WEEKLY SYNOPSIS: 20/01/2023

Currency Map:

Brent Crude closed at USD 87.55 VS prior month close of USD 85.30. Gold closed at USD 1926. Nifty closed at 18027 vs Nov close of 17956. 10 Year G-SEC Yield closed at 7.34%.

Major developments: USDINR traded in the 81.09-81.93 range last week and closed at 81.22 gain of 11 ps for Rupee as against prior week close of 81.33. EUR declined 0.31% w/w and GBP climbed 1.27% w/w against Rupee. Indian benchmark Equity index declined 0.37% w/w. 10 Year G-SEC Yield closed at 7.34%. 1-year fwd premia is at 2.30% p.a.

Rupee gained, finally tracking USD’S broad decline against majors. Exporter sales and bond related inflows were primary triggers for Rupee gains. Indian Equity indices traded sideways. Rupee and Equity indices would take cues from Union budget and RBI ‘s Feb MPC meeting.

Indian exports declined 12.2% in Dec to USD 34.5 bn. Imports also declined 3.5% to USD 58.2 bn. Trade deficit declined to USD 23.7 bn. India’s Current account deficit (CAD) widened to $36.4 billion, an all-time-high level in absolute terms, and 4.4 per cent of GDP, in the September quarter owing mainly to a record deficit of $83.5 billion.

FX reserves stands at USD 572 bn as on Jan 13 th.  Reserves rose by USD 10 bn in one week.

In Jan, FII’S have sold Rs 11892 Cr of Equities till date and have bought Rs 1085 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 80.90/80.50/80. 200 day average is at 80. Expect Rupee to trade in the 80-82 range with 20 and 50 day averages now at around 82.10.

Global developments: USD’S decline against majors continued last week. US Equity indices whipsawed, but is positioning itself to move on the upside. US Yields fell further on softer Wholesale inflation data.

US Wholesale prices sank further due to lower Gasoline prices. The increase in wholesale prices over the past 12 months, meanwhile, slowed to 6.2% from 7.3% in the prior month and a peak of 11.7% last spring. That’s the lowest level in nine months.

Federal Reserve’s beige book, a periodic report on economic conditions throughout its 12 districts, said price growth is expected to moderate though there won’t be much economic growth for the next few months.

US retail sales was lower due to declining Gasoline prices, shift to travel spending and heavy retail discounting. Yet high inflation and rising interest rates, along with the threat of recession, have spurred Americans to cut back on spending.

Euro climbed on continued hawkish messages from ECB. ECB President Christine Lagarde said, “We have to also stay that course of resilience that we observed in 2022. Stay the course’ is my mantra for monetary-policy purposes.” “I hope that in 2023 fiscal policy will not work in a counter-cyclical way to monetary policy,” she said. “We don’t need to be pushed to do more than is necessary.”

In the minutes of ECB’s December meeting, it’s noted that a “large number” of members “initially” expressed preference for a 75bps hike and to communicate that interest rates would “still have to rise significantly at a steady pace to reach levels that were sufficiently restrictive”. Meanwhile, 50bps hikes was “judged to constitute an appropriate pace”.

China’s GDP growth slowed to 2.9% yoy in Q4, down from Q3’s 3.9% yoy

Events to focus: US GDP, Durables order and EU, UK PMI data.

Currency technical levels: USDINR: 80.90/80.50 (Supports), 81.50/81.90 (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 81.50/81.90. USD Imports can be covered on decline to 80.50/80.

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