Currency Map:

USD/INR 72.43 72.83 -0.54
EUR/INR 88.28 89.06 -0.87
GBP/INR 102.74 103.53 -0.76
JPY/INR 65.88 66.94 -1.58

Brent Crude closed at USD 69 VS prior week close of USD 66.70. Gold closed at USD 1903.Nifty closed at 15435 vs prior week close of 15175. 10 Year G-SEC Yield closed at 6%.

Major developments: USDINR traded in the 72.32-72.98 range and closed at 72.43 as against prior week close of 72.83. Rupee gained 0.54% w/w. EUR declined 0.87% and GBP declined 0.76% w/w against Rupee. Indian benchmark Equity index climbed 1.7% w/w. 10 Year G-SEC Yield closed at 6%. 1 year fwd premia is at 5.25% p.a. In May till date, FII’S have net sold Rs 9341 cr in Equity segment and have net bought Rs 1805 cr of debt. In this financial year, FII’S have net bought Rs 449 Cr worth of Indian Equities and have bought Rs 704 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.

Rupee continued to make strong gains. Three reasons could be attributed: 1) USD’s weakness against majors and USD’S weakness against EM Currencies. Most Asian currencies continued to make impressive gains against USD. 2) Lack of RBI’S intervention. RBI has probably refrained from intervention due to high commodity prices and fear of imported inflation, 3) Lock down restrictions may have caused lower USD demand as importers may have withheld non L/C payments. Once economic activity returns to normalcy, Rupee could weaken marginally. However, the key aspect will be USD’S direction and magnitude against majors and major EM currencies.

There were no major economic data release last week. Indian Equity indices continued to gain, shrugging off negative impact due to lock downs. RBI has warned of asset bubble in the context of 8% contraction in GDP in 2020-21. It called for unwinding of liquidity stimulus measures once the economy is on a solid path of recovery.

Corona curve seems to have peaked in India and it is hoped that there will be a steep fall my mid-June. FII’S were not very bullish yet as evident from their activity in Equity markets.

Indian Q4 GDP is to be released on May 31 st. Since the economy was fully open in Q4, expect robust growth. This may mask the economic problems that begun at the end of March. However, Q1 GDP may have been hit again by lock downs. As recently as April 7, the Reserve Bank of India’s monetary policy statement pointed to continued gains in manufacturing and services activity. RBI MPC is also taking place next week and is expected to maintain accommodative stance.

Technically, USDINR has to clear 73.50 to negate its recent downward move.

Global developments: US GDP grew 6.4% annualized in Q1, unrevised. US Personal income declined more than expected, but excluding transfer payments, income rose by 1.1%. Wages and salaries have now posted 12 months of consecutive gains, driving the level 4.3% off of where it was prior to the pandemic in February 2020. The PCE deflator, which is the Fed’s preferred measure of inflation, rose 0.6 compared to March. The year-over-year rate jumped to 3.6%. This is over and above Fed’s target of 2%. But. Fed may maintain that price increase will be transitory. However, it remains to be seen as to how long Fed can remain patient with increasing confidence about economic outlook. US consumers have more than USD 2.4 trn savings due to stimulus measures. Increased spending in services will accelerate as more states in US emerge out of lock downs. If that happens, Fed may have to taper QE than what the current stance implies.

The outlook for many European economies has brightened as they begin to emerge from COVID-related restrictions that had restrained growth. United Kingdom activity and survey data have surged in recent months. 

US ISM data and employment data will decide USD’S new direction. If the data is strong, USD could make a comeback against majors and EM Currencies.

Currency range forecast: USDINR:72.25(support)-72.75(Resistance), EURINR: 87.50(support), 88.60/88.90 (Resistance), GBPINR: 102(support), 104- Resistance, JPYINR: 64.50-67.                         

Suggestion: Cover USD import payables. USD receivables can be hedged on rally. EURINR payables can be hedged at 87.50 and receivables can be hedged at 88.90. GBPINR receivables hedging can be done at around 104.

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