FX WEEKLY UPDATE

WEEKLY SYNOPSIS: 24/04/2020

Currency Map:

Currency Pairs WEEKLY CLOSE PRIOR WEEK CLOSE % change
USD/INR 76.45 76.40 0.06
EUR/INR 82.25 82.70 -0.54
GBP/INR 94.30 95.06 -0.80
JPY/INR 71.10 71.04 0.08

 

Brent Crude closed at USD 21 VS prior week close of USD 26.60.

Nifty closed at 9154 vs prior week close of 9266.

10 Year G-SEC Yield closed at 6.17%.

Major developments: USDINR traded in the 75.98-76.91 range and closed at 76.45. EUR and GBP declined against Rupee. Indian Equity markets declined 1.2% w/w basis.

The week was dominated by 1) Facebook-Reliance deal of USD 5.7 bn, 2) Decline in Crude near month futures to –USD 40, 3) Closure of 6 debt mutual fund schemes by Franklin Templeton.

Indian Equity indices and Rupee fared better, shrugging the fear and economic impact of lock down.  Reliance lifted market spirits by stitching a mega investment and strategic deal with Facebook. Reliance entry into e commerce with the advantage of broadband platform and what’s app subscriber base is considered as a leap over its rivals. Reliance will also be able to repay part of its debt, which was to have happened with Aramco investment.

In another shock to investors, Franklin Templeton closed redemptions in 6 debt schemes citing lack of liquidity.  6 funds have been closed and investors may have to wait till the duration of the bond schemes.

Crude Oil declined to –USD 40 on the expiry of futures contract in NYMEX. This is due to lack of interest in physical delivery as buyers have run short of storage space. Crude has recovered since then to USD 17.

 

However, as demand has declined steeply due to lockdowns and increase in inventories, it is highly likely that next month contract may also decline below 0 on expiry date.

Indian FX reserves swelled to USD 480 bn, still short of record highs of USD 487 bn. FII’S have nett sold Rs 3020 Cr of Indian Equities in April . FII’S have nett sold Rs 4778 Cr of Indian debt securities in April. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt.

USDINR pair may have made a top at 76.90. Technical charts indicate possibility of steep Rupee gains in coming months. Increasing Dollar liquidity and beginning of economic activity in May/June are positives for Rupee. Steep fall in Crude price and decline in Oil imports could contribute to decline in CAD to 0.5% of GDP this year. There is also a possibility of CAD turning into surplus.

Global developments: Oil rattled Global markets, even as economic data was easily the worst in decades. US reported 4.4 mn jobless claims, totalling 26 mn in four weeks. Durables data and home sales data were also on the low side of the last few decades. The economic ramifications of Covid-19 and policy responses are unprecedented. Yet, it will take some more months for the beneficial impact of policies to be seen.

Slump in EU and UK mfrg and services  data is far below consensus estimates. The readings indicate a quarterly contraction of -7% in GDP.                                 

Important developments in coming week:  News on corona virus and US GDP.

Currency range forecast for coming week:

USDINR: 75.85(support), EURINR: 82(support), GBPINR: 92.50(support), JPYINR: 66.50-71.

Suggestion: Cover USD import payables on decline to 75.60/75.30. USD receivables can be hedged at 76.50+. 1 M EURINR payables can be hedged at 82.25/81.75. EURINR receivables can be hedged closer to 83.50/84. GBPINR receivables hedging can be done on any rally to 95.

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