FX – WEEKLY UPDATE :
WEEKLY SYNOPSIS: 18/09/2023
Currency Map:
|
Currency Pairs |
WEEK CLOSE |
PRIOR CLOSE |
% change |
|
USD/INR |
83.19 |
82.98 |
0.25 |
|
EUR/INR |
88.56 |
89.15 |
-0.66 |
|
GBP/INR |
103.29 |
103.93 |
-0.71 |
|
JPY/INR |
56.28 |
56.50 |
-0.38 |
Brent Crude closed at USD 94.45 VS prior week close of USD 90.50. Gold closed at USD 1924. Nifty closed at 20192 vs prior week close of 19819. 10 Year G-SEC Yield closed at 7.10%.
Major developments: USDINR traded in the 82.83-83.20 range last week and closed at 83.19, gain of 21 ps for USD as compared to prior week close of 82.98. EUR declined 0.66% w/w and GBP declined 0.71% w/w against Rupee. Indian benchmark Equity index climbed 1.88% w/w. 10 Year G-SEC Yield closed at 7.10%. 1-year fwd premia is at 1.75% p.a.
FX reserves stood at USD 594 bn as on Sept 8 th. In Sep, FPI’S have sold Rs 6715 Cr of Equities and bought Rs 1382 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 was weighed down by external developments. Rally in USD Index and Crude Oil and decline in Yuan contributed to negative Rupee sentiment.
India’s Aug CPI inflation eased to 6.83% from July reading of 7.44%. Food inflation eased to 9.94% from 11.41%. Though inflation eased, it is still above the comfort band of 2-6%. Vegetable prices, still high, rose 26.1 per cent against a staggering 37.34 per cent rise in July, while prices of oils and fats declined by 15.3 per cent after dropping by 16.8 per cent in the previous month. Cereal prices remained in double digits and rose 11.6 per cent in August as compared with 13 per cent in July.
IIP climbed 5.7% in July vs 3.8% in June. For the first four months this fiscal, India’s industrial output is up 4.8 per cent year-on-year, down from 10.0 per cent in April-July 2022. Mfrg sector grew by 4.6%, mining climbed 10.7%. Electricity output climbed 8%, consumer durables declined by 2.7%, consumer non-durables grew by 7.4%. Construction sector grew by 11.4%.
India’s Aug trade deficit expanded to 10 month high reading of USD 24.16 bn. Exports stood at USD 34.48 bn vs USD 32.25 bn in July and imports were at 58.64 bn vs USD 52.92 bn in July.. Services exports in August were $26.39 billion, while imports were $13.86 billion. In July, services exports were $27.17 billion and imports were $14.85 billion.
For the April-August period, services and merchandise exports fell about 5% year-on-year to $306.33 billion, while imports fell about 10% to $343.81 billion.
Hedging advise: Imports be hedged on declined to 82.85. Exports be hedged gradually.
Global developments: USD strength gained further momentum on better US economic data and ECB’S dovish signal on interest rates. Euro declined to 1.0650 levels.
ECB delivered a dovish 25bps rate hike. The accompanying statement indicated that the current tightening cycle could have reached its peak already. Also, core inflation and growth forecasts for 2024 and 2025 were revised down.
ECB President cited the persistent nature of inflation being “too high for too long” as the primary motivator behind this strategy to “reinforce progress” in ushering inflation back to the target in a “timely manner”.
ECB added, “the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. Future decisions will “ensure” that the interest rates are set at “sufficiently restrictive levels for as long as necessary.
EU Growth is projected to be at 0.7% in 2023 (prior 0.9%), 1.0% in 2024 (prior 1.5%), and 1.5% in 2025 (prior 1.6%). In the new economic projections, inflation is forecast to be at 5.6% in 2023 (prior projection at 5.1%), 3.2% in 2024 (prior 3.0%) and 2.1% in 2025 (prior 2.3%). The upward revision for 2023 and 2024 mainly reflects a higher path for energy prices.
US headline CPI increased 0.6% in August from a month ago, which was the highest reading since June 2022. The annual inflation reading rose from 3.2% to 3.7%, a tick above expectations. CPI core slowed from 4.7% yoy to 4.3% yoy, matched expectations.
US retail sales rose by 0.6% month-on-month (m/m) in August, up from the downwardly revised 0.5% (previously 0.7%) reading in July. Sales in the retail sales “control group”, which excludes the above volatile components (autos, building materials and gas) and is used to estimate personal consumption expenditures (PCE) came in at 0.1% m/m – this was above consensus forecast which called for a -0.1% decline.
Crude prices rallied sharply , hitting their highest levels for the year after a monthly report from the Organization of Petroleum Exporting Countries (OPEC) said that oil markets will tighten further this year amid robust demand and lower production. Brent crude is trading at USD 94.
Technically, EURUSD has turned bearish with downside break of 200 day average. Rally will be met with resistance at 1.0850/1.09. GBPUSD has also broken 200 day averages and has turned bearish.
Currency technical levels: USDINR: 82.85 (Supports), 83.30/83.47 (resistance),
EURINR:89.90(Resistance),87.
GBPINR: Supports: 102( supports), Resistance:105.50(Resistance).
JPYINR: Resistance:57.75, Supports: 54.50 (support).
Hedging advise: USDINR imports be hedged at 82.80 on decline. EUR and GBP exports can be covered on rally to 89.50 and 105+ respectively.