Currency Map:

USD/INR 72.79 73.03 -0.32
EUR/INR 86.74 87.20 -0.52
GBP/INR 101.27 101.28  
JPY/INR 66.78 67.52 -1.10

Brent Crude closed at USD 69.20 VS prior week close of USD 70.28. Gold closed at USD 1725.Nifty closed at 15030 vs prior week close of 14938. 10 Year G-SEC Yield closed at 6.23%.

Major developments: USDINR traded in the 72.63-73.29 range and closed at 72.79 as against prior week close of 73.03. Rupee registered gain of 0.32 % w/w. EUR declined and GBP closed flat against Rupee. Indian benchmark Equity index climbed 0.6% w/w. 10 Year G-SEC Yield closed at 6.23%.

USDINR pair movement is buffeted between FDI inflows and USD’S strengthening trend against majors. USD Yield spike is a deterent to Rupee strength. However, FII and FDI inflows are capping Rupee’s move beyind 73.25. Indian Equity indices are facing stiff resistance at higher levels. Steep valuations along with Global yield spike are capping Equity rally. Recent rise in Corona infections across the country is also a dampener to Equity rally.

Indian CPI climbed to 5.03% in Feb due to surge in Food prices. Food inflation jumped to 3.87%.IIP contracted -1.6% in Jan. Manufacturing sector output contracted by 2.0 per cent in January, while the mining output declined by 3.7 per cent. Power generation grew by 5.5% in January.

FII’S nett bought Rs 4749 Cr of Indian Equities in Mar (as on 12/3) . FII’S nett sold Rs 8615 Cr of Indian debt securities in March (as on 10/3) . In this financial year, FII’S have nett bought Rs 263314 Cr of Equities and have sold Rs  39239 Cr in debt. In FY 19-20, FII’s sold Rs 10200 Cr of Equities and 47393 cr of debt.

USDINR is expected to trade in 72.30-73.80 range for some more time. 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 rally in Crude prices, RBI may desist from aggressive intervention.                                                                                   

Global developments: It is one year back when the world locked itself down under the severest threat posed to humanity by corona virus. Thanks to early vaccine development and testing, hope has returned back, notwithstanding the presence of the virus. Policy response has also been unprecedented and has cut the economic recession period to just 6 months. Increase in commodity prices and asset prices is due to Global liquidity. This has now unleashed fear of inflation. Though US CPI was subdued, PPI is at the highest level since 2018. Large stimulus program has led to increase in individual net worth. US President signed USD 1.9 trn package and this alone will help US GDP to climb to 6% this year. The side effect has been the steep climb in US 10 Year yield which spiked to 1.65%. Fed is meeting in coming week and could side step market fears or take steps for yield control. Fed is more concerned about labor market, which may take 2 years to get back to pre- pandemic levels.

OECD revised Global economic growth by 1.4% to 5.6% for 2021. Indian GDP growth was revised up by 4.7% to 12.6%. US is set to grow by 6.2%, EU by 3.9%.

Eurozone GDP dropped -0.7% qoq in Q3, revised down from prior estimate of -0.5% qoq. For the year 2020 as a whole, GDP dropped -6.6%.

ECB maintained status quo, but said that purchase under emergency purchase program will be accelerated within the overall limit to stem possible rise in yields. EU bond yields declined.

Focus will be on US retail sales and FOMC meeting.

Currency range forecast: USDINR:72.30(support)-73.80(Resistance), EURINR: 85.50(support), 87.50/88.10 (Resistance), GBPINR: 99.50(support), 101.80- Resistance, JPYINR: 64-68.30.                         

Suggestion: Cover USD import payables on decline to 72.40. USD receivables can be hedged at 73.25. EURINR receivables can be hedged on rally to 87.50/88. GBPINR receivables hedging can be done at around 102.50.

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