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Brent Crude closed at USD 86.40 VS prior Aug close of USD 96.40. Gold closed at USD 1659. Nifty closed at 17094 in Sept vs Aug close of 17759. 10 Year G-SEC Yield closed at 7.39%.

Major developments: USDINR traded in the 79.03-81.95 range in Sept and closed at 81.35 as against Aug close of 79.45. Rupee declined 2.4% in Sept as compared to Aug close. EUR climbed 0.48% w/w and GBP declined 2.76% m/m against Rupee. Indian benchmark Equity index declined 4% m/m. 10 Year G-SEC Yield closed at 7.39%. 1-year fwd premia is at 2.78% p.a. FX reserves stands at USD 537 bn as on Sep 23 rd. FX reserves has declined from its all time high of USD 650 bn.

Rupee declined steeply on breaching 80.12 levels. RBI stepped aside to allow Rupee to fall, in line with strong USD against major currencies. There was sporadic intervention to smoothen volatility. India’s rising CAD despite fall in Crude prices contributed to Rupee’s decline. India’s CAD in Q1 stands at USD 23.9 bn (2.8% of GDP), up from 1.5% of GDP in last fiscal. Trade deficit expanded to USD 68,6 bn (7.8% of GDP). During April-August, India’s trade deficit rose to $125.22 billion versus $53.78 billion the same time last year. Services exports grew by 35.4% and remittances grew 22.6%. Invisible surplus helped to rein CAD to 2.8% of GDP. In the first quarter of the current fiscal year, India’s net foreign direct investment rose to $13.6 billion from $11.6 billion a year ago.Net foreign portfolio investment, however, showed an outflow of $14.6 billion as against net inflows worth $400 million in the first quarter of the previous fiscal year.

Net external commercial borrowing recorded an outflow of $3 billion in April-June versus an inflow of $200 million a year ago.

In a separate release, the RBI said at the end of June 2022, India’s external debt was at $617.1 billion, showing a decrease of $2.5 billion over its level at the end of March. The external debt to GDP ratio declined to 19.4 per cent at June-end 2022 from 19.9 per cent at March-end 2022, the RBI said.

Rupee gained to 81.17 on Friday from all time low of 81.95 as RBI announced a special Window for Oil companies to buy USD to the extent of USD 9.7 bn.

RBI hiked repo rates by 50 bps to 5.9%. GDP is expected to be 7% and Inflation is expected to be 6.7% in this fiscal. RBI Governor said that no forward guidance is possible and monetary policy will evolve with data and Global developments. India’s Aug inflation surged to 7% and Food inflation is higher at 7.62%.

Core sector growth declined to 3.3% in Aug, lowest in 9 months. The production growth of eight infrastructure sectors — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — was 9.8 per cent during April-August this fiscal, compared to 19.4 per cent a year ago.

In Sep ,FII’S sold Rs 3750 Cr of Equities in Cash segment and have bought Rs 4809 Cr of debt till date. In this Calendar Year, FII’S have sold close to Rs 1.49 lac Cr worth of Equities. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of 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.

USDINR’s resistance is at 81.95/82.15/82.40. Support is at 81.20/80.80. The pair could move higher with strong support above 80.80.

EURINR remained steady last month. GBPINR declined steeply to around 85 and has since then recovered above 90 due to pull back in GBPUSD pair.

Global developments: It was USD dominance after Fed meeting and higher CPI print. CPI climbed to 8.3%. Fed responded to CPI data with 75 bps rate hike. Federal Reserve Chair Jerome Powell vowed on Wednesday that he and his fellow policymakers would “keep at” their battle to beat down inflation. Fed foresees its policy rate rising at a faster pace and to a higher level than expected, the economy slowing to a crawl, and unemployment rising to a degree historically associated with recessions.

Powell was blunt about the “pain” to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a “correction.”

Federal funds rate projected for the end of this year signals another 1.25 percentage points in rate hikes to come in the Fed’s two remaining policy meetings in 2022, a level that implies another 75-basis-point increase in the offing.

Fed expects GDP growth to slow down to 0.2% in Q4, but climb to 1.2% by 2023. Unemployment rate is expected to climb to 4.4% by 2023.

ECB increased three key interest rates by 75bps.The main refinancing , marginal lending facility and deposit facility rates are 1.25%, 1.50% and 0.75% respectively. The Governing Council also expects to raise interest rates further over the “next several meetings”. Decisions will continue to be “data-dependent” and follow a “meeting-by-meeting approach”.

ECB staff projections now show inflation averaging 8.1% in 2022, 5.5% in 2023, and then 2.3% in 2024. Recent data point to a “substantial slowdown” in growth, with the economy expected to “stagnate later in the year and in Q1 of 2023. Staff now projects the economy to grow by 3.1% in 2022, 0.9% in 2023, and then 1.9% in 2024.

BoE raised Bank rate by 50bps to 2.25% as widely expected. BoE also said that the MPC will consider and make decision on the Bank Rate “at each meeting”. The scale, pace and timing of any further changes will reflect the assessment of economic outlook and inflationary pressures. It maintain the pledge to “respond forcefully” if outlook suggests “more persistent inflation pressures”.

GBPUSD declined on negative reaction to UK’S mini budget. It was considered inflationary. BOE responded and intervened in UK Gilts market to stabilise Yields and preserve financial stability. Pound recovered from 1.0380 to 1.11+. Pound has declined to 35 years low.

With EU CPI climbing to 10%, ECB will also be aggressive in its upcoming meetings.

US employment data and ECB meetings will be focus events in coming week.

Currency technical levels: USDINR: 81.20/80.80 (Supports), 81.95/82.15/82.40 (resistance), EURINR: 80.40/81.15(Resistance), 78.75/77.75 (Support), GBPINR:  92.35(Resistance). JPYINR: 57.50 (resistance) /55.50 (support).

Hedging advise: USDINR Imports can be hedged on decline to 81.20/80.80. EURINR receivables be hedged on spike to 80.40/81, GBP Exports be hedged and expanded at 92.

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