WEEKLY SYNOPSIS: 19/05/2023
|Currency Pairs||WEEK CLOSE||PRIOR WEEK CLOSE||% change|
Brent Crude closed at USD 71.50 VS prior week close of USD 74. Gold closed at USD 1979. Nifty closed at 18203 vs prior week close of 18314. 10 Year G-SEC Yield closed at 7%.
Major developments: USDINR traded in the 82.16-82.79 range last week and closed at 82.67 gain of 51 ps for USD as against prior week close of 82.16. EUR declined 0.54% w/w and GBP declined 0.22% w/w against Rupee. Indian benchmark Equity index declined 0.60 w/w. 10 Year G-SEC Yield closed at 7%. 1-year fwd premia is at 1.90% p.a. FX reserves climbed USD 3 bn last week as compared to prior week and stood at USD 599.5 bn as on May 12 th. This is the highest since June 2022. In May till date, FII’S have bought Rs 24476 Cr of Equities and have bought Rs 1340 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 declined tracking fall in Crosses and Chinese Currency. Demand from Oil companies also contributed to Rupee fall. RBI sold USD at higher levels. RBI has been intervening on both sides. There are no domestic factors behind Rupee’s decline.
S&P reaffirmed India’s sovereign and Currency ratings at BBB- long term.
Indian trade deficit shrunk to USD 15.24 bn in April and combined services and trade deficit declined to USD 1.38 bn. In March, trade deficit was at USD 19.73 bn. April exports stood at USD 34.66 bn, down from USD 38.88 bn in March. Imports also declined to USD 49.9 bn from USD 58.11 bn in March. Services exports was at USD 30.66 bn and Imports was USD 16.5 bn and surplus was USD 14.16 bn. In last fiscal, total exports was USD 775.87 bn, up 14% y/y. Merchandise exports was USD 450.43 bn and services exports was USD 325.44 bn.
Hedging advise: Exports be hedged for a longer duration.
Global developments: Dollar index has gained around 2% in the last few weeks and this could be attributed to market’s wrong reading of Fed’s future move. Market expected Fed to tone down rhetoric and even effect rate cuts in last quarter of this year. On the contrary, Fed officials are sounding hawkish and intend to raise rates again, even at the cost of recession. This changing dynamic has pulled Crosses lower.
Fed Chairman said time has come to make measured assessment of the monetary tightening as is has lagged effect. He added that tighter financial conditions due to banking stress will give space for Fed to wait and assess the situation. He summed it up saying “As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course, the extent of that is highly uncertain.”
Fed members expressed divergent opinions on future rate hike trajectory.
US retail sales showed that consumer spending is still resilient. US Equity markets climbed higher despite looming issues on raising debt ceiling limits in US.
Japanese economy expanded at annualized rate of 1.6%, which significantly surpassed expectation of 0.7%. This marks the first expansion in three quarters.
Eurozone CPI was finalized at 7.0% yoy in April, up from March’s 6.9% yoy.
BOE Governor pledged to act on rates so that inflation declines to target level.
Chinese Yuan has declined to 7.05, fall of around 5% from its recent lows. Disappointing Chinese economic data has triggered weakness in Yuan and fall in Crude Oil.
US Personal spending, income and Core PCE index are important events for the week.
On the technical picture, EURUSD has broken 50 day moving average. It has supports at 1.0750. Break below this could trigger further fall to 1.05.
Currency technical levels: USDINR: 82.45/82.15 (Supports), 82.80/82.90 (resistance),
GBPINR: Supports:101.75, Resistance:103.85(Resistance).
JPYINR: Resistance:61.50 Supports: 59.50/58.50 (support).
Hedging advise: USDINR exports can be hedged. EUR and GBP exports can be covered on rally to 90.50 and 103+ respectively.
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