Currency Map:

Currency Pairs  AUG CLOSE JULY CLOSE % change( M/M)
USD/INR 73.62 74.81 -1.59
EUR/INR 87.43 88.80 -1.54
GBP/INR 97.93 98.14 -0.21
JPY/INR 69.11/100 YEN 71.75/100 YEN -3.67


WT1 Crude: USD 42.61vs 40.44 in JULY 2020, Brent Crude at 45.19 vs 43.64 in JULY 2020.

Nifty: 11387, up 2.8% m/m. Gold closed at USD 1968.

Indian 10 Year G-SEC yield closed at 6.09% .

Rupee traded in the 73.20-75.20 range in July. The pair closed at 73.62, registering a gain of 1.59% for Rupee.  EURINR closed at 87.43, down 1.54% m/m, while GBP declined 0.21% m/m. Yen declined 3.67% against Rupee.

Rupee’s trading range between 75 and 76 was finally broken on 2 nd July. Rupee has been holding on to the 75-76 range due to hefty USD buying by RBI. FX reserves has swelled to USD 538 bn. Rupee gained to 73.20due to FDI inflows and weaker USD against majors. EM Currencies advanced against USD, tracking broad based USD weakness against majors. RBI stepped aside to let Rupee gain as it felt that it will be helpful to manage imported inflation. Fwdpremia softened from 4.37% to 4.11% annualized as RBI did “Operation Twist” (buying long term bonds and selling near term maturity bonds) to bring long term yields down. 10 Year G-SEC yield settled back at 5.9% after spiking to 6.25% due to inflation.

Indian Equity indices extended its rally and soared 2.8% m/m . Rally was led by auto stocks following impressive auto sales. Maruti reported 20% increase in domestic sales of Cars. Vaccine hopes and liquidity are the recent triggers for the rally.

Indian Q1 GDP shrank -23.9% in Q1. Agri sector grew by 3.4%, while manufacturing declined -39.3%.Construction sector contracted -50.3%. Trade services contracted -47%.

Indian Trade deficit was reported at USD 4.8 bn, as against a surplus of 0.8 bn in June. However, the deficit was lower compared to July 2019. Exports declined 10.2% y/y to USD 23.6 bn, and Imports declined 28.4% y/y to USD 28.5 bn.

In Apr-July period, trade deficit stood at USD 13.9 bn (USD 59.4 bn in the same period last year), with exports at USD 75 bn (down 30.2% y/y) and Imports at 88.9 bn (down 46.7% y/y).

Indian IIP climbed in July as compared to June, but still -16% down y/y. Consumer non durables grew by 14% due to rural demand. Indian CPI spiked to 6.93% in July due to higher food prices. Food inflation rose to 9.62%.

Indian PMI(mfrg) climbed to expansion mode to 52, highest level in 5 months. PMI(services) activity picked up to 41.8. GST collections steadied at 86500 Cr.

RBI maintained status quo in rates. As per RBI MPC, inflation is expected to remain elevated and growth will be negative in H1. RBI extended restructuring framework for MSME’S and announced special restructuring window for corporate and personal loans.

FII’S have nett bought Rs 1682 Cr of Indian Equities in Sept till date . FII’S have nett bought Rs 57 Cr of Indian debt securities in Sept till date. In this financial year, FII’S have nett bought Rs 86855 Cr of Equities and have sold Rs  37770 Cr in debt. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt.

Technically, Rupee is bullish now as it has broken 200 day moving average. USDINR movement is still at the mercy of RBI. If RBI does not intervene, there is high probability of Rupee testing 72.40. USDINR pair will face resistance at 73.80/74.40.Important levels are 72.70/72.40 on the downside and 73.80/74.40 on the upside.

Global developments:USD weakened against majors and EM Currencies. EUR/USD moved closer 1.20. Crude Oil remained steady above USD 42 and Gold traded in the 1900-2000 USD range. Equities moved steadily higher, ignoring climbing infections. Vaccine hopes and fiscal stimulus supported asset markets.

US and European data were indicative of a sharp recovery, though sustainability is being questioned by policy makers. US unemployment rate fell sharply to 8.4%. PMI(Mfrg) and PMI(services) data were all back in expansion mode. However, last quarter GDP shrank significantly across countries and economic blocs.EU GDP contracted -15% y/y and -12.1% q/q.USQ2 GDP contraction was revised to -31.7% annualized, compared to advance estimate of -32.9%.

Fed and ECB sounded very cautious regarding economic outlook in their minutes. ECB warned that “recent positive market developments were not fully backed by economic data”. They might be based on “overly optimistic expectations” about the Next Generation EU recovery package, and progress on vaccine development.

In another significant development, US Fed Chairman said that Fed will adopt average inflation target of 2%, implying that it may tolerate inflation overshooting 2% for some time.

With pandemic-related uncertainty remaining elevated, near-term risks to the Global economy still appear tilted to the downside. As such, continued government support will be essential in limiting financial stress to households and businesses. Private investment will continue to be on hold due to high uncertainty and uneven economic recovery.

Currency outlook: Expect USDINR to trade in the 72.40-73.80 range.

EUR/INR is expected to trade in the 86-90. GBPINR is expected to find support above 95 and possibly trade upto 100 levels. JPYINR could consolidate in the 68-70 range.

Outlook for SEP 2020:

Currency pairs 85% confidence range for Sep Most likely range
USD/INR 72.40-74.40 72.40-73.80
EUR/INR 86-90 86-91
GBP/INR 95-100 97-100
JPY/INR (100 Yen) 68-71 68-70.50

Suggestion: USD imports be hedged at 72.70/72.40. Exports can be hedged closer to 73.80/74.40. EURINR imports can be hedged closer to 86.50. GBP exports can be hedged closer to 100+ levels.

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