FX WEEKLY UPDATE

WEEKLY SYNOPSIS: 13/03/2020

Currency Map:

Currency Pairs WEEKLY CLOSE PRIOR WEEK CLOSE % change
USD/INR 73.91 73.78 0.17
EUR/INR 82.79 83.54 -0.89
GBP/INR 93.03 96.07 -3.10
JPY/INR 68.47 70.07 -2.28

 

Brent Crude closed at USD 34.72 VS prior week close of USD 45.54

Nifty closed at 9955 vs prior week close of 10989.

10 Year G-SEC Yield closed at 6.32%.

Major developments: This week could be labelled as “once in a decade” week. Equity markets crashed, Oil plummeted, Gold fell steeply and Currency pairs were volatile. Fear of fast spreading Corona epidemic has tripped Global growth to probable recession. Rupee hit 74.50 and would have fallen more, but for RBI intervention. RBI sold USD at 74.50 and announced an insignificant amount of USD 2 bn swap to provide Dollar funds. Rupee traded in the 73.55-74.50 range last week and closed at 73.91, nominal gain of 13 ps for USD. EURINR and GBPINR fell after their early last week rally.

Indian Equity indices slumped 10% on Friday morning forcing circuit breakers into action, first since 2009. As trading resumed, LIC led institutions and short covering triggered an upward tsunami of 15% climb.

Markets are in mood to react to data. Indian CAD fell to 0.2% of GDP in Q3 2019-20. FX reserves climbed to USD 481 bn. CPI eased marginally to 6.58% and Industrial production climbed 2% in Jan 2020.

FII’S were big sellers in March. FII’S nett sold  Rs 21435 Cr of Indian Equities in March till date . FII’S have nett sold Rs 11784 Cr of Indian debt securities in March till date.

Govt increased excise duty on petrol by Rs 3 per litre to shore up revenue. Decrease in Oil prices has provided a cushion to shore up Rs 40000 Cr revenue. Union cabinet approved Yes bank reconstruction plan with SBI in the lead with ICICI, HDFC bank and Kotak bank picking up stakes.

Global developments: Global markets plummeted last week. It began with Oil price war by Saudi Arabia. Saudi announced increase in production and cut in Oil prices by USD 6 to USD 8. Intensification of Corona virus in Europe led to US President clamping down on travellers from Europe and also embargoed trade from EU for 30 days. Europe is now the new epicentre for corona virus with Italy reporting 1000 deaths. Most nations have shut borders and schools, colleges, offices and malls shut. Corona virus has tipped major economies into probable recession. US growth is expected to fall below 1.5% in this quarter or coming quarter. Fed, BOE, and Bank of Canada have cut rates by 50 bps. ECB introduced additional TLTRO and expanded QE by 120B for this year. UK has announced fiscal measures and conservative EU Govts are also mulling fiscal measures to support businesses. China’s PBoC announced  cut in reserve requirement ratio for the second time this year to release CNY 550B of liquidity.

Japanese government announced a second coronavirus relief package that is worth JPY 430.8B. Prime Minister Shinzo Abe pledged to “carry out necessary and sufficient economic and fiscal management without hesitation.

USD reversed its weakness and ended strong against Euro and GBP. Fed is expected to cut rates in its meeting this week and Euro could bounce back. Fall below 1.1050 after Fed meeting would imply that recent Euro strength was transient.

Important developments in coming week:  US retail sales, Fed meeting and BOJ monetary policy.            

Currency range forecast for coming week:

USDINR: 72.90-74.25, EURINR: 80.70-83, GBPINR: 90-92.50, JPYINR: 66.50-71.

Suggestion: Cover 1 month USD import payables on decline to 72.90/72.40. USD receivables can be hedged at 74+. 1 M EURINR payables can be hedged at 82.25/80.70. EURINR receivables can be hedged closer to 84-85 levels. GBPINR receivables hedging can be done on any rally to 93..

      

 

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