FX – WEEKLY UPDATE :

Weekly SYNOPSIS: 12/04/2024

Currency Map:

Brent Crude closed at USD 90 VS previous prior week close of USD 91. Gold closed at USD 2344. Nifty closed at 22513 vs prior week close of 22519. 10 Year G-SEC Yield is now at 7.18%.

Major developments: USDINR traded in the 83.16-83.49 range last week and closed at 83.47, gain of 15 ps for USD w/w. EUR declined 1.3% w/w and GBP declined 0.78% w/w against Rupee. Indian benchmark Equity closed flat w/w. 10 Year G-SEC Yield closed this week at 7.18%. 1-year fwd premia is at 1.60% p.a.

Rupee gained declined to 83.49 after showing strength and gains to 83.17.

In April, FPI’S have bought Rs 10992 Cr of Equities and sold Rs 3201 Cr of debt . In FY 23-24, FII’S have net bought Rs 206279 Cr of Equities and have net bought Rs 123120 Cr of debt.

FX reserves stood at USD 648 bn, as on April 5 th. Reserves increased by USD 2.5 bn w/w.

March CPI eased to 4.85% as against 5.09% in Feb. Food inflation eased marginally to 8.52% from 8.66% in Feb. Core CPI declined to 3.4% in Feb. IIP surged to 4 month high of 5.7% as against 4.2% in Jan.

Rising geo political tensions and USD rally against majors pose threat to Rupee and could trigger further weakness. RBI’S intervention could slow down the decline.

USDINR is expected to move lower to 84.10 with supports at 83.27/83.16.

Hedging advise: Imports be hedged on decline.

Global developments: US Yields rose and spurred Dollar rally against EU majors after release of stronger than expected CPI data. Also, ECB’S rate cut comments triggered Euro decline to 1.07. US markets and Global markets are jolted by fading expectations of June rate cut. USD climbed on risk aversion as geo political tensions are high due to expected Iran-Israel conflict. Rising energy prices as a consequence of Gulf tensions could make disinflationary progress even harder. US 10-year yield surged sharply too to close at 4.499 after reaching as high as 4.591.

US CPI rose 0.4% mom in March, above expectation of 0.3% mom. CPI core (all items less food and energy) rises 0.4% mom, also above expectation of 0.3% mom. Energy index rose 1.1% mom. Food index rose 0.1% mom.For the 12 months period, CPI accelerated from 3.2% yoy to 3.5% yoy, above expectation of 3.4% yoy. CPI core was unchanged at 3.8% yoy, above expectation of 3.7% yoy.

New York Fed President John Williams suggested that, should the economy evolve as anticipated, it would be prudent to “dial back the policy restraint gradually over time, starting this year.” However, he was quick to stress the inherent uncertainty in the economic outlook, underscoring the need for Fed to maintain a data-dependent approach.

FOMC minutes also highlighted members dilemma over slow speed in inflation declining trend. FOMC members voted to keep language in the post-meeting statement that they wouldn’t be cutting rates until they “gained greater confidence” that inflation was on a steady path back to the central bank’s 2% annual target.“Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent,” the minutes said.

ECB maintained its interest rates as widely expected, holding main refinancing rate and deposit rate at 4.50% and 4.00%. Most importantly, for the first time, the central bank explicitly indicated the possibility for future interest rate cuts, which would be seen as a conditional guidance for a June adjustment. “If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction,” ECB said. Nevertheless, the decision will still be data depended, and meeting-by meeting.

Currency technical levels: USDINR: 83.26/83.17 (Supports), 83.70/84.10 (resistance),

EURINR:89.70/90.10(Resistance),88/87(Support),

GBPINR: Supports: 103( supports), Resistance:104.85/105.10(Resistance).

JPYINR: Resistance:55.30/56.50, Supports: 53.60 (support).

Hedging advise: USDINR imports be hedged on decline . EUR nearby receivables be covered at 89.70.GBP receivables can be covered at 105+.

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