FX – WEEKLY UPDATE :

Weekly SYNOPSIS: 09/02/2024

Currency Map:

Brent Crude closed at USD 82 VS prior week close of USD 78. Gold closed at USD 2024. Nifty closed at 21782 vs prior week close of 21853. 10 Year G-SEC Yield is now at 7.11%.

Major developments: USDINR traded in the 82.90-83.08 range last week and closed at 83.01, gain of 10 ps for USD as compared to prior week close of 82.91. EUR declined 0.80% w/w and GBP declined 0.87 w/w against Rupee. Indian benchmark Equity declined 0.32% w/w. 10 Year G-SEC Yield closed this week at 7.11%. 1-year fwd premia is at 1.78% p.a.

In Feb, FPI’S have sold Rs 4814 Cr of Equities and bought Rs 12501 Cr of debt . In last calendar year, FII’S have net bought Rs 172853 Cr of Equities and have net bought Rs 70489 Cr of debt.

FX reserves stood at USD 622 bn, as on Feb 2 nd.

RBI kept repo rates unchanged at 6.5%. FY 2025 GDP is expected to be 7% and inflation is expected to taper to 4.5% in FY 25.

G-SEC yield declined to 7.03%, post budget. However, it has climbed back to 7.11%.

Rupee continues to be range bound and is expected to trade in the 82.80-83.35 range for some more months. There is no clear theme in Global FX markets. However, with US inflation trending down in a sustained manner and with very little signs of negative impact of US tighter monetary policy on US growth and employment, Fed may bring forward rate cuts to second quarter. This may have positive implications for inflows into Indian debt and equity markets and support Rupee.

Focus is now on CPI and IIP.

Hedging advise: Imports be hedged closer to 82.80. Exports be hedged closer to 83.17/83.35.

Global developments: Resilience of US economy is supporting USD, Yields and Stocks in tandem. This is a rare occurrence of all three asset markets moving in tandem. There was thin data flow last week. However, Fed speakers’ views provided insight into future rate path. Fed officials this week reiterated their message that there’s no rush to cut interest rates, with bond yields trending moderately higher as a result. Fed Chair Jerome Powell emphasized the importance of ensuring inflation is convincingly on a downward trajectory toward 2% target before the central bank cut interest rates. He candidly stated, “it’s not likely that this committee will reach that level of confidence in time for the March meeting,” echoing the comments he made last week at the post-FOMC press conference.

OECD upgraded Global economic growth to 2.9% from 2.7% for 2024. Despite some moderation in growth and the ongoing adjustments to tighter financial conditions, OECD cautions that it is “too soon to be sure that underlying price pressures are fully contained.” Labor markets showing signs of equilibrium bring a positive note, yet the persistently high unit labor cost growth looms as a challenge for meeting medium-term inflation targets.

The specter of high geopolitical tension, particularly in the Middle East, poses a “significant near-term risk to activity and inflation”, with potential disruptions in energy markets likely to have far-reaching consequences. 

China’s CPI took a notable dip in January, registering decrease of -0.8% yoy, marking a significant deepening of deflationary pressures from the previous month’s -0.3% and falling short of expectation -0.5% yoy. 

Focus is on US CPI and retail sales.

Currency technical levels: USDINR: 82.80/82.65 (Supports), 83.18/83.35 (resistance),

EURINR:90.50(Resistance),89.15(Support),

GBPINR: Supports: 104.10/103.70( supports), Resistance:106.50(Resistance).

JPYINR: Resistance:57.25, Supports: 54.75 (support).

Hedging advise: USDINR imports be hedged on decline to 82.80. EUR nearby payables be covered at 89.15.

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