FX – MONTHLY UPDATE :

MONTHLY SYNOPISIS: AUG 2021

Currency Map:

Currency Pairs  AUG CLOSE JULY CLOSE % change( M/M)
USD/INR 73 74.41 -1.89
EUR/INR 86.31 88.53 -2.50
GBP/INR 100.53 103.98 -3.31
JPY/INR 66.41/100 YEN 67.89/100 YEN -2.17

 

WT1 Crude: USD 68.50 vs 73.72 in JULY 2021, Brent Crude at 72.25 vs 75.14 in JULY 2021.

Nifty: 17132, UP 8.68% m/m. Gold closed at USD 1814.

Indian 10 Year G-SEC yield closed at 6.20% .

Rupee traded in the 73-74.38 range in August. The pair closed at 73, registering a gain of 1.89% for Rupee.  EURINR closed at 86.31, decline of 2.5% m/m, and GBP declined 3.31% m/m. Yen declined 2.17% against Rupee. USDINR fwd premia steadied with 1 year premia trading in the 4.30% range annualised. Indian 10 Year G-SEC yields steadied at around 6.23%. FX reserves swelled to USD 633 bn as on Aug 27 th.

Rupee climbed steeply on robust IPO inflows. RBI withdrew from intervention and allowed Rupee gains. Rupee was one of the best performers amongst EM pairs. Crosses also declined against Rupee due to Rupee strength. In Sept, 13 IPO’S are expected and hence inflows is likely to continue. Rupee’s gains was also aided by dovish Fed Chief’s speech.

On data front, Indian Q1 GDP climbed 20.1%. Nominal growth is at 30.7%. Mfrg grew by 49.6%, construction grew by 68.3%, mining grew by 18.6% and agri sector grew by 4.5%. Personal consumption climbed 19.35%, but is still 11% below Q1 2019-20. Govt spending declined 4.77% in Q1 compared to last year. Private spending stands at 55.1% of GDP and Govt spending is at 13% of GDP. Growth figures look very impressive, partly aided by low base effect.

Indian PMI(mfrg) slipped to 52.3 in Aug as against 55.3 in July. Indian PMI (services) stood at 56.7 in August compared with 45.4 in July.

The gauge expanded after four months. A reading above 50 indicates expansion in business activity. “The latest reading pointed to a marked rate of expansion that was the fastest in one-and-a-half years,” The Composite PMI Output Index, too, rose to 55.4 in August.

Indian July CPI climbed 5.59%. In June, CPI was at 6.26%. Food price inflation slipped month-on-month to 3.96 per cent in July, from 5.15 per cent in June. RBI, in its latest MPC meeting, raised the CPI inflation forecast at 5.7 per cent from 5.1 per cent estimated earlier during the ongoing financial year 2021-22. Industrial production climbed 13.6% y/y and manufacturing output climbed 13% y/y. GST collections for Aug is at 1.12 lac cr.

RBI kept rates steady. Repo rate was help at 4%. RBI expects GDP growth at 9.5% and inflation at 5.7% for this fiscal.

Indian Equity indices rally is unabated. Index gained more than 8% m/m. This is despite concern on automobile production due to semiconductor shortages.

In August, FII’S have net bought Rs 4640 cr in Equity segment and have net bought Rs 12028 cr of debt. In this financial year, FII’S have net sold Rs 2375 Cr worth of Indian Equities and have bought Rs 7865 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.

Technically, USDINR is likely to trade in the 72.75-73.40 range. Break above 73.40 could help USD gain to 73.70.

Global developments: Focus was on Fed’s actions and Fed members speeches. Despite, recent set of strong data, Fed has overlooked and has decided to be cautious in tapering QE. US mfrg and services data remained strong. Though August payrolls was disappointing, unemployment rate has declined to 5.2%. FOMC minutes revealed that the Fed was looking at an earlier start to tapering bond purchases, as soon as this year if the economy continued to improve. Contradicting this message, Fed Chairman Powell reiterated that the recovery in the labor market is far from complete and said that it wasn’t clear how a big an impact the Delta variant will have on the economy.                                            

Markets viewed Fed Chief’s speech as a dovish statement and USD declined.

There were optimistic views from Europe. In the monthly report, Bundesbank said German economic output is “likely to rise sharply in summer 2021”, more strongly than in spring. Industry was unable to take advantage of the growth in Q2 due to increased delivery bottlenecks. ECB said Eurozone economy is “on track for strong growth” in Q3. Manufacturing is expected to “perform strongly” despite supply bottlenecks. Reopening is supporting a “vigorous bounce-back” in services sector.

UK GDP climbed 4.8% q/q in Apr-June quarter. Japanese GDP grew 0.3% qoq in Q2, above expectation of 0.2% qoq. The economy was back in growth after -1.0% qoq contraction in Q1. In annualized term, GDP grew 1.3%, above expectation of 0.7%.

Overall, Global economy seems to have showed signs of deceleration due to Corona infections and supply chain side issues.

Currency outlook: Expect USDINR to trade in the 72.75-73.70 range in Sept 2021.

EUR/INR is expected to trade between 85.75-87.25. GBPINR is expected to trade in the 100.50-102.50 levels.  JPYINR could consolidate in the 66-68.50 range.

Outlook for SEPT 2021:

Currency pairs 85% confidence range for Jan Most likely range
USD/INR 72.75-73.90 72.75-73.60
EUR/INR 85.50-87.25 85.50-87
GBP/INR 100.50-102.50 100.50-102.50
JPY/INR (100 Yen) 66-68.50 66-68.50

 

Suggestion: USD imports be hedged at 72.75. Exports can be hedged at 73.70/73.90. EURINR imports can be hedged closer to 85.75 and receivables can be hedged in the 87.20-87.50 range. GBP exports can be hedged closer to 102.50+ levels.
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