Currency Map:

USD/INR82.7282.73 –

Brent Crude closed at USD 78.60 VS prior month close of USD 85.70. Gold closed at USD 1870. Nifty closed at 18105 vs Nov close of 17860. 10 Year G-SEC Yield closed at 7.37%.

Major developments: USDINR traded in the 82.46-82.94 range last week and closed at 82.72 almost unchanged for USD as against prior week close of 82.73. EUR declined 1.51% w/w and GBP declined 1.27% w/w against Rupee. Indian benchmark Equity index declined 1.4% w/w. 10 Year G-SEC Yield closed at 7.37%. 1-year fwd premia is at 1.95% p.a.

Rupee gained to 82.47 on Friday, breaking a tight trading range. This was attributed to inflows from foreign banks. However, broad based USD weakness against majors seems to be catching up with USDINR pair also.

Recent movement in the pair gives a strong credence to RBI’s motive to keep Rupee in the 81-83 band. Fwd premia edged lower with 1 year premia declining to 1.95% p.a.

Indian Dec PMI (Mfrg) rose to 2 year high of 57.8. According to the survey, demand resilience boosted sales growth in December,  with the rate of increase picking up to the quickest since February 2021. Cost pressures, according to the survey, remained relatively muted in December, with the overall rate of inflation little-changed from November and the second-slowest since September 2020. Despite a deteriorating outlook for the global economy, manufacturers were strongly confident in their ability to lift production from present levels,” the S&P economist said. S&P Global India services purchasing managers’ index (PMI) rose to 58.5 in December from 56.4 in the previous month, above the 50-mark separating growth from contraction for the 17th straight month.

GST Collections in Dec was reported at 1.49 lac Cr.

In Jan, FII’S have sold Rs 2312 Cr of Equities till date and have sold Rs 1348 Cr of debt till date. In last Calendar Year, FII’S sold close to Rs 1.06 lac Cr worth of Equities.

USDINR’s supports are at 82.40/82.22/81.95. Downside break of 82.20 would imply that recent move from below 81 is a correction and further consolidation could happen between 81 and 82.90.

IIP and CPI data are key events in coming week.

Global developmentsStrong US labor data, hawkish Fed Minutes, Covid situation in China and decline in crude prices dominated market developments.

USD fell on Friday despite strong employment data. US Yields also declined steeply, aiding US Equity indices to correct higher.

US non-farm payroll employment increased 223k in December, above expectation of 200k. Payroll employment rose by 4.5m in 2022 (an average monthly gain of 375kj, less than the increase of 6.7m in 2021 (an average monthly gain of 562k). Unemployment rate dropped to 3.5%, better than expectation of 3.7%. Participation rate ticked up from 62.2% to 62.3%.

Average hourly earnings rose 0.3% mom, below expectation of 0.4% mom. Over the past 12 months, average hourly earnings rose 4.6% yoy. Markets are hoping that the combination of lower wage growth and a contracting services sector will allow the Fed to slow its pace of interest rate increases to 25bps (or less) on February 1st.  As a result, stock markets and gold moved higher while interest rates and the US Dollar moved lower.

Earlier in the week, manufacturing data showed signs of further slowing, with the ISM manufacturing purchasing managers’ index (PMI) slipping further into contractionary territory in December . ISM (services) also slipped into contraction mode.

Fed members favored a “restrictive policy stance for a sustained period,” until inflation was on a sustained downward path to 2 percent, which was likely to take “some time,” the Fed’s December meeting minutes showed on Wednesday. The minutes stoked fears of higher for longer rates just as data highlighted a slower-than-expected dent in labor demand.  Despite hawkish Fed minutes, US Yields traded down.

Eurozone CPI slowed from 10.1% yoy to 9.2% yoy in December, below expectation of 10.0% yoy. CPI core (excluding energy, food, alcohol & tobacco) rose from 5.0% yoy to 5.2% yoy, above expectation of 5.2% yoy.

Events to focus: US CPI and Fed Chairman’s speech

Currency technical levels: USDINR: 82.40/82.22/81.95 (Supports), 82.90 (resistance), EURINR: 88.85/89.45(Resistance), 86.70/85.55 (Support), GBPINR:  98(Support)/ 102.60 (Resistance). JPYINR: 64 (resistance) /61.30/60 (support).

Hedging advise: USDINR Exports can be hedged on rally to 82.60/82.75/82.90. EURINR payables be covered.

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