Currency Map:

USD/INR 73.03 73.46 -0.58
EUR/INR 87.20 89.25 -2.29
GBP/INR 101.28 102.98 -1.65
JPY/INR 67.52 69.39 -2.70

Brent Crude closed at USD 70.28 VS prior week close of USD 65.30. Gold closed at USD 1700.Nifty closed at 14938 vs prior week close of 14529. 10 Year G-SEC Yield closed at 6.23%.

Major developments: USDINR traded in the 72.60-73.78 range and closed at 73.03 as against the prior week close of 73.46. Rupee registered a gain of 0.58 % w/w. EUR and GBP declined against Rupee. Indian benchmark Equity index climbed 2.8% w/w. 10 Year G-SEC Yield closed at 6.23%.

USDINR was very volatile for the past two weeks. The pair had a range of Rs 1.18 last week, and exhibited swift two-way movements. Rupee began the week with a fall to 73.78, but recovered on strong corporate inflows attributed to Bharti’s USD 1.2 bn bond issuance and flows for Zomato. Rupee’s strong move contradicts USD’S last week rally against majors. Hence, it raises doubts as to whether the present leg of rally will sustain.  Fwd premia continued to soften with1 year declining to 4.76% from around 5.3% levels.

FII’S nett bought Rs 3243 Cr of Indian Equities in Mar (as on 5/3) . FII’S nett sold Rs 4577 Cr of Indian debt securities in March (as on 3/3) . In this financial year, FII’S have nett bought Rs 261808 Cr of Equities and have sold Rs  35201 Cr in debt. In FY 19-20, FII’s sold Rs 10200 Cr of Equities and 47393 cr of debt.

The rise in Crude prices and surging USD yield are negatives for Rupee. However, robust inflows is still a bulwark against the Rupee fall. Indian FX reserves stand at USD 584.55 bn as on 26/2.

Economic data is solid. Feb GST collections grew over 6% y/y to USD 1.13 lac Cr. Auto sales is solid, with leading carmakers reporting jump of 8% to 29% increase in sales. PMI(mfrg) data remained strong at 57.5 and PMI(services) also climbed to 55.3.

Indian exports declined 0.3% in Feb to USD 27.67 bn, while imports grew 7% to USD 40.57. Trade deficit stood at USD 12.9 bn in Feb. In April-February, exports contracted 12.32% while imports fell 23.1%, resulting in a $151.4 bn deficit.

The focus is on IIP and CPI data to be released later this week.

USDINR is expected to trade in 72.30-73.80 range for some more time. An upside break of 73.80 could herald a fresh wave of Rupee selling. This could happen only if US yields rally remains unabated. To tame inflation due to a rally in Crude prices, RBI may desist from aggressive intervention.

Global developments: US 10 Year yield spiked to 1.60%, notwithstanding US Fed Chairperson’s pledge to maintain current bond purchases. Stimulus package and commodity price rally have triggered inflation concerns. The yield rally has helped USD to break its weakening trend. Global Equities and Gold continued to remain under pressure. Crude prices climbed even further as Saudi maintained the status quo on production.           

US data that was released last week was strong and put anxiety amongst investors for higher rates in the future. US ISM(mfrg) and employment data were robust. US non-farm payrolls employment grew 379k in February, well above the expectation of 148k. Prior month’s figure was also revised sharply up from 49k to 166k.

Federal Reserve Chairman Jerome Powell said that the recent spike in U.S. rates was “notable” but stressed the central bank would continue the current pace of bond buying and low-level interest environment until substantial progress is made on its job creation and inflation goals.    

The focus will be on US CPI.

EUR/USD has strong support at 1.18. Downside break of 1.18 would signal that USD is set to extend its rally. USD/JPY has climbed close to 109.

Currency range forecast: USDINR:72.30(support)-73.80(Resistance), EURINR: 86.25(support), 88.10 (Resistance), GBPINR: 100.50(support)99.30- Resistance, JPYINR: 67-68.75.                         

Suggestion: Cover USD import payables on decline to 72.40. USD receivables can be hedged at 73.50. EURINR receivables can be hedged on rally to 88. GBPINR receivables hedging can be done at around 102.50.

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