Currency Map:

USD/INR 72.97 73.07 -0.13
EUR/INR 88.83 88.71 0.13
GBP/INR 99.74 99.67 0.07
JPY/INR 70.31 70.34 0

Brent Crude closed at USD 55 VS prior week close of USD 54.85. Gold closed at USD 1855.Nifty closed at 14371 vs prior week close of 14433. 10 Year G-SEC Yield closed at 5.94%.

Major developments: USDINR traded in the 72.94-73.31 range and closed at 72.97 as against prior week close of 73.07, nominal Rupee gain of 0.13% w/w. EUR and GBP closed almost flat against Rupee. Indian benchmark Equity index declined 0.4% w/w. 10 Year G-SEC Yield closed at 5.94%.

Rupee gained to 72.94 early last week, as flows continued. Fwd premia surged higher on increasing G-sec yields. 1 Year fwd premia climbed to 4.7% p.a. Rupee gained despite reversal in USD direction against Euro. Rupee gains is stemmed by USD buying by PSU banks. Indian FX reserves stands at USD 584 bn as on Jan 15 th.

FII’S nett bought Rs 23853 Cr of Indian Equities in Jan . FII’S nett sold Rs 4874 Cr of Indian debt securities in Jan . In this financial year, FII’S have nett bought Rs 235645 Cr of Equities and have sold Rs  26663 Cr in debt. In FY 19-20, FII’s sold Rs 10200 Cr of Equities and 47393 cr of debt.

Indian Sensex crossed 50k level. Corporate earning reporting season is in full swing. Indian Budget will be the focus in coming weeks.

Global developments: USD gained traction against majors with no underlying theme. US and Global stocks cruised to new highs and investors took profits at higher levels. US 10 Year Treasury yields stabilized around 1.10% after Fed Chairman dismissed any idea of even entertaining talks of QE tapering. Markets are looking ahead to a period where growth and inflation begin to accelerate, but the Fed holds rates on the floor, keeping real rates deeply negative.

ECB left the “very accommodative monetary policy stance” unchanged as widely expected. Main refinancing rate was held at 0.00%, marginal lending rate and deposit rate at 0.25% and -0.50% respectively. Envelope of the “pandemic emergency purchase programme (PEPP)” is kept at EUR 1850B, running through at least March 2022. Asset purchase programme (APP) will continue at monthly net purchase of EUR 20B.

Bank of Japan left all the stimulus measures intact. The policy rate stays unchanged at -0.1%, while asset purchases will continue in order to keep the 10-year JGB yields at around 0% (yield curve control).

Focus turns to US FOMC meeting. No major shift in policy is expected.

Vaccination efforts, economic revival in EU and US will decide the direction and magnitude of USD. With American economy likely to bounce back earlier than EU, USD could reverse its declining trend in coming months.

Currency range forecast: USDINR:72.50(support)-73.50(Resistance), EURINR: 87.50(support), 89.50 (Resistance), GBPINR: 98.50(support) 100.20/101.20- Resistance, JPYINR: 70-72.                         

Suggestion: Cover USD import payables on decline to 72.75/72.50. USD receivables can be hedged at 73.30. EURINR payables can be hedged on decline to 88.50/87.50. GBPINR receivables hedging can be done.

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