WEEKLY SYNOPSIS: 14/04/2023

Currency Map:

Brent Crude closed at USD 86.60 VS prior week close of USD 85. Gold closed at USD 2017 . Nifty closed at 17828 vs Feb close of 17599. 10 Year G-SEC Yield closed at 7.22%.

Major developments: USDINR traded in the 81.77-82.15 range last week and closed at 81.85 gain of 5 ps for Rupee as against prior week close of 81.90. EUR climbed 0.79% w/w and GBP climbed 0.28% w/w against Rupee. Indian benchmark Equity index climbed 1.3% w/w. 10 Year G-SEC Yield closed at 7.22%. 1-year fwd premia is at 2.30% p.a. FX reserves climbed USD 6 bn as compared to prior week and stood at USD 584 bn as on Apr 7 th. In April, FII’S  have bought Rs 4248 Cr of Equities and have sold Rs 1081 Cr of debt . In 2022-23 fiscal year, FII’S have net sold Rs 27593 Cr of Equities and have net bought Rs 838 Cr of debt.

It was a truncated trading week for FX markets. Rupee gained on the back of fall in USD index. Gain in Indian Equity indices also aided Rupee’s gain.

On macro front, Indian exports declined 13.9% y/y in March to USD 38.38 bn. March imports stood at 58.11 bn. Trade deficit climbed to 3 months high of USD 19.73 bn. Indian exports climbed 6% to USD 447 bn in FY22-23. Imports climbed 16.5% to USD 714 bn. Trade deficit stood at USD 267 bn. CPI eased to 5.66% in March. Food inflation fell to 4.79% from 5.95% in Feb. IIP climbed 5.6% in Feb. Mfrg grew by 5.3%.

Outlook for Rupee: Rupee declined last year due to US Monetary policy. With rate hikes likely to peak shortly, pressure on Rupee is likely to abate. Indian CAD has also narrowed to 2.2% of GDP in Q3. If US rates stabilize or decline, inflows into Indian Equities is likely to accelerate. This should help Rupee to gain to 78-79 levels during the year. Expect 78-84 range for 23-24 fiscal.

Hedging advise: Exports be hedged for a longer duration on spike to 82.30/82.50 levels and imports be hedged for a shorter duration of 1 month at important levels- 81.65/81.45.

Global developments: USD index declined as US data was weaker than anticipated. Fall in CPI, PPI and retail sales implies that disinflation process has started. US CPI rose 0.1% mom in March, below expectation of 0.3% mom. CPI core (all items less food and energy) rose 0.4% mom, matched expectations. Over the last 12 months, CPI slowed from 6.0% yoy to 5.0% yoy, below expectation of 5.2% yoy, marked the lowest level since June 2021. CPI core (all items less food and energy) accelerated from 5.5% yoy to 5.6% yoy, matched expectations. US PPI declined -0.5% m/m and retail sales fell 1% m/m.

FOMC minutes noted that labor market is tight and inflation is still above comfort level. After discussion on banking issues, FOMC decided to hike rates by 25 bps in its last meeting.

It is noteworthy that minutes indicated that  actions taken by the Federal Reserve and other government agencies helped calm conditions in the banking sector but deemed that it was still too early to assess the confidence and magnitude of the effect of credit tightening on the real economy.

Fed member said that inflation is still high and monetary policy outlook has not changed as compared to last meeting. He also said that rates will remain high for a longer period of time than anticipated by markets. Persistent higher Core inflation could force to effect another 25 bps rate hike in May.

UK CPI, EU PMI readings are key data events for coming week.

Currency technical levels: USDINR: 81.62 (Supports), 82.15/82.30/82.50 (resistance), EURINR:90.45(Resistance),88.85(Support), GBPINR:100.10(Support)/102.85(Resistance). JPYINR: 63 (resistance) /59.50 (support).

Hedging advise: USDINR exports can be hedged closer to 82.30. EUR and GBP exports can be covered on rally to 90.50 and 102+ respectively.

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