganised workers and increased social benefit schemes were the highlights of the budget. Govt expects increased tax collections to fund agri funding schemes and tax rebates. GST collection crossed 1 lac cr in Jan. Though Equity markets were pleased with budget proposals, bond markets took the fiscal deficit negatively. Increased Govt borrowings (7.1 lac Cr in 2019-20) triggered surge in 10 Year yield. Rupee also weakened, though modestly, after the budget.

With budget over, RBI is expected to shift its stance from calibrated tightening to neutral stance. With inflation as low as 2.19% and pvt investment tardy, RBI may be on the edge of a rate cut.

RBI has allowed 3 banks to move out of PCA framework due to capital infusion. Some more banks are expected to follow suit.                                                                      


After RBI meet, focus will be on Global developments and Indian election outlook.

Fed announced status quo and signalled patience in future rate hikes despite sound economy and vibrant jobs market. Latest round of economic data showed that mfrg is in expansion mode and jobs growth exceeded 300k in Dec. However, financial markets volatility and Global developments have weighed on Fed to announce a patient attitude.

ECB also indicated downward shift in EU economic growth. With EU GDP growth at 0.2% q/q and manufacturing at the edge of contraction, EU has little space to hike rates till 2020.

On balance, it looks that Global central banks would maintain status quo and stop withdrawal of liquidity.

Chinese growth is likely to slow further with mfrg in contraction mode. Chinese slowdown has resulted in lower top and bottom line growth for US tech majors.

Fed’s move and ECB’S growth outlook should help EM Currencies and enable more flows into Indian markets. This should balance trade deficit, even if Crude climbs further. In the last 2 months, Crude has edged higher and has rallied over USD 10/bbl. US sanctions on Venezuela is the new trigger for Oil rally. Oil prices and election uncertainty are the counterbalancing factors to Fed and ECB’S dovish stance. Hence, once the election uncertainty is over, Rupee has higher probability of gains to 68/67 levels.

The other important aspect is the US-China trade talks. These talks will have to conclude before March 2 nd to avoid new US tariffs. If there is a resolution, USD could fall against majors and help EM Currencies.

Hence, Rupee’s positives are 1)Dovish Fed, 2) Weak EU growth, 3)Positive resolution to US – China trade talks. 4) Investment flows. Rupee negatives are 1) Crude rally, 2) Election result uncertainty.

If Rupee is to fall to 72.50-74.50 levels due to any of the negative factors, it is a worthwhile proposition to sell USD for 1-2 Years fwd as Rupee fall does not meet the forward curve over a 3/5 Year period.                                                               


Since Jan 2018 low was 63.25, we do not expect Rupee to trade above 72-73 levels by Jan 2021. Hence, fwd selling for Jan 2021 at 77 should yield rich dividends.

EURINR exports can also be fwd hedged as EUR/USD is likely to consolidate at an average level of 1.15 this Year due to status quo on interest rate differential. Hence, short term Rupee weakness could help EURINR to climb to 82.50-84 levels and that would make a strong and confident case for 2 Year export hedging.

GBPINR has rallied as Pound seems to be benefitting from Brexit uncertainty. The pair could trade in the 91.50-95 range in coming weeks.

JPYINR could consolidate in the 64.50-66.50 range.

Indian developments:

1) Indian GDP growth revised higher to 7.2% for 2018.

2) Dec inflation falls to 2.19%.

3) Fiscal deficit is estimated at 3.4% for 2018-19.

4) GST collection climbed back to 1.03 lac Cr in Jan.

Global developments:

1) Fed signals that liquidity withdrawal will end.

2) ECB signals downside risks to growth.

3) Brexit uncertainty continues.

4) Crude climbs higher.

Upcoming events:

1) RBI meeting.

2) Indian IIP and CPI data and trade deficit data.

3) UK Vote on Brexit deal

Outlook for Feb: USDINR has support at 70.85 and resistance could emerge at 72/72.50 on rally. EURINR rally is due to USDINR rise. Expect 80.50-82.50 range. GBPINR is expected to trade in the 91.50-95 range. JPYINR is expected to trade in the 64.50-66 zone


Currency pairs 85% confidence range for Sept Most likely range
USD/INR 70.50-72 70.85-72.50
EUR/INR 80.50-82.50 80.50-82.50
GBP/INR 91-95 91.50-94.50
JPY/INR (100 Yen) 64.50-66 64-67

Suggestion: USD imports be hedged , EURINR imports be hedged on decline to 80.50 levels. USD Exports be hedged incrementally on rally to 72/72.50. EURINR exports be hedged on rally to 82.50.


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