FX – WEEKLY UPDATE :
WEEKLY SYNOPSIS: 24/11/2023
Currency Map:
|
Currency Pairs |
WEEK CLOSE |
PRIOR WEEK CLOSE |
% change |
|
USD/INR |
83.38 |
83.26 |
0.14 |
|
EUR/INR |
90.93 |
90.36 |
0.63 |
|
GBP/INR |
104.55 |
103.37 |
1.14 |
|
JPY/INR |
55.85 |
55.28 |
1.03 |
Brent Crude closed at USD 80.20 VS prior week close of USD 80.60. Gold closed at USD 2002. Nifty closed at 19794 vs prior week close of 19731. 10 Year G-SEC Yield closed at 7.27%.
Major developments: USDINR traded in the 83.23-83.38 range last week and closed at 83.38, gain of 12 ps for USD as compared to prior week close of 83.26. EUR climbed 0.63% w/w and GBP climbed 1.14 w/w against Rupee. Indian benchmark Equity index climbed 0.31% w/w. 10 Year G-SEC Yield closed at 7.27%. 1-year fwd premia is at 1.60% p.a.
FX reserves stood at USD 595 bn as on Nov 17 th. In Nov, FPI’S have bought Rs 811 Cr of Equities and bought Rs 11599 Cr of debt . In 2022-23 fiscal year, FII’S have net sold Rs 27593 Cr of Equities and have net bought Rs 838 Cr of debt.
USDINR steadily climbed to 83.38 with 83.20 providing support. Demand from Oil importers provided support to USD. RBI seems to have refrained from aggressive intervention.
Rupee declined modestly despite rally in Crosses. However, decline in Crude prices has removed big threat to Rupee. Focus is now on Q2 GDP.
Indian Equities traded sideways.
Hedging advise: Imports be hedged closer to 83.03. Exports be hedged closer to 83.45.
Global developments: USD declined as investors are convinced that Fed has not only come to the end of rate tightening cycle, but may roll back partially in Q2 of 2024. This contradicts with Fed minutes, which still revealed Fed members discomfort with inflation. Fed minutes revealed that “The committee members were also unanimous in their view that restrictive policy stance should be maintained until inflation shows a sustainable decline towards Fed’s target. This highlights Fed’s focus on ensuring that inflationary pressures are adequately managed before considering any policy easing.
A notable change is that the previous stance, which suggested that “one more increase in the target federal funds rate at a future meeting would likely be appropriate,” was conspicuously absent in the latest minutes.
US Yields declined and stock indices rallied.
US Personal income, spending, Core PCE index and Dec employment data will offer more clues on how hot the economy and inflation are trending. The all-important core PCE inflation gauge is projected to have slowed too, with forecasts pointing to a drop in the annual rate from 3.7% to 3.5% in October. Assuming that there are no big surprises, the incoming data should support the view that inflation and the economy overall are cooling off. Markets are likely to take this as a sign that the Fed will have to begin cutting rates by the middle of 2024 if monetary policy isn’t to become too restrictive.
ECB minutes reveal a consensus among “all members” to maintain the three key ECB interest rates unchanged. This decision reflects a shared confidence that current monetary stance was “sufficiently restrictive” for allowing the governing council to assess the “inflation outlook”, “dynamics of underlying inflation”, and “strength of monetary policy transmission”. ECB emphasized the need to remain “both persistent and vigilant.” Euro’s recent rally will be tested by CPI data next week. With Oil prices declining and EU in technical recession, ECB could also soften its stance and cut rates in 2024.
Oil prices declined due to weakening of Global economy, notwithstanding OPEC’S likely extension of supply cuts. Oil prices fell below USD 80. OPEC has deferred Nov 26 th meeting by a week to build consensus on extension or increase in supply cuts.
Currency technical levels: USDINR: 83.03 (Supports), 83.30/83.47 (resistance),
EURINR:91.45(Resistance),90.
GBPINR: Supports: 104.20/102.50( supports), Resistance:105.60/106.50(
JPYINR: Resistance:56.50, Supports: 54.80 (support).
Hedging advise: USDINR imports be hedged on decline. EUR and GBP exports can be covered.