Currency Map:

USD/INR80.9979.75 1.53
JPY/INR56.9155.60 2.35

Brent Crude closed at USD 86.65 VS prior week close of USD 91.57. Gold closed at USD 1651. Nifty closed at 17327 in Aug vs prior week close of 17530. 10 Year G-SEC Yield closed at 7.38%.

Major developments: USDINR traded in the 79.58-81.24 range last week and closed at 80.99 as against prior week close of 79.75. EUR declined 0.26% w/w and GBP declined 0.35% w/w against Rupee. Indian benchmark Equity index declined 1.14% w/w. 10 Year G-SEC Yield closed at 7.38%. 1-year fwd premia is at 2.70% p.a. FX reserves stands at USD 545 bn as on Sep 16 th. FX reserves has declined from its all time high of USD 650 bn.

Rupee dived after US Fed’s decision and the guidance issued on future rate hikes. RBI intervened to sell USD at 81.24. RBI has already spent USD 105 bn in maintaining Rupee level below 80. FX reserves has declined to USD 545 bn. With USD climbing steeply against majors on Friday, Rupee’s decline will continue. RBI may smoothen the fall with sporadic intervention.

In Sep till date FII’S have net bought Rs 4378 Cr of Equities in Cash segment and have bought Rs 5912 Cr of debt till date. In this Calendar Year, FII’S have sold close to Rs 1.47 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’s resistance is at 81.25/81.60. Support is at 80.78/80.60. The pair could move higher with strong support above 80.60.

RBI is expected to hike rates by 40 bps in its Friday meeting.

Global developmentsIt was USD dominance after Fed meeting. The move accelerated against Sterling as new budget reversed tax increase proposals. UK’S mini budget left investors worried over Govt’s ability to manage ballooning deficit. Despite BOE’S rate hike moves, Sterling weakened as economic prospects dimmed further. Recession, along with inflation could entrench in UK economy. Pound sterling fell to 1.0840 levels, lowest in 35 years. Sterling could drop to 1.0650, enroute to parity.

Fed hiked rates by 75 bps and Fed Chairman sounded hawkish. Federal Reserve Chair Jerome Powell vowed on Wednesday that he and his fellow policymakers would “keep at” their battle to beat down inflation. Fed foresees its policy rate rising at a faster pace and to a higher level than expected, the economy slowing to a crawl, and unemployment rising to a degree historically associated with recessions.

Powell was blunt about the “pain” to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a “correction.”

Federal funds rate projected for the end of this year signals another 1.25 percentage points in rate hikes to come in the Fed’s two remaining policy meetings in 2022, a level that implies another 75-basis-point increase in the offing. Fed funds rate could be 4.25% by Dec and increase further in 2023, depending on inflation.

Fed expects GDP growth to slow down to 0.2% in Q4, but climb to 1.2% by 2023. Unemployment rate is expected to climb to 4.4% by 2023.

10-year yield surged through 3.483 to resume the long term up trend last week, and hit as high as 3.773. US and Global stocks tumbled as Fed sounded more hawkish than expected.

BoE raised Bank rate by 50bps to 2.25% as widely expected. BoE also said that the MPC will consider and make decision on the Bank Rate “at each meeting”. The scale, pace and timing of any further changes will reflect the assessment of economic outlook and inflationary pressures. It maintain the pledge to “respond forcefully” if outlook suggests “more persistent inflation pressures”.

Bank of Japan intervened to support Yen.

Currency technical levels: USDINR: 80.78/80.60 (Supports), 81.60 (resistance), EURINR: 80/81.15(Resistance), 78.75 (Support), GBPINR:  91(Resistance). JPYINR: 58.50 (resistance) /56 (support).

Hedging advise: USDINR Imports can be hedged on decline to 80.78/80.60. EURINR receivables be hedged on spike to 80, GBP Exports be hedged and expanded at 91.

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