WEEKLY SYNOPSIS: 05/05/2023
Currency Map:
| Currency Pairs | WEEK CLOSE | PRIOR WEEK CLOSE | % change |
| USD/INR | 81.80 | 81.84 | |
| EUR/INR | 90.53 | 90.08 | 0.50 |
| GBP/INR | 102.78 | 102.02 | 0.74 |
| JPY/INR | 60.90 | 60.36 | 0.89 |
Brent Crude closed at USD 75 VS prior week close of USD 80.58. Gold closed at USD 2025. Nifty closed at 18069 vs prior week close of 18065. 10 Year G-SEC Yield closed at 7.01%.
Major developments: USDINR traded in the 81.65-81.95 range last week and closed at 81.80 gain of 4 ps for Rupee as against prior week close of 81.84. EUR climbed 0.50% w/w and GBP climbed 0.74% w/w against Rupee. Indian benchmark Equity index closed flat w/w. 10 Year G-SEC Yield closed at 7.01%. 1-year fwd premia is at 2.25% p.a. FX reserves climbed USD 4 bn as compared to prior week and stood at USD 588 bn as on Apr 28 th. In May till date, FII’S have bought Rs 4381 Cr of Equities and have sold Rs 2176 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 quiet truncated trading week. RBI seems to be active in stemming Rupee gains below 81.60. Decline in Crude prices weighed down on yields with 10 Year yield declining to 7.01%. Steady trend in USD index and declining crude prices are positive for Rupee. Equity indices climbed last week and had a minor retracement on Friday.
CPI and IIP data are important data events in coming week.
Outlook for Rupee: USDINR has made another important top at 82.49. Lower tops confirm Rupee’s strength. USDINR pair may trade below 82.25 and target 81.45/81.25 in coming month. 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 82/82.25 levels and imports be hedged for a shorter duration of 1 month at important levels- 81.45.
Global developments: The week was dominated by Global Central bank activity. Decline in Crude prices and better than expected corporate earnings sent contradictory signals on Global economy.
Fed hiked rates by 25 bps and vowed not to cut rates till inflation trends down to target level. However, it signaled a pause in June and shifted to data dependent stance. Analysts consider that Fed has moved to a hawkish pause, implying that the committee could hike rates again, if inflation worries remain.
On the economy front, US employment continues to be robust notwithstanding contraction in manufacturing. Recent data on Coe PCE inflation and climb in average hourly earnings imply that inflationary pressures remain above Fed’s comfort level. Tighter Credit conditions may have done the Fed’s job, but labor market remains resilient. Though Fed Chairman is dismissive of market expectations of rate cut, there is growing expectation of some rate roll back by Fed in the last quarter of this year.
ECB hiked rates by 25 bps, less than expected. ECB Chief added that they are not pausing rate hikes. ECB noted that “underlying price pressures remain strong.”The central bank acknowledged that the transmission of past rate increases to euro area financing and monetary conditions has been forceful, but added that “the lags and strength of transmission to the real economy remain uncertain.”
ECB emphasized its commitment to ensuring that policy rates are “sufficiently restrictive” to achieve a timely return of inflation to the 2% medium-term target, stating that rates will be kept at these levels “for as long as necessary”.
EU and UK PMI(services) continued to remain strong.
US CPI and BOE rate decisions are important events for upcoming week. US CPI is expected to be steady at 5% y/y. BOE could raise rates again by 25 bps and indicate a pause in coming months.
Currency technical levels: USDINR: 81.62 (Supports), 82/82.25 (resistance),
EURINR:90.65(Resistance),89.45/88.65(Support),
GBPINR: Supports:101.75, Resistance:103.85(Resistance).
JPYINR: Resistance:61.50/63.50 Supports: 59.50/58.50 (support).
Hedging advise: USDINR exports can be hedged closer to 82. EUR and GBP exports can be covered on rally to 90.50 and 103+ respectively.
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