WEEKLY SYNOPSIS: 24/03/2023

Currency Map:

Brent Crude closed at USD 75 VS prior prior week close of USD 75.50. Gold closed at USD 1977 . Nifty closed at 16945 vs prior week close of 17100. 10 Year G-SEC Yield closed at 7.32%.

Major developments: USDINR traded in the 82.08-82.70 range last week and closed at 82.48 gain of 7 ps for Rupee as against prior week close of 82.55. EUR climbed 1.42% w/w and GBP climbed 0.73% w/w against Rupee. Indian benchmark Equity index declined 0.90% w/w. 10 Year G-SEC Yield closed at 7.32%. 1-year fwd premia is at 2.40% p.a. FX reserves rose by USD 12.8 bn to USD 572.8 bn as on March 17 th. Foreign Currency assets contributed USD 10.49 bn in the overall rise of USD 12.8 bn. Gold reserves rose by USD 2.19 bn.

Rupee’s trading range is increasing compressed. Since Oct, Rupee has remained in the 81-83 range. In last few weeks, it is trading between 81.60-82.80 range. RBI seems to be on both sides. USDINR is expected to remain in the 81-83 zone. Markets are mired in confusion as Global banking crisis dominate market headlines.

In March, FII’S  have bought Rs 11875 Cr of Equities and have sold Rs 293 Cr of debt . In last Calendar Year, FII’S sold close to Rs 1.06 lac Cr worth of Equities.

Global developments: Markets were mired in confusion hit with barrage of banking crisis news. After SVB, First Republic bank, it was the turn of Credit Suisse. CS was taken over by UBS. There is pressure on Deutsche bank. Fed and BOE increased rates and their communication was left for interpretations. As uncertainties persisted, rate fluctuations between Dollar and European majors were on both sides. Yen emerged as a winner.

In Equity markets, Nasdaq was resilient as markets are confident of an early end to Fed rate increase. US 10-year yield dived to as low as 3.295 on Friday on developments around Deutsche Bank.

Fed raised rates by 25 bps to a zone of 4.75% to 5% and indicated one more rate hike and dismissed chances of rate cut later this year. Fed said, however, that it “anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” “The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation,” the Fed said in a statement.

Market is pricing one more rate hike, followed by a pause and then rate cuts from later part of this year. There is expectation of greater rate cuts next year.

Growth was upgraded to 0.5% from 0.4% for 2023.

BoE raised its Bank Rate by 25 basis points to 4.25% as expected, with a 7-2 vote by the Monetary Policy Committee. BOE stated that “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” Simultaneously, it also means the door is open for a pause in the rate hike cycle too.

Euro retraced swiftly from 1.0930 to 1.0750 levels as EU’S major bank Deutsch bank came under pressure. Euro hit 1.09+ after Fed’s rate meeting outcome.

Banking developments have taken center stage and economic data will play a second fiddle.

Currency technical levels: USDINR: 82.08/81.62 (Supports), 82.80 (resistance), EURINR:90.45(Resistance), 86.25 (Support), GBPINR:  96.50(Support)/101.95(Resistance). JPYINR: 64 (resistance) /59.50 (support).

Hedging advise: USDINR exports can be hedged closer to 82.80. EUR and GBP exports can be covered on rally to 89 and 100.50+ respectively.

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