FX WEEKLY UPDATE

WEEKLY SYNOPSIS: 05/02/2021

Currency Map:

Currency Pairs WEEKLY CLOSE PRIOR WEEK CLOSE % change
USD/INR 72.92 72.95  
EUR/INR 87.57 88.40 -0.93
GBP/INR 99.95 99.72 -0.23
JPY/INR 69.10 69.63 -0.76

Brent Crude closed at USD 59.76 VS prior week close of USD 55.25. Gold closed at USD 1815.Nifty closed at 14924 vs prior week close of 13596.10 Year G-SEC Yield closed at 6.07%.

Major developments: USDINR traded in the 72.79-73.14 range and closed at 72.92as against prior week close of 72.97, nominal Rupee gain of 5 ps w/w. EURand GBP corrected loweragainst Rupee. Indian benchmark Equity index climbed 9.73% w/w. 10 Year G-SEC Yield closed at 6.07%.

Rupee gained to 72.94 early last week, as flows continued.Fwdpremia surged higher on increasing G-sec yields. 1 Year fwdpremia climbed to 4.95% p.a. Rupee gained despite USD’S recovery against Euro. Rupee gains is stemmed by USD buying by PSU banks. Indian FX reserves climbed to USD 590 bn as on Jan 29 th.

FII’S nett bought Rs 15136 Cr ofIndian Equities in Feb . FII’S nett bought Rs 398 Cr of Indian debt securities in Jan . In this financial year, FII’S have nett bought Rs 245783 Cr of Equities and have sold Rs  24864 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, spurred by path breaking budget. Govt increased capex spending by 35%, hiked FDI investment in insurance to 74%, announced privatisation in non-strategic sectors, mooted asset monetisation, new asset construction bank to manage bank NPA’S, faceless assessment in IT, no reopening of cases beyond 3 years except in some cases are the dominant features. Govt decided to rely on increased borrowing than on taxes. Gross borrowing is expected to be 12 lac cr. Fiscal deficit is expected to be at 9.5% this year and 6.5% next year.

                                                                                                           

RBI kept rates and monetary stance steady. As per RBI Projection, GDP is expected to be 10.5% for next fiscal and inflation is expected to be between 5 and 5.2%. 10 year yield continues to firm up.

Strong corporate earnings in Q3 and high frequency indicators indicates that the economy is on a growth path beyond pent up demand.

Exports climbed 5.7% in Jan to USD 27.24 bn. Imports climbed 2% to USD 42 bn. Trade deficit stands at USD 14.76 bn.

Global developments:USD recovered against Euro as the economic data spurred optimism and US progressed in vaccination efforts. USD gained on better economic performance compared to EU. The nonfarm payroll report showed that the case for more stimulus remains elevated.

BoE kept monetary policy unchanged as widely expected.BOEpledged that, “if the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit.” Also, “the Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

BOE added that outlook for the economy remains “unusually uncertain”, depending on the “evolution of the pandemic. 

Eurozone GDP contracted -0.7% qoq in Q4, smaller than expectation of -1.8% qoq. Over the year, GDP contracted -6.8% yoy.

This week is light in data. US CPI is the important data release for this week. 

Currency range forecast: USDINR:72.75(support)-73.30(Resistance), EURINR: 87.10(support), 88.25 (Resistance), GBPINR: 98.50(support) 100.50/101.20- Resistance, JPYINR: 68.50-70.

Suggestion: Cover USD import payables on decline to 72.75/72.50. USD receivables can be hedged at 73.15/73.30.EURINR payables can be hedged on decline to 87.50. GBPINR receivables hedging can be done at around 100.50.

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