WEEKLY SYNOPSIS: 03/03/2023

Currency Map:

Brent Crude closed at USD 86 VS prior Jan close of USD 79. Gold closed at USD 1825 on Feb end. Nifty closed at 17303 IN Feb vs Jan close of 17662. 10 Year G-SEC Yield closed at 7.43%.

Major developments: USDINR traded in the 81.67-82.94 range in Feb and closed at 82.67 loss of 90 ps for Rupee as against Jan close of 81.93. EUR declined 1.19% m/m and GBP declined 1.27% m/m against Rupee. Indian benchmark Equity index declined 2.03% m/m. 10 Year G-SEC Yield closed at 7.43%. 1-year fwd premia is at 2.11% p.a. FX reserves stands at USD 560.90 bn as on March 3 rd.

Rupee remained in a tight range in Feb after declining to 82.90+. However, in the last few sessions, Rupee has gained closer to 1 Rupee due to expected inflows related to Adani group. Gains in EM Currencies also had a bearing on Rupee’s gain in the last few days.

Indian economy grew at 4.4 per cent between October and December 2022 (Q3FY23). Indian GDP for the full year is expected to be 7%. The growth in nominal GDP at current price during FY23 is estimated at 15.9 per cent as compared to 18.4 per cent in FY22. The base effect is also a significant reason for the lower growth rate as the economy had shown a robust growth rate of over 11 per cent in the corresponding period of Q3 of previous year. Mfrg sector grew by 1.1% y/y in Q3. This is due to slower consumer demand due to higher interest rates and slowing exports. Agri sector grew by 3.7%, electricity, and utility services expanded by 8.2%, construction grew by 8.4%. Services sector grew by 9.7%.

GST collections for Feb climbed 12% y/y to 1.5 lac Cr. Core sector grew by 7.8% in Jan. Fertilizer production climbed 17.9%, Coal output climbed 13.4%.

Inflation continued to be sticky and RBI is expected to hike rates again in next meeting. Indian Equities staged a turnaround on Friday after 10 consecutive sessions of losses.

In March, FII’S  have bought Rs 13581 Cr of Equities and have bought Rs 398 Cr of debt . In last Calendar Year, FII’S sold close to Rs 1.06 lac Cr worth of Equities.

USDINR’s supports are at 81.68/81.46.  200 day average is at 80.75. Expect Rupee to trade in the 81-83 range in coming weeks. Since Rupee’s gain is more due to one single bulk inflows, sustained gains against the back drop of hawkish Fed may not materialise. RBI may also buy USD closer to 81.25 levels.

Global developments: Risk on sentiment prevailed, despite expectation of higher US interest rates. Stocks climbed higher on Friday. USD declined modestly against majors. Expansion in service sector could help US and EU to avoid recession. Inflation is expected to ease slowly. In Eurozone, after stronger than expected CPI, most analysts raised their expectation on the terminal rate for ECB to 4%. A rate cut this year is also basically ruled out. Yet, investors reacted more to positive data like PMIs, which painted an upbeat picture as lead by expansion in services.

US Treasury yields rose to the higher level since 2007. 2 Year yield hit 4.96% and 10 Year yield hit 4.09%, before closing at 3.95%. Though US Yield is rising, German Yields are also rising. This should support Euro against USD.

Fed members made it clear that that inflation is still way above comfort level and it is premature to talk about a pause or terminal rates. Consensus is for two more 25 bps rate hikes and then it will be data driven.

US ISM (mfrg) data improved, but remained in contraction mode. However, services data remained in expansion mode.

US NFP is the crucial data for this week.

EUR/USD has stabilized around 1.06 and a break above 1.07 could trigger a new uptrend in the pair. GBPUSD is in a make-or-break situation. Decline below 1.1920 will confirm the onset of new bear trend and a break above 1.2170 would help the pair to maintain its strength. USDJPY has to decline below 132 to confirm resumption of downtrend.

Events to focus: US NFP, ISM

Currency technical levels: USDINR: 81.68/81.45/81.25 (Supports), 82.34 (resistance), EURINR: 88.50/90.45(Resistance), 86.70 (Support), GBPINR:  98(Support)/100.65/102.85 (Resistance). JPYINR: 62 (resistance) /59.50 (support).

Hedging advise: USDINR imports can be hedged on decline to 81.45/81.25. EUR and GBP exports can be covered on rally to 89 and 100.35+ respectively.

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