FX – WEEKLY UPDATE 

WEEKLY SYNOPSIS: 05/08/2022

Currency Map:

Currency PairsWEEK CLOSEPRIOR WEEK CLOSE% change
USD/INR79.2479.26 
EUR/INR80.9181.16-0.30
GBP/INR96.0696.89-0.85
JPY/INR59.3359.73-0.66

Brent Crude closed at USD 95 VS prior week close of USD 104. Gold closed at USD 1792.Nifty closed at 17397 vs prior week close of 17158. 10 Year G-SEC Yield closed at 7.30%.

Major developments: USDINR traded in the 78.50-79.81 range last week and closed at 79.24 as against prior week close of 79.26. Rupee had a roller coaster ride, but closed flat w/w.. EUR declined 0.30% w/w and GBP declined 0.85% w/w against Rupee. Indian benchmark Equity index rallied 1.4% w/w. 10 Year G-SEC Yield closed at 7.30%. 1-year fwd premia is at 3.07% p.a. FX reserves stands at USD 571 bn as on July 29 th.

Rupee swung on both sides, triggered by falling US Yields in early part of week and escalation of Chinese-Taiwan conflict on Thursday. Rupee gained to 78.50 and reversed in a V-Shaped manner to 79.80, only to gain below 79 on Friday. The pair still looked wobbly and shaky for Rupee.

RBI hiked repo rates by 50 bps to 5.9%. GDP is maintained to climb at 7.2% and average annual inflation is expected to be 6.7% in 2022-23.

Indian trade deficit expanded to USD 31 bn in July, due to flattish exports and steep climb in imports. Exports was at 35.24 bn, almost same as July 2021. This is due to curb in exports of petroleum, steel and Wheat. Imports surged 43.5% to USD 66.25 bn. India’s merchandise imports in April -July 2022-23 was $256.43 billion with an increase of 48.12% over $173.12 billion in April -July 2021-22. Exports in Apr-July is at USD 156.41 bn. Export target for this fiscal is at USD 470 bn. Trade deficit in June was at USD 26.18 bn.

Indian PMI for July was reported at 56.4 vs 53.9 in June. RBI meeting is the focus event in domestic market.

GST Collections in July was reported at 1,48,995 Cr, second highest since launch. GST Collections have been above 1.4 lac for the last 5 months. Better compliance and economic recovery are contributing to robust GST collections.

In Aug till date FII’S have net bought Rs 10977 Cr of Equities in Cash segment and have bought Rs 289 Cr of debt till date. In this Calendar Year, FII’S have sold close to Rs 1.84 lac Cr worth of Equities. 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.

USDINR has supports at 78.84 and later at 78.50. Resistance is expected near 79.70. Rupee movement will depend on USD movement against majors.

CPI and IIP are key data events in coming week.

Global developments: Robust US employment data and decline in Crude prices dominated economic headlines. Markets have shrugged off China-Taiwan conflict as it does not apprehend a full-scale war.

US employment data debunks the threat of recession and is now supporting rate tightening narrative. ISM data on manufacturing and services showed that the growth may be slowing, but still robust. With price index components declining, inflation may have peaked. With inflation still at 40 years high, Fed will be on path of aggressive rate tightening.

US non-farm payroll employment grew strongly by 528k in July, well above expectation of 250k. That’s also much higher than the average gain of 388k over the prior 4 months. Total non-farm employment has also reached its pre-pandemic level. Unemployment rate dropped from 3.6% to 3.5%, better than expectation of 3.6%. Participation rate dropped -0.1% to 62.1%. Average hourly earnings rose 0.5% mom in July, above expectation of 0.3% mom.

BOE hiked rates by 50 bps, but indicated that the economy will enter into a prolonged recession. GDP growth is expected to slow further from Q2’s 0.5% to 0.2% in Q3, and then decline by nearly -1% in Q4. GDP is also forecast to fall further, by -1.50% in 2023, and then -0.25% in 2024.

On EU growth and inflation, S&P Global Market Intelligence said: “The eurozone economic outlook has darkened at the start of the third quarter, with the latest survey data signalling a contraction of GDP in July. Soaring inflation, rising interest rates and supply worries – notably for energy – have led to the biggest drops in output and demand seen for a almost a decade, barring pandemic lockdown months.

US CPI and PPI data are key events.

Currency technical levels: USDINR: 79.70 (Resistance), 78.85/78.50 (Supports), EURINR: 81.85/82.20(Resistance), 80.60/79.50 (Support), GBPINR: 95.50 (Support)/ 97.50-98.80 (Resistance). JPYINR: 57.50-62 range.

Hedging advise: USDINR exports be hedged till 79.70 is not broken. Imports can be hedged at 78.85/78.50. EURINR receivables be hedged on spike to 81.25/81.75, GBP Exports be hedged at 97+.

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