Currency Map:

USD/INR78.0777.84 0.29

Brent Crude closed at USD 113 VS prior week close of USD 123.65. Gold closed at USD 1841.Nifty closed at 15293  vs prior week close of 16204. 10 Year G-SEC Yield closed at 7.54%.

Major developments: USDINR traded in the 77.96-78.28 range last week and closed at 78.07 as against prior week close of 77.84. Rupee declined 0.29% w/w. EUR declined 0.70% w/w and GBP declined 1.37% w/w against Rupee. Indian benchmark Equity index declined 5.6% w/w. 10 Year G-SEC Yield closed at 7.54%. 1-year fwd premia is at 3.35% p.a.

USDINR was stuck in a small range last week. RBI selling capped Rupee weakness at 78.28. Fwd premia declined steeply as USD/INR interest rate differentials shrunk. 1 Year premia declined to 3.35% p.a. Volatility gripped asset markets as major central banks hiked rates aggressively.

Indian inflation eased to 7.04% in May from 7.79% in April, still above RBI’S target of 6%. Food inflation rose 7.97%. IIP climbed 7.1% in April. Mfrg sector climbed 6.3%.WPI inflation climbed to 15.88% in May as against 15.08% in April.

India’s May trade deficit expanded to US D 24.29 bn. Exports rose 20.55% to USD 38.94 bn and Imports rose 62.83% to USD 63.22 bn. Cumulative exports in April-May 2022-23 rose by about 25% to $78.72 billion. Imports in April-May 2022-23 rose 45.42% to $123.41billion.

In 2022-23 fiscal, FII’S have sold 66775 Cr of Equities till date and have sold Rs 9078 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.

FX reserves stands at USD 601.1 bn.

USDINR has supports at 77.48/77.27/77.15. Resistance is expected near 78.28. Rupee movement will depend on Crude price and USD movement against majors. Considering hike in Global interest rates and its softening impact on growth, Crude Oil prices could moderate providing relief to Rupee and Indian inflation. RBI’S action will also impact Rupee as RBI has sold USD at every high level to contain bigger fall.

Global developmentsFed raised its benchmark rate by a larger than expected 0.75% to 1.5%-1.75% zone, with Fed Chairman Jerome Powell admitting that the recent upside inflation has forced the central bank’s hand into tightening monetary policy by more than expected. Growth projection has been lowered to 1.7%. Fed rate is expected to climb to 3.4% by Dec 2022 and 3.8% by Dec 23. Fed has reworded its statement on inflation, mentioning that it is committed to bring inflation down to 2%.

In the press conference that followed, Powell said there was a need to “front load” rate hikes, signaling the aggressive hikes now may not be followed up in the future with similarly aggressive hikes.  

BoE raised Bank Rate by 25bps to 1.25%. The decision was not unanimous, with three members voting for a 50bps hike. The MPC said it will take necessary actions to return inflation to 2% target. The scale, pace and timing of further rate hikes will reflect the assessment of economic outlook and inflation pressures. Nevertheless, it emphasized, “the Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.” BOE mentioned that CPI is expected to be over 9% “during the next few months” and rise to “slightly above 11% in October.

SNB (Swiss National Bank) raised rates by 50 bps to counter inflationary pressures.

BoJ left short-term policy interest rate unchanged at -0.10%, and 10-year JGB target at around 0% under the yield curve control. It will continue to defend the 0.25%.

Fed Chairman Powell will testify in his semi-annual meeting with the Senate Banking Committee on Wednesday. If Fed Chairman sharpens his attack on inflation by hinting at further bouts of 75 bps hike, Equity markets will melt further.

As Fed hiked rates, the impact was felt in Equity and Commodity markets. Crude and metal complexes declined. Equity markets fell more than 6% across the globe. Fear of recession and likely downgrade in earnings prompted huge sell off in markets.

Global PMI data and Fed Chairman’s testimony will be the focus events for the week.

Currency range: USDINR: 77.48/77.27/77.15(support), 78.28 (resistance), EURINR:80 (support)/ 83.50/84.25 (Resistance), GBP/INR: 96-98.50, JPY/INR:.58-63

Suggestions: USD exports can be covered partially at 78.20+. EURINR receivables can be covered. GBPINR exports can be covered.

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