FX WEEKLY UPDATE

WEEKLY SYNOPSIS: 27/03/2020

Currency Map:

Currency Pairs WEEKLY CLOSE PRIOR WEEK CLOSE % change
USD/INR 74.85 75.19 -0.45
EUR/INR 82.45 80.52 2.40
GBP/INR 91.45 88.29 3.6
JPY/INR 69.36 67.84 2.25

 

Brent Crude closed at USD 25VS prior week close of USD 27.40.

Nifty closed at 8660 vs prior week close of 8745.

10 Year G-SEC Yield closed at 6.14%.

Major developments:Volatility remained unabated as the coronavirus fears intensified. USD swung 2 Rupees last week, between 74.30 and 76.30. On Friday, itself Rupee swung between 74.30 and 75.40. RBI’s intervention at around 76 levels helped Rupee to recover and close at 74.85 as against 75.19 in prior week. EUR rallied 2.4% and GBP climbed 3.6% against Rupee. Equity markets also remained extremely edgy despite stimulus triggered rally. Oil fell further. FII selling crossed 1 lac Cr in a single month of March.FII’S nett sold  Rs 56047 Cr ofIndian Equities in March till date . FII’S have nett sold Rs 52909 Cr of Indian debt securities in March till date.

PM announced nation wide lock down from Tuesday midnight for 21 days. Economic activity has been grounded as the focus was rivetted on saving lives. Govt announced 1.7 lac Cr worth of social package to help the poorest sections of the society. In tandem, RBI met market expectations and announced a slew of liquidity and rate cut measures.RBI cut repo rate by 75 bps to 4.4% and reverse repo by 90 bps to 4%. CRR was cut by 1% to 3%. RBI’S monetary easing and change in reserve ratios will free 2.7 lac Cr. Banks are mandated to invest extra CRR liquidity in corporate CP’S of investment grades. EMI’S under term loan is deferred for 3 months and interest on working capital is also defered by 3 months. Banks are also advised to reassess working capital requirement.

Govt’s welfare measures of 1.7 lac Cr announced on Thursday along with RBI rate cut could ease the pain of poor and borrowers to some extent.FM announced deferment of various statutory compliances to end of June.

Long term technical view indicates possibility of Rupee heading to 77-78/80 levels with support at 74.40.

Global developments:Global markets corrected higher as Govt and central banks announced fiscal and monetary measures to contain the fall out of Corona pandemic. USD suffered on improving funding conditions and Fed’s announcement of infinity QE. However, if risk aversion returns, USD will find favour. As a prelude to future set of data, US weekly jobless claims soared to 3.28 mn, unheard in recent period.

Fed announced a new round of aggressive measures to support the US economy against coronavirus pandemic impacts. In particular, Fed will purchase bonds to keep borrowing costs low without specifying a limit. There will also be programs to ensure credit flows into businesses and governments. US Govt finalised USD 2 trn package for direct monetary support to hoseholds.

Fed Chairman said that the US may “well be in a recession”. But this is different from a “normal recession” as “there is nothing fundamentally wrong with US economy”. And, “quite the contrary, US is starting from a very strong position”. Also, it’s not a “typical downturn” and “at a certain point, we will get the virus under control and confidence will return.”

Powell also said Fed’s recent measures will provide capital to businesses that need it. “When it comes to this lending, we’re not going to run out of ammunition, that doesn’t happen,” he added. “We still have policy room in other dimensions to support the economy.”

BoE voted unanimously to keep Bank Rate unchanged at 0.1%, as well as keeping asset purchase target at GBP 645B. The MPC will “continue to monitor the situation closely and, consistent with its remit, stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy.”

The central bank said that the “nature of the economic shock” from coronavirus pandemic is “very different from” those the central bank has previously had to responde to. The “scale and duration” will be “large and sharp but should ultimately prove temporary”.

 

Important developments in coming week: News on corona virus.

Currency range forecast for coming week:

USDINR:74.40(support), EURINR: 82.25(support), GBPINR: 91.75/90(support), JPYINR: 66.50-71.

Suggestion: Cover USD import payables. USD receivables can be hedged later.1 M EURINR payables can be hedged at 82.25/81.50. EURINR receivables can be hedged closer to 85. GBPINR receivables hedging can be done on any rally to 94.

 

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