Currency Map:

Currency Pairs  OCT CLOSE SEPT CLOSE % change( M/M)
USD/INR 74.88 74.24 0.86
EUR/INR 87.26 86.14 1.30
GBP/INR 103.11 99.86 3.25
JPY/INR 65.86/100 YEN 66.35/100 YEN -0.73


WT1 Crude: USD 83.25 vs 75 in SEP 2021, Brent Crude at 83.70 vs 79.10 in SEP 2021.

Nifty: 17671, UP 0.3% m/m. Gold closed at USD 1785.

Indian 10 Year G-SEC yield closed at 6.35% .

Rupee traded in the 74.11-75.68 range in Oct. The pair closed at 74.88, registering a decline of 0.86% for Rupee. Rupee declined for the second straight month. EURINR closed at 87.26, gain of 1.3% m/m for Euro, and GBP rose 3.25% m/m against Rupee. Yen declined 0.73% against Rupee. USDINR fwd premia climbed with 1 year premia climbing to 4.65% annualised. Indian 10 Year G-SEC yields rallied to 6.39%  FX reserves held steady at USD 640 bn.

Rupee declined steeply to 75.68 on the back of soaring Crude prices. Crude price rally could derail the trade deficit picture, despite climbing exports. FII inflows turned negative in Equity segment. FDI flows continued to be robust. In Oct, FII’S have net sold Rs 12205 cr in Equity segment and have net sold Rs 1816 cr of debt. In this financial year, FII’S have net sold Rs 4994 Cr worth of Indian Equities and have bought Rs 17572 Cr worth of Indian debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

On data front, CPI inflation eased to 4.35%. Food price inflation eased to 0.68%. IIP climbed 11.9% in Aug. Mfrg grew by 9.7%. Capital goods sector climbed 19.9%. India’s exports grew by 21.3% in Sept to US D 33.44 bn, while imports climbed to USD 56.38 bn. Sept trade deficit hit USD 23 bn (nearly). In Apr- Sept, exports stands at USD 197.11 bn. Trade deficit stands at USD 78.81 bn.

RBI maintained status quo on repo and reverse repo rates. Repo rate is at 4%. GDP is expected to be 9.5% and inflation is expected to be 5.3% for full year. RBI Governor said that he is optimistic on growth and said that investment activity has picked up.

With economic recovery intensifying and Corona cases receding, RBI can pull back from its easy monetary policy. With Fed set to slow down asset purchases and hike rates in 2022, RBI may also follow suit with a change in stance in 2022.

PAY TM IPO has been cleared. LIC IPO is expected before this fiscal year. These should bring inflows to manage Rupee pressure.

Expect USDINR to trade in the 74.30-75.80 range in Nov. USD/INR movement is also linked to crude prices. If OPEC increases supply, Rupee could gain swiftly and RBI may check the gains to shore the reserves.

Global developments: Soaring energy prices, decline in US jobs addition, US fiscal spending bill and anticipation of Fed Nov meeting dominated Oct developments.

OPEC did not agree on increase in supply, pushing Crude above USD 82. Natural Gas prices also soared. Rising energy costs and supply side bottlenecks threaten to derail Global economic recovery. This is evident in Q 3 US GDP. US GDP expanded at an annual rate of 2.0% in the third quarter of 2021, according to the first estimate released by the US Bureau of Economic Analysis. This marked a sharp deceleration from the 6.7% growth recorded in the second quarter and also missed consensus estimates for a reading of 2.7%.

Minutes from the FOMC’s September meeting showed increasing concern among members over the persistence of inflation and a move toward tapering asset purchases. US retail sales was strong, but inflation remains elevated due to shortage of labor in certain services and high energy prices. Supply side issues are also contributing to the inflation scenario. Fed is meeting in the first week of Nov, against this back drop of slow-down in economic recovery and persistent inflation. Fed could announce time line to end asset purchases. 

USD bounced back on the last day of the month after two weeks of fall against Euro and Pound. Euro weakened on dovish ECB policy.

Euro also declined on weak economic projections by German Central bank. Bundesbank said in the monthly report that inflation in Germany “continue to rise before it gradually declines in the coming year.” The economy is expected to be “significantly weaker” in Q4. Strong momentum in service sector is “likely to subside considerably” too. Manufacturing is likely to “continue to suffer from delivery problems.

German government cut 2021 economic growth forecast sharply to just 2.6%, compared to April’s expectation of 3.5%. This is due to supply side bottlenecks and rising energy prices.

ECB kept monetary policy unchanged as widely expected. The interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The forward guidance is maintained.

That is, “the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.”

Euro/USD could weaken to 1.1350 and Pound needs to break above 1.3850 to re-establish strength. USD/JPY path is dependent on US Yields. US 10 year yield is losing momentum near 1.7%.

IMF lowered 2021 growth forecast slightly by -0.1% to 5.9% , reflecting “a downgrade for advanced economies—in part due to supply disruptions—and for low-income developing countries, largely due to worsening pandemic dynamics.” Indian growth is expected to be 9.5%. Currency outlook: Expect USDINR to trade in the 73.90-75.80 range in Nov 2021.

EUR/INR is expected to trade between 85.75-87.50. GBPINR is expected to trade in the 101.75-104 levels.  JPYINR could consolidate in the 64-66.50 range.

Outlook for NOV 2021:

Currency pairs 85% confidence range for NOV Most likely range
USD/INR 73.90-75.80 74.30-75.60
EUR/INR 85.75-87.50 86-87.50
GBP/INR 101.50-105.20 101.50-104
JPY/INR (100 Yen) 64-66.50 64-66.50

Suggestion: USD imports be hedged at 74.70/74.30/73.90. Exports can be hedged at 75.50/75.80. EURINR imports can be hedged closer to 85.75 and receivables can be hedged in the 87+ range. GBP exports can be hedged closer to 104+ levels.

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