FX – WEEKLY UPDATE :

Weekly SYNOPSIS: 31/08/2024

Currency Map:

Currency Pairs	WEEK CLOSE	PRIOR WEEK CLOSE	% change
USD/INR	83.84	83.90	-0.07
EUR/INR	92.91	93.33	-0.45
GBP/INR	110.49	110.07	0.38
JPY/INR	57.86	57.68	0.31

Brent Crude closed at USD 77 VS previous week close of USD 79. Gold closed at USD 2503. Nifty closed at 25235 vs prior week close of 24823. 10 Year G-SEC Yield is now at 6.98%.

Major developments: USDINR traded in the 83.81-83.97 range last week, and Rupee gained 6 ps against USD w/w. Rupee declined 13 ps in August to close at 83.83. July close was 83.70. EUR declined 0.45% w/w and GBP climbed 0.38% w/w against Rupee.

Indian benchmark Equity climbed 1.65% w/w. 10 Year G-SEC Yield closed at 6.98%. 1-year fwd premia is at 2.10% p.a.

FX reserves stood at USD 681 bn, as on Aug 23 rd. Reserves climbed US D 7 bn w/w.

In Aug , FPI’S have bought Rs 11930 Cr of Equities and bought Rs 13897 Cr of debt . In FY 23-24, FII’S have net bought Rs 206279 Cr of Equities and have net bought Rs 123120 Cr of debt.

Indian Q1 climbed 6.7% y/y as against 8.2% during the same period last year. Mfrg climbed 7%, construction sector climbed 10.5%, agri sector climbed 2%, mining and tertiary sector climbed 7.2%.

Private final consumption expenditure expanded at the fastest pace in seven quarters of 7.4 percent compared with 4 percent growth in the previous quarter and 5.5 percent in the first quarter of previous fiscal. Gross fixed capital formation (GFCF), which represents infrastructure investment, contributed 31.3 per cent to gross domestic product (GDP) in Q1FY25, as against 31.5 per cent in the preceding quarter.  Government expenditure, measured by government final consumption expenditure (GFCE), contracted (-0.24 per cent) during the quarter. The share of GFCE in GDP fell to 10.2 per cent in Q1FY25 from 12.2 per cent in Q4FY24.

Core sector, comprising of eight industries climbed 6.1%.

Rupee’s strength is stymied by RBI. Though FX reserves increase of USD 7 bn w/w could also be attributed to valuation of Currency reserves, RBI also seems to have contributed partly. In last one year, reserves have increased by USD 86 bn. Reserves have climbed by USD 35 bn since March 2024.

USDINR fwd premia has already touched 2.10% p.a. for 1 year. It is expected to expand to 2.5% by Dec end as Fed starts cutting rates.

USDINR could trade in the 83.75-84.30 range in coming months.

Indian Equity markets continues its rally with Nifty now above 25000.

Hedging advise: Imports be hedged on decline to 83.75. Exports be hedged in the 84.30+ range for less than 3 months.

Global developments: Euro’s rally faltered after dismal economic data in Europe. USD bounced back on strong US GDP and decent Core PCE data. Fed’s meeting in Sept will start the cycle of rate cuts. Discussion has now shifted to extent of rate cuts and the speed of future cuts. This will be shaped by upcoming employment data.

US PCE price index rose 0.2% mom, while core PCE (excluding food and energy)rose 0.2% mom, both matched expectations. From the same month one year ago, PCE price index rose 2.5% yoy, unchanged from June’s reading, below expectation of 2.6% yoy Core PCE price index rose 2.6% yoy, unchanged from June’s reading, below expectation of 2.7% yoy.

German inflation data was underwhelming and put pressure on Euro. The rapid deceleration in price pressures strengthens the argument for a September rate cut by ECB. With inflation slowing faster than anticipated, there is growing speculation that ECB could have the flexibility to implement two additional rate cuts this year, totaling 100 basis points, to provide much-needed support to the faltering economies of major Eurozone nations like Germany and France.

Germany, Eurozone’s largest economy confirmed -0.1% contraction in GDP in Q2. Consumer sentiment showing deeper-than-expected deterioration, particularly in economic expectations. This decline follows weak Ifo business climate released yesterday. 

BoJ Deputy Governor reaffirmed the central bank’s commitment to adjusting its monetary policy if confidence in the economic outlook strengthens.

Focus will be on US employment data.

Currency technical levels: USDINR: 83.76/83.65 (Supports), 84.10/84.30 (resistance),

EURINR:94(Resistance),91.65/90.50(Support),

GBPINR: Supports: 109.30/108.80( supports), Resistance:111.35(Resistance).

JPYINR: Resistance:58.50/59.50, Supports: 56.50 (support).

Hedging advise: USDINR imports be hedged on decline to 83.75. EUR nearby payables be covered on dips TO 91.50. GBP receivables can be covered at 112+.