|Currency Pairs||WEEK CLOSE||PRIOR WEEK CLOSE||% change|
Brent Crude closed at USD 81.75 VS prior week close of USD 86.60. Gold closed at USD 1993. Nifty closed at 17624 vs Feb close of 17828. 10 Year G-SEC Yield closed at 7.22%.
Major developments: USDINR traded in the 81.88-82.25 range last week and closed at 82.10 loss of 25 ps for Rupee as against prior week close of 81.85. EUR closed flat 0.79% w/w and GBP declined 0.26% w/w against Rupee. Indian benchmark Equity index declined 1.14% w/w. 10 Year G-SEC Yield closed at 7.22%. 1-year fwd premia is at 2.20% p.a. . FX reserves climbed USD 2 bn as compared to prior week and stood at USD 586 bn as on Apr 14 th. In April, FII’S have bought Rs 6276 Cr of Equities and have bought Rs 730 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.
Rupee had a narrow range last week. For the last 6 months, USDINR is bound in the 81-83 range. If USDINR beaks below 81.75, Rupee gains could accelerate. However, RBI’S action needs to be watched.
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: Financial markets remained steady and US 10 Year yield inched closer to 3.6%. EUR/USD and GBP/USD remained in a tight range.
Focus is on US Corporate earnings season and next week US Fed meeting. Demand outlook has worsened due to higher interest rates. Credit situation has also tightened. Fed’s beige book assessment released on Wednesday, showed that economic growth eased in recent weeks, while U.S. inflation continued to run relatively high, which could attract more monetary tightening. Banks seems to have tightened Credit due to likely economic slowdown, liquidity conditions and high uncertainty.
US Core PCE inflation data and GDP are focus events. US Fed meeting outcome will be known on May 3rd night.
ECB minutes revealed that “a very large majority” of members agreed to raise key interest rates by 50 basis points. This decision was made “in line with the intention the Governing Council had communicated at its last monetary policy meeting.”
The minutes noted that “following the announced intended interest rate path was seen as important to instill confidence and avoid creating further uncertainty in financial markets.” Looking ahead, members concurred on the importance of a data-dependent approach for future policy rate decisions amid the “elevated level of uncertainty.” In this context, the minutes stated that “it was underlined that if the inflation outlook embedded in the March ECB staff projections were confirmed, the Governing Council would have further ground to cover in adjusting the monetary policy stance to ensure a timely return of inflation to target.”
UK CPI remained elevated at 10.1% y/y.
EU and UK PMI (mfrg) declined, but PMI(services) climbed higher.
Chinese GDP growth surprised to the upside in Q1 at 2.2% q/q. Positively, the recovery was driven by stronger consumer sentiment.
Currency technical levels: USDINR: 81.62 (Supports), 82.30/82.50 (resistance), EURINR:90.45(Resistance),88.85(Support),GBPINR:101.27/100.44(Support)/102.85(Resistance). JPYINR: 63.50 (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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