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Brent Crude closed at USD 83 VS prior week close of USD 86.50. Gold closed at USD 1851. Nifty closed at 17944 vs Nov close of 17856. 10 Year G-SEC Yield closed at 7.38%.

Major developments: USDINR traded in the 82.58-82.91 range last week and closed at 82.83 gain of 33 ps for USD as against prior week close of 82.50. EUR declined 0.57% w/w and GBP declined 1.11% w/w against Rupee. Indian benchmark Equity index gained 0.5% w/w. 10 Year G-SEC Yield closed at 7.38%. 1-year fwd premia is at 2.08% p.a. FX reserves stands at USD 567 bn as on Feb 17 th. Reserves declined 8 bn USD as compared to prior week due to Valuation dip in FCY assets. 

Rupee was weighed down by rising US Yields. USD index climbed and that had a bearing on USDINR sentiment. However, the range was narrow and resistance was evident near 82.90. Fwd premia remained flat.

CPI surged to 6.52% in Jan vs 5.72% in Dec. Food inflation climbed to 5.94%. RBI is mandated to maintain inflation in the 2-6% band. Only last week, RBI raised repo rates by 25 bps. With this upsurge in inflation, RBI may continue with its 25 bps rate hike atleast twice in coming

Indian merchandise exports dipped 6.58% in Jan to USD 32.91 bn. Imports also declined to USD 50.66 bn. Trade deficit was at USD 17.75 bn. In Apr-Jan period, Overall Exports (merchandise and services) grew by 17.33% to USD 641.24 bn. During the same period, imports climbed 22.92% to USD 753.19 bn. Merchandise exports in Apr-Jan period climbed 8.51% to USD 369.25 bn. Imports climbed 21.89% to USD 602.20 bn. Trade deficit in Apr-Jan period stands at USD 232.95 bn.

USDINR’s supports are at 82.58/82.34.  200 day average is at 80.48 Expect Rupee to trade in the 81-83 range in coming weeks.

Global developments: USD ended the week stronger on robust US economic and inflation data. Hawkish comments from Fed members also supported USD. However, Euro stood out as ECB also maintained tightening messages. US 10 Year yield climbed to 3.87%. Last month, it was down to 3.37%. FOMC Minutes, G 20 meetings and US spending data are important events for the week.

US CPI remained elevated despite moderation from 6.5% yoy to 6.4% yoy, above expectation of 6.2% yoy. That’s nonetheless the lowest reading since October 2021. CPI core slowed from 5.7% yoy to 5.6% yoy, above expectation of 5.5% yoy, but was the lowest since December 2021. 

US retail sales, PPI data were also strong, aiding USD’S strength.

Fed member said “at this juncture, the incoming data have not changed my view that we will need to bring the fed funds rate above 5% and hold it there for some time to be sufficiently restrictive to ensure that inflation is on a sustainable path back to 2%.”

Another Fed member said that the prospect of the Fed reverting to larger rate hikes isn’t off the table.

Euro did not fall much against USD due to counter balancing message from ECB members. ECB member said that “50 basis-point hike next month is “necessary under virtually all plausible scenarios, and market pricing of terminal rates at 3.5% is optimistic.

EU Commission upgraded EU GDP forecast for 2023 from 0.3% to 0.9% and sounded optimistic. “Europe’s economy is proving resilient in the face of current challenges. We were able to narrowly avoid a recession. We are somewhat more optimistic about growth prospects and the projected decline in inflation this year, as per the commission release.

Japanese GDP grew 0.2% qoq in Q4, below expectation of 0.5% qoq. In annualized term, GDP rose 0.6%, below expectation of 2.0%. GDP deflator rose 1.1% yoy, matched expectations. For the full year of 2022, GDP expanded 1.1%, slowed from 2021’s 2.1%.

Events to focus: US FOMC minutes, Core PCE data and G-20 meetings.

Currency technical levels: USDINR: 82.58/82.34 (Supports), 82.95 (resistance), EURINR: 90.45(Resistance), 87.45 (Support), GBPINR:  98(Support)/ 102.85 (Resistance). JPYINR: 64.50 (resistance) /60.50 (support).

Hedging advise: USDINR Exports can be hedged on rally to 82.90. EUR and GBP exports can be covered on rally to 89 and 100.50+ respectively.

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