Currency Map:

USD/INR 73 72.43 0.78
EUR/INR 88.45 88.28 0.19
GBP/INR 103.13 102.74 0.37
JPY/INR 66.61 65.88 1.10

Brent Crude closed at USD 71.65 VS prior week close of USD 69. Gold closed at USD 1894.Nifty closed at 15670 vs prior week close of 15475. 10 Year G-SEC Yield closed at 6.02%.

Major developments: USDINR traded in the 72.34-73.30 range and closed at 73 as against prior week close of 72.43. Rupee declined 0.78% w/w. EUR climbed 0.19% and GBP climbed 0.37% w/w against Rupee. Indian benchmark Equity index climbed 1.26% w/w. 10 Year G-SEC Yield closed at 6.028%. 1 year fwd premia is at 4.38% p.a. In June till date, FII’S have net bought Rs 3049 cr in Equity segment and have net sold Rs 983 cr of debt. In this financial year, FII’S have net bought Rs 3498 Cr worth of Indian Equities and have sold Rs 279 Cr worth of Indian debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt. FX reserves is now at USD 598.2 bn.

Spot Rupee had a roller coaster ride and settled at 73. Rupee’s decline was triggered initially by RBI buying and USD was sold by exporters at higher levels. Volatility was more dominant in fwds. Fwd premia bid/ask traded with 5ps spread at times.1 Year Fwd premia crashed to 4.4% from its early week high of 5.25%. If that is factored, fwd USDINR rate mostly remained at the same level for 1 year. RBI Governor acknowledged the role played by the central bank in spot and fwd markets in either direction. The objective seems to anchor a steady rate within a small band. USDINR could trade in the 72.50-74 range, till there is a decisive movement in USD crosses. Some of the Asian countries have also started to get impatient on the strength of their currencies.

The week was dominated by GDP and RBI announcement. RBI kept rates unchanged at 4%. GDP has been revised lower to 9.5%. Inflation is expected to be 5.1% for the full year. RBI has announced another round of G-SEC buying in Q2 to the extent of 1.2 lac cr.

Indian GDP contracted by -7.3% for the full fiscal year 2020-21 as against expectation of -8%. Q4 GDP climbed 1.6%.Agri sector grew by 3.1% for the full year. Mfrg contracted -7.2%, construction declined 8.6% for the full year. Mfrg and construction sectors grew by 6.9% and 14.5% respectively in Q4. Services contracted by -2.3% in Q4 and by -18.2% for the full year. Household consumption fell 9.5% in 2020-21 as against 5.5% rise in 201-20. Govt expenditure rose by 2.91%.

Indian Equity indices continued to surge and posted another week of gains. Focus is now on IIP and CPI data.

Technically, USDINR has to clear 73.30 to negate its recent downward move.

Global developments: US data continued to inspire and back the forecast of rapid return to normalcy. With employment and wage pressures rising along with supply side bottlenecks, Fed’s upcoming meetings will be crucial for USD and Equity markets.

US Institute for Supply Management’s (ISM) reports on manufacturing and services sectors registered a full year of growth in a single month in May. 

US non-farm payroll employment grew 559k in May, below expectation of 621k. Prior month’s figure was revised slightly up from 266k to 278k. Total non-farm payroll employment is down by -7.6m, or -5.0%, from its pre-pandemic level in February 2020. Unemployment rate dropped to 5.8%, down from 6.1%, slightly below expectation of 5.9%. 

EU PMI data was also robust. On strong EU PMI readingChief Business Economist at IHS Markit said: “The eurozone’s vast service sector sprang back into life in May, commencing a solid recovery that looks likely to be sustained throughout the summer… The service sector revival accompanies a booming manufacturing sector, meaning GDP should rise strongly in the second quarter.

OECD has raised Global growth forecast to 5.8% from its last update of 4.2% due to progress in vaccination and massive stimulus measures.                                    

The report highlighted the uneven nature of recovery with some countries reaching pre pandemic per capita levels within 18 months and some countries may struggle for nearly 5 years.

Focus is on ECB meeting and US CPI data.

Currency range forecast: USDINR:72.25(support)-73.30(Resistance), EURINR: 88(support), 89.60 (Resistance), GBPINR: 102(support), 104- Resistance, JPYINR: 65.50-67.50.                         

Suggestion: Cover USD import payables on dips to 72.50/72.35. USD receivables can be hedged now. EURINR payables can be hedged, but if 88 is broken, suggest paring down of cover for future payments. Receivables can be hedged at 89+. GBPINR receivables hedging can be done at around 104.

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