WEEKLY SYNOPSIS: 10/02/2023

Currency Map:

Brent Crude closed at USD 86.50 VS prior week close of USD 79.80. Gold closed at USD 1876. Nifty closed at 17856 vs Nov close of 17854. 10 Year G-SEC Yield closed at 7.36%.

Major developments: USDINR traded in the 82.34-82.80 range last week and closed at 82.50 gain of 67 ps for USD as against prior week close of 81.83. EUR declined 1.16% w/w and GBP declined 0.51% w/w against Rupee. Indian benchmark Equity index closed flat w/w. 10 Year G-SEC Yield closed at 7.26%. 1-year fwd premia is at 2.12% p.a. FX reserves stands at USD 575.25 bn as on Feb 3 rd. 

Rupee retraced from 82.80 to 82.35, before closing at 82.50. FII’S continued to sell in Feb, which is due to fall out of Adani group developments. RBI’S monetary policy announcement was the significant event. RBI hiked repo rates by 25 bps to 6.5%. GDP growth is expected to be 6.4% in FY 24 and inflation is expected to average 5.3%. RBI Governor said that though CAD was at 3.3% of GDP in H1 FY 23, it is manageable and expected to come down. He said that remittances and services sector is contributing to invisible surplus and it is cushioning merchandise trade deficit.

Indian IIP climbed 4.3% in Dec as against 7.3% in Nov. Mfrg grew by 2.6% in Dec.

USDINR’s supports are at 82.34/82.14.  200 day average is at 80. Expect Rupee to trade in the 81-82.90 range in coming weeks.

Global developments: Strong US employment data provided the base for USD rebound. US Yields spiked higher with 10 Year Yield climbing to 3.76% from 3.4%. US 2 Yr-10 Yr treasury yield inversion hit a new high of 85 bps. This is the highest inversion since 1980. Since the jobs report, market pricing on the future path of the fed funds rate has firmed, with investors now anticipating two more 25 basis-point hikes by May, bringing the terminal rate to 5.25% . Fed Chairman said that bringing down inflation will take significant period of time and last week’s labor data confirms to Fed’s view and policy rates tightening.

As Fed focuses on incoming data, CPI will be the next important data to watch.

UK GDP contracted notably by -0.5% mom in December, even worse than expectation of -0.3% mom. Services declined by -0.8% mom. Production rose 0.3% mom. Construction was flat for the month.In Q4, GDP showed 0.0% qoq growth, matched  . Services sector was flat on the quarter. Production dropped -0.2% qoq while construction grew 0.3% qoq. For 2022 as a whole, GDP grew 4.0%, following a 7.6% expansion in 2021.

Events to focus: US inflation data

Currency technical levels: USDINR: 82.35/82.12 (Supports), 82.80 (resistance), EURINR: 90.45(Resistance), 87.45 (Support), GBPINR:  98(Support)/ 102.85 (Resistance). JPYINR: 64.50 (resistance) /62/60.50 (support).

Hedging advise: USDINR Exports can be hedged on rally to 82.60/82.75. EUR and GBP exports can be covered.

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