Currency Map:

USD/INR 71.33 71.08 0.35
EUR/INR 78.71 78.95 -0.30
GBP/INR 93.34 92.65 0.73
JPY/INR 65.27 64.53 1.11


Brent Crude closed at USD 60.62 VS prior week close of USD 65.10

Nifty closed at 12248 vs prior week close of 12352.

10 Year G-SEC Yield closed at 6.58%.

Major developments: It was a subdued trading week for USDINR. The pair traded in the 71.04-71.35 range. It closed at 71.33, registering a nominal gain of 25 ps for USD. EURINR declined 0.30% and GBPINR declined 0.73%.

USDINR pair has established a trading range of 70.50-72.25. The pair could continue to trade till a forceful issue triggers a one way movement. Trade deficit is well contained due to lower imports. Flows are robust. The only worry is fiscal deficit. Forthcoming budget may allow deficit to expand to 3.8%. Rupee will be under less pressure due to steep decline in Crude prices.

Budget will set the tone for Equity markets and USDINR. Budget could slash personal income tax and capital gains tax.

Global developments: Global markets returned to risk averse mode on outbreak of Coronavirus in China. Though WHO has not declared medical emergency, there is fear that contagion adversely affect economic output in short term.

Crude Oil declined sharply on IEA reports that Oil supply is abundant and surplus could be 1 mbpd.

ECB maintained status quo and ECB Chief said that manufacturing is a drag and reiterated the need for accommodative monetary policy, even while monitoring inflation. Euro declined on dovish comments by ECB Chief.                                          

IMF lowered 2020 global growth forecast by -0.l% to 3.3%, and 2021 by -0.2% to 3.4%. Still, they represent pickup form 2019’s 2.9% growth. IMF also noted that the downward revision “primarily reflects negative surprises to economic activity in a few emerging market economies, notably India”.

BoJ left monetary policy unchanged as widely expected. In the new economic projections, fiscal 2020 growth forecast was raised from 0.7% to 0.9%. CPI core forecast (ex-sales tax hike) was lowered from 1.0% to 0.9%. For fiscal 2021, growth forecast was raised from 1.0% to 1.1%. CPI core forecast was lowered form 1.5% to 1.4%.

Next week will feature bigger headlines, with a Fed meeting and fourth quarter GDP data. Fed will maintain status quo, but its take on US-China phase 1 deal will be keenly watched.

Important developments in coming week: Fed meeting and Indian budget.                       

Currency range forecast for coming week:

USDINR: 71-71.60, EURINR: 78.50-79.25, GBPINR: 92-94, JPYINR: 64.50-66.50.

Suggestion: Cover 1 month USD import payables on decline to 71. USD receivables can be hedged at 71.65. 1 M EURINR payables can be hedged now at 78.70. EURINR receivables can be hedged closer to 79.50. GBPINR receivables hedging can be done on any rally to 94.


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