Currency Map:

Brent Crude closed at USD 80.58 VS March close of USD 80.23. Gold closed at USD 1990. Nifty closed at 18065 vs March close of 17359. 10 Year G-SEC Yield closed at 7.12%.

Major developments: USDINR traded in the 81.61-82.48 range in April and closed at 81.84 gain of 34 ps for Rupee as against March close of 82.18. EUR climbed 0.52% m/m and GBP climbed 0.14% m/m against Rupee. Indian benchmark Equity index climbed 4% m/m. 10 Year G-SEC Yield closed at 7.12%. 1-year fwd premia is at 2.28% p.a. FX reserves declined USD 2 bn as compared to prior week and stood at USD 584 bn as on Apr 21 st. In April, FII’S  bought Rs 9264 Cr of Equities and bought Rs 758 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.

Rupee is showing strength and was set to break 81.62 support level. RBI’S intervention seems to have stalled Rupee gains. Improving macro data and a declining inflationary trend seems to support Rupee. Oil prices have also declined , despite OPEC’S production cut. Rally in Equity markets and FII inflows are other positives for Rupee. Still, for the last 6 months, USDINR is bound in the 81-83 range.

Important economic data in April:

1) Indian PMI(mfrg) climbed to 57.2 as compared to 56.4 in March. New orders and output grew at its fastest since Dec 2022.

2) Indian exports declined 13.9% y/y in March to USD 38.38 bn. March imports stood at 58.11 bn. Trade deficit climbed to 3 months high of USD 19.73 bn.

Indian exports climbed 6% to USD 447 bn in FY22-23. Imports climbed 16.5% to USD 714 bn. Trade deficit stood at USD 267 bn.

3)CPI eased to 5.66% in March. Food inflation fell to 4.79% from 5.95% in Feb. IIP climbed 5.6% in Feb. Mfrg grew by 5.3%.

4) GST collections climbed 12% y/y to Rs 1.87 lac Cr, highest ever since GST was launched. Govt aims to reach Rs 9.56 Lac cr GST collection for this fiscal, which is 12% higher than last year.

RBI paused rate hikes , but maintained that it need not be interpreted as a signal for end of rate hike cycle.

Outlook for Rupee: USDINR has made another important top at 82.49. Lower tops confirm Rupee’s strength. USDINR pair may trade below 82.25 and target 81.45/81.25 in coming month. Rupee declined last year due to US Monetary policy. With rate hikes likely to peak shortly, pressure on Rupee is likely to abate. Indian CAD has also narrowed to 2.2% of GDP in Q3. If US rates stabilize or decline, inflows into Indian Equities is likely to accelerate. This should help Rupee to gain to 78-79 levels during the year. Expect 78-84 range for 23-24 fiscal.

Hedging advise: Exports be hedged for a longer duration on spike to 82/82.25 levels and imports be hedged for a shorter duration of 1 month at important levels- 81.45.

Global developments: EUR/USD and GBP/USD rally seems to be faltering near 1.1050 and 1.25 levels respectively. US Equity markets rallied on better than expected earnings led by Microsoft and Meta. Crude Oil declined, despite OPEC’S production cut. US 10 Year yield is hovering around 3.5% levels.

OPEC cut Oil production by 1.6 mn barrels per day.

US GDP grew only 1.1% annualised in Q1 as against 2.6% in Q4. Core PCE remains elevated at 4.6%.

Stress in regional banking, slow down in housing market are concerns for US economy. Consumer spending accelerated due to pent up demand for autos.

As Fed meeting approaches (May 3 rd), Core PCE data remains elevated at 4.6% y/y as against Fed’s target of 2%. This could force Fed to raise rates by 25 bps. As banking credit tightens, Fed’s job becomes easier. Last meeting FOMC minutes noted that labor market is tight and inflation is still above comfort level.

ECB may also raise rates on May 4 th. ECB Chief economist said that the central bank will likely raise interest rates again at their May 4 meeting, stating, “This is still not the right time to stop.” He acknowledged the decline in Eurozone inflation from 10.6% last October to 6.9% in March as a positive development, easing pressure on living costs. He expects inflation to continue falling due to supply chain bottleneck improvements and the reversal of the energy situation. However, he stressed that the most crucial aspect for central banks is “making sure that we get close to our target of 2% within a reasonable time period.”

EU’s manufacturing sector is still in contraction mode. However, service sector is resilient. In its latest monthly report, Bundesbank revealed that German economy performed better than anticipated in the first quarter of 2023. n the coming months, Bundesbank expects inflation rate to continue falling somewhat, particularly due to decreasing energy prices and a potential gradual easing in prices of food, other goods, and services.

UK CPI slowed from 10.4% yoy to 10.1% yoy in march, above expectation of 9.8% yoy. Since UK inflation is in double digits, BOE could hike rates by 25 bps again.

Currency technical levels: USDINR: 81.62 (Supports), 82/82.25 (resistance), EURINR:90.45(Resistance),88.65(Support),GBPINR:Supports:101.27/100.44,Resistance:102.60/103.85(Resistance). JPYINR: Resistance:61.50/63.50 Supports: 59.50/58.50 (support).

Hedging advise: USDINR exports can be hedged closer to 82. EUR and GBP exports can be covered on rally to 90.50 and 102+ respectively.

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