Currency Map:

USD/INR 71.68 71.37 0.43
EUR/INR 77.31 77.52 -0.27
GBP/INR 92.68 93.16 -0.5
JPY/INR 64.23 65 -1.18


Brent Crude closed at USD 58.45 VS prior week close of USD 57.55

Nifty closed at 12080 vs prior week close of 12113.

10 Year G-SEC Yield closed at 6.43%.

Major developments: It was a truncated trading week for USD/IR pair. USD/INR traded in the 71.26-71.80 range. It closed at 71.68, registering gain of 31 ps w/w for USD. EURINR declined 0.27% and GBPINR declined 0.5%.

RBI’s action had thwarted Rupee gains and the central bank seems to be guiding Rupee weaker in tandem with Global USD performance. CNY and EURO were under pressure last week. RBI bought USD 5 bn in the last 10 days itself and even surprising at levels of 71.20 and 71.55. This indicates that Rupee is inching toward a new range of 71.25-72.50 levels. FX reserves has swelled to USD 475 bn, up from USD 418 bn in last March. FII inflows has hit Rs 21000 Cr till now in Feb alone. FII’S nett bought  Rs 10750 Cr of Indian Equities in Feb till date . FII’S have nett bought Rs 10618 Cr of Indian debt securities in Feb till date.

Equity markets whip sawed and closed with nominal losses. Indian G-SEC yields softened further with 10 year yield declining to 6.37%. 1 year USDINR fwd premia stabilized at 3.80% p.a.                                                                                                                            

Global developments: USD gained, treasury yields declined and Gold soared as investors remained nervous as Corona virus issue continued to haunt travel, tourism and supply chains. The outbreak has certainly worsened since last week—there are now around 76,000 cases in China, 208 in South Korea, 109 in Japan and 15 in the United States.

Major tech company APPLE has already stated that sales would be lower and supplies will be affected.

IMF said that the coronavirus epidemic has already disrupted economic growth in China and a further spread to other countries could derail a “highly fragile” projected recovery in the global economy in 2020.

Chinese central bank cut interest rate on its medium term loans to cushion the impact on the economy from the Wuhan coronavirus outbreak. Also, CNY 100B of liquidity is injected to financial institution through reverse repos.

On the contrary, Fed remained optimistic on US economy. Though Fed seems to have debated the negative impact of the virus on US economy, it has assessed that the issue has not crossed the threshold to warrant further change in monetary policy. Minutes mentioned that “the committee viewed the “distribution of risks to the outlook for economic activity as more favorable than at the previous meeting,” while also noting downside risks “remained prominent.”

US leading index and housing data confirms that US economic growth remains solid.

EU data was mixed. While sentiment surveys weakened, PMI (mfrg) and PMI(services) exceeded expectations.

Japanese GDP contracted -1.6% qoq in Q4, much worse than expectation of -0.9% qoq. In annualized term, GDP contracted -6.3%, biggest contraction in six years.

Focus is on US consumption data and the developments of Chinese Corona virus.

Important developments in coming week:  US Personal consumption and durables order.              

Currency range forecast for coming week:

USDINR: 71.30-72, EURINR: 77-78.30, GBPINR: 92-94, JPYINR: 63.50-65.

Suggestion: Cover 1 month USD import payables on decline to 71.30. USD receivables can be hedged at 72. 1 M EURINR payables can be hedged at 77.20. EURINR receivables can be hedged closer to 78.30. GBPINR receivables hedging can be done on any rally to 93.25.


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