Currency Map:

Currency PairsJune CLOSEMAY CLOSE% change
USD/INR78.9777.63 1.72

Brent Crude closed at USD 112 VS prior May close of USD 118.75. Gold closed at USD 1807.Nifty closed at 15780  vs prior month close of 16584. 10 Year G-SEC Yield closed at 7.43%.

Major developments: USDINR traded in the 77.44-78.98 range in June and closed at 78.97 as against May close of 77.63. Rupee declined 1.72% m/m. EUR declined 1% m/m and GBP declined 1.95% m/m against Rupee. Indian benchmark Equity index declined 4.84% m/m. 10 Year G-SEC Yield closed at 7.43%. 1-year fwd premia is at 2.95% p.a.

Rupee continued to weaken, but fwd premia declined steeply in June. 1 Year premia declined to 2.85% p.a. FX reserves stands at USD 593 bn. FM said that RBI is keeping finance ministry informed about FX movement and is taking steps to control excessive Rupee weakness. USDINR retraced from 79.11 to below 79 levels on Friday.

In 2022-23 fiscal, FII’S have sold 95856 Cr of Equities till June end and have sold Rs 8299 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.

It was an eventful week with Govt cleverly augmenting its resources alongside an attempt to increase local supplies of Petro products and curb trade deficit due to Gold import demand.

Govt imposed export duty of Rs 6 on Petrol and Rs 13 on diesel. Crude producing companies have to pay Rs 23620/t as windfall gains tax to Govt. Gold import duty has been hiked to 12.5%. These moves are intended to increase domestic supplies of Petrol, diesel and to lessen imports of Gold to rein in Rupee.

It is not clear as to how these moves will have an effect on trade deficit and Rupee. Decline in export earnings from Petro products can offset any fall in USD demand due to decline in Gold imports (if at all, it happens).

Govt’s recent duty excise duty reduction on domestic petro products entailed a loss of Rs 1 lac Cr to Govt revenue. Y’day’s move to levy export and import duty will accrue Rs 70000 Cr to Govt.

Indian PMI was reported at 53.9, 12 th consecutive month of expansion. The output of eight core sectors grew by 18.1% in May, compared with 8.4% in the previous month. Steel sector climbed 15%, while coal output increased 25.1%. Cement sector climbed 26.3%, electricity sector grew by 22% and fertilizer sector recorded growth of 22.8%.

Indian GST Collection is at 1.44 lac Cr in June.

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 78.50/78.30 and later at 77.50. Resistance is expected near 79.25/79.75. Rupee movement will depend on Crude price and USD movement against majors. RBI’S action will also impact Rupee as RBI has sold USD at every high level to contain bigger fall.

Global developments: US ISM and EU.UK PMI data softened considerably. Fall in US 10 Year Treasury yield to 2.88% from 3.25% implies that market is now fearing recession.

Federal Reserve Chairman Jerome Powell reiterated the central bank’s commitment to keep tightening monetary policy to bring down inflation just as U.S. quarterly economic activity slipped for first time in two years.  “The way to do that [curb inflation] is to slow down [economic] growth, but ideally keep it positive,” Powell said on Wednesday, though conceded that there “is a risk” that the fed may go too far and cause a recession. The Fed chief, however, stressed that the biggest threat to the economy isn’t the Fed overshooting monetary policy tightening, but rather “failing to restore price stability.” Fed member said that “At the Fed, we’re on a path now to bring our interest rates up to a more normal level and then probably a little bit higher into restrictive territory, so that we can get those inflation rates down so that we can sustain a good economy going forward.” 

US data indicates weakening manufacturing activity, elevated inflation as measured by Core PCE data, strained personal disposable income due to high prices, but still with a desire to travel and fund from savings. As time rolls out and inflation remains high, there will be a serious threat to spending and hence the real economy can suffer.

Geo politics and sanctions are crippling developing economies. Western sanctions have already throttled economies due to Oil prices. If Russia retaliates by cutting crude production further with no real output increase by OPEC, world can face a crippling energy crunch.

ECB member said that “With these levels of inflation and inflation being more and more broad-based, with wages growing in the euro area, we should move decisively toward monetary-policy normalization,” 

ECB has pre-committed to a 25bps rate hike in July. Another hike is also pre-committed for September, but the size would be dependent on incoming data.

US ISM (non mfrg), FOMC minutes and Non farm payrolls are key data events for the coming week.

Currency range: USDINR: 78.50/78.25(support), 79.25/79.75 (resistance), EURINR:81.50 (support)83.80/84.25 (Resistance), GBP/INR: 96-98.50, JPY/INR:.57-61.

Suggestions: USD exports can be covered partially at 79+. EURINR payables can be covered on decline to 81.70. GBPINR exports can be covered at 96.50+.

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