Currency Map:

Currency PairsWeek CLOSEPRIOR WEEK CLOSE% change
USD/INR79.2579.04 0.26

Brent Crude closed at USD 107 VS prior week close of USD 112. Gold closed at USD 1740.Nifty closed at 16220  vs prior week close of 15752. 10 Year G-SEC Yield closed at 7.41%.

Major developments: USDINR traded in the 78.87-79.38 range last week and closed at 79.25 as against prior week close of 79.04. Rupee declined 0.26% m/m. EUR declined 2.61% m/m and GBP declined 0.86% m/m against Rupee. Indian benchmark Equity index climbed 2.98% m/m. 10 Year G-SEC Yield closed at 7.41%. 1-year fwd premia is at 2.98% p.a.

Rupee continued to weaken, after making small gain to 78.84. RBI announced measures to increase inflows. They include : 1) Exempting FCNR (B) and NRE deposits from CRR, 2) Allow FPI’S to invest in new G-SEC’S of 7 and 14 Year tenor, 3) Increase in limit of ECB under automatic route to 1.5 bn USD from USD 750 mn and the spread by another 100 bps, 4) FPI’S can invest more than 30% investments in residual maturity of less than 1 Year in Corporate bonds and G-SEC’S till Oct 31st, 5) Banks can lend their overseas foreign currency borrowing to entities under wider set of end use purposes, which hitherto is restricted to export finance. The above measures did not translate into gains as FII’S continued to sell Indian Equities.

India’s June trade deficit rose to USD 25.6 bn. Exports climbed 16.8% to USD 37.9 bn and Imports rose 51% to USD 63.5 bn. In Apr and May, it was at USD 20.4 BN and 23.3 BN respectively. Petroleum imports doubled to USD 20.7 bn in June. Coal imports rose to USD 6.4 bn. Electronic Goods imports rose to USD 5.8 bn as against USD 4.6 bn in June 2021. Gold imports rose to USD 2.6 bn.

Crude fell significantly with Brent crude declining below USD 100. However, rise in USD against majors offset the possible positive sentiment arising out of Crude decline.

Indian PMI(services) expanded to 11 Year high of 59.2.

1 Year premia declined to 2.85% p.a. FX reserves fell USD 5 bn last week stands at USD 588 bn.

In 2022-23 fiscal, FII’S have sold 98014 Cr of Equities till June end and have sold Rs 8486 Cr of debt till date. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of 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.

The ongoing selling by FPI (Foreign Portfolio Investors) in Indian equities is turning out to be the highest selling spree since the global financial crisis 2008 and is centered around IT and financial stocks.

USDINR has supports at 78.80 and later at 78.30. Resistance is expected near 79.45/79.75. Rupee movement will depend on Crude price and USD movement against majors.

Global developments: USD index climbed further as there is a growing perception that ECB may not be able to hike rates significantly due to likely recession. Gas Crisis, Russia-Ukraine war’s negative impact are weighing down on Euro. On the contrary. US data is still robust and Fed is on course to hike rate by 75 bps in July meeting. Fed minutes were a firm restatement of the Fed’s intent to get prices under control to address stubborn inflation and concern about lost faith in the central bank’s power.

ECB’s June 8-9 monetary policy meeting minutes noted that, “most members” supported to signal the 25bps rate hike at the July meeting. Starting the rate-hiking cycle with a step of this magnitude was seen as a “proportionate first step”. But “a number of members expressed an initial preference for keeping the door open for a larger hike at the July meeting”.

US non-farm payroll employment rose 372k in June, well above expectation of 250k. That’s in line with the average monthly gain over the prior three months at 383k. Total non-farm employment was still down by 524k, or -0.3%, from pre-pandemic level in February 2020. Unemployment rate was unchanged at 3.6%, matched expectations. Average hourly earnings rose 0.3% mom, matched expectations.

US employment data and ISM data do not yet confirm market fears of recession.

US retail sales and CPI data are key events for the week.

Currency technical levels: USDINR: 79.35/79.75 (Resistance), 78.84/78.30 (Supports), EURINR: 82.20(Resistance), 80 (Support), GBPINR: 94 (Support)/ 96.75 (Resistance). JPYINR: 57-60 range.

Hedging advise: USDINR Imports be hedged till 78.84 is not broken. EURINR receivables be hedged on spike to 82.25, GBP Exports be hedged at 96+.

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