FX – WEEKLY UPDATE :

Weekly SYNOPSIS: 08/03/2024

Currency Map:

Brent Crude closed at USD 82.50 VS previous week close of USD 84.50. Gold closed at USD 2177. Nifty closed at 22493 vs prior week close of 22338. 10 Year G-SEC Yield is now at 7.03%.

Major developments: USDINR traded in the 82.69-82.93 range last week and closed at 82.73, loss of 12 ps for USD as compared to prior week close of 82.85. EUR climbed 0.73% w/w and GBP climbed 0.71 w/w against Rupee. Indian benchmark Equity climbed 0.7% w/w. 10 Year G-SEC Yield closed this week at 7.03%. 1-year fwd premia is at 1.65% p.a.

In March, FPI’S bought Rs 9652 Cr of Equities and bought Rs 3532 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 625 bn, as on March 1 st. Reserves climbed USD 6 bn w/w.

Rupee gained and USDINR pair traded below last 1 year average rate. This is a bullish sign for Rupee. Inflows continue to be robust and strong macro fundamentals are helpful for Rupee. Indian bond inclusion in major Global bond indices and increasing weightage in Emerging market Equity indices are very supportive. Crude continues to be stable at lower levels.

IIP and inflation data are due for release in coming week.

USDINR has major support at 82.60. The pair has to breach 82.95 to exhibit changing Global dynamics.

Hedging advise: Imports be hedged closer to 82.60. Exports be hedged closer to 82.85/82.90..

Global developments: USD declined due to higher-than-expected unemployment rate and downward revision of Jan data. US non-farm payroll employment rose 275k in February, above expectation of 200k. However, January’s figure was revised sharply lower from 353k to 229k. Unemployment rate jumped from 3.7% to 3.9%, above expectation of being unchanged at 3.7%. Labor force participation rate was unchanged at 62.5% for the third consecutive month. Average hourly earnings rose 0.1% mom, below expectation of 0.2% mom. Employment data indicates still a healthy labor market, but moderating to a mor balanced state, giving comfort to the central bank.

Earlier in the week, in his testimony to US Congress, Fed Chair Jerome Powell said that the Central bank will cut interest rates eventually in 2024, but he noted that the Fed still needed more confidence that inflation was decreasing. In his remarks he stated that the resilience of the economy and the labor market gave the FOMC time to assess the sustainability of current disinflation trends.

ECB maintained status quo, with downward revision to inflation forecasts. ECB now anticipates that headline inflation will return to its target by 2025 and drop below 2% in 2026. Several policymakers hinted at rate cuts by June. Some members indicated there is “large consensus” among officials on the inevitability of rate reductions, albeit with ongoing discussions about the precise timing. It is now acknowledged the prevailing conditions could pave the way for a shift to a less restrictive monetary stance. 

Near term direction for FX pairs will be decided by US CPI and retail sales data.

Currency technical levels: USDINR: 82.60 (Supports), 82.95/83.05 (resistance),

EURINR:90.75/91.20(Resistance),90.25/89.75(Support),

GBPINR: Supports: 105.85/105.30( supports), Resistance:106.75/107.80(Resistance).

JPYINR: Resistance:56.80/57.60, Supports: 54.95 (support).

Hedging advise: USDINR imports be hedged on decline to 82.60. EUR nearby payables be covered at 89.75/89.15. Receivables can be covered. GBP receivables can be covered at 106.50+.

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