MONTHLY SYNOPISIS: JULY 2021
|Currency Pairs||JULY CLOSE||JUNE CLOSE||% change( M/M)|
|JPY/INR||67.89/100 YEN||67.30/100 YEN||0.87|
WT1 Crude: USD 73.72 vs 73.47 in JUNE 2021, Brent Crude at 75.14 vs 75.38 in JUNE 2021.
Nifty: 15763, UP 0.26% m/m. Gold closed at USD 1812.
Indian 10 Year G-SEC yield closed at 6.20% .
Rupee traded in the 74.23-74.95 range in July. The pair closed at 74.41, registering a gain of 0.10% for USD. EURINR closed at 88.53, almost flat m/m, and GBP climbed 1.98% m/m. Yen climbed 0.87% against Rupee. USDINR fwd premia steadied with 1 year premia trading in the 4.35% to 4.50% range annualised. Indian 10 Year G-SEC yields climbed sharply to 6.21%.
Rupee was subdued with RBI mopping up IPO related inflows. Rupee’s monthly range was compressed in 70 ps movement. FX reserves climbed to USD 611 bn. July month was dominated by Equity market IPO’S and reopening of states after lockdown restrictions in May and June. Economic activity has picked up in July. Vaccinations average 45 lacs per day and progress in vaccination could help faster economic revival. Indian economic growth has been revised downwards to 9.5% for this fiscal.
In July, FII’S have net sold Rs 10188 cr in Equity segment and have net sold Rs 758 cr of debt. In this financial year, FII’S have net sold Rs 1137 Cr worth of Indian Equities and have sold Rs 4893 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 climbed 6.29% in June. Food inflation inched higher to 5.15%. IIP climbed 29.3% y/y in May. Trade Deficit widened to USD 9.4 Bn in Jun-21 from USD 6.2 Bn in May-21. Imports expanded to USD 41.86 bn.
Exports expanded sequentially for the second time in a row and registered 0.6% growth in June-21. June exports is at USD 32.4 bn. Exports in Q1 is at its highest reading of USD 95.36 bn. Imports in Q1 is at USD 126.14 bn.
Indian Equity indices had a narrow range for the second straight month. Rally in US Equities kept sentiments up. Q1 Corporate results are in line with expectation. However there are concerns over retail loan NPA’S.
Rupee’s trajectory will depend on USD’S direction against majors and EM Currencies. If US inflation softens and provide more time for QE tapering, Rupee could gain. Hence, it is necessary to track US inflation and Fed’s move to calibrate USDINR movement.
Global developments: The dominant theme is Global inflation. Supply chain issues have caused fall in output despite robust demand. It has also contributed to higher inflation. Semi conductor shortages have resulted in draw down of inventories and constrained automotive production.
Fed meeting allayed fears over imminent QE tapering. Fed stayed cautiously optimistic and showed no hurry to fix time line for QE tapering. Fed Chairman called for patience on inflation. He said millions are still unemployed. Fed also noted that vaccination has curbed rapid spread of the infection. Earlier in the month, in his testimony to US Congress, Fed Chairman Powell reiterated that inflation will remain anchored around the Fed’s 2% target and the U.S. economy was “still a ways off” from levels the Fed wanted to see before tapering its stimulus support.
US GDP grew at annual rate of 6.5% in Q2, well below expectation of 8.2%. Total economic activity has surpassed pre-pandemic levels. In fact, real GDP is now only 1.7% below the CBO’s estimates of the full productive capacity of the economy.
ECB maintained status quo on rates and QE purchases. ECB pledged to keep all key interest rates “at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon”. As indicated in the new Monetary Policy Statement, Eurozone’s outlook has remained broadly unchanged since the June meeting with growth on track to be strong in the second and third quarters.
In a note to G-20 Ministers and Central bank Governors, IMF said that “global growth has progressed broadly in line with projections, with clear signs of divergence.”. It urged “immediate action” by G20 to “arrest the rising human and economic toll of the pandemic”. Additionally, IMF said policy support should be “tailored to the stage of the crisis, avoiding abrupt transitions.” Monetary policy should “remain accommodative in most economies”. In particular, where “inflation expectations are anchored,” continued monetary accommodation is warranted”.
Eurozone GDP grew 2.0% qoq in Q2, well above expectation of 1.5% qoq. Germany GDP grew 1.5% qoq in Q2, below expectation of 2.0% qoq.
Currency outlook: Expect USDINR to trade in the 73.90-74.95 range in AUG 2021.
EUR/INR is expected to trade between 87.50-89. GBPINR is expected to trade in the 102-104 levels. JPYINR could consolidate in the 66-68.50 range.
Outlook for AUG 2021:
|Currency pairs||85% confidence range for Jan||Most likely range|
|JPY/INR (100 Yen)||66-68.50||66-68.50|