WEEKLY SYNOPSIS: 11/06/2021

Currency Map:

Brent Crude closed at USD 71.65 VS prior week close of USD 72.60. Gold closed at USD 1879.Nifty closed at 15800 vs prior week close of 15670. 10 Year G-SEC Yield closed at 6.00%.

Major developments: USDINR traded in the 72.75-73.12 range and closed at 73.07 as against prior week close of 73. Rupee declined 0.07% w/w. EUR climbed 0.41% and GBP climbed 0.24% w/w against Rupee. Indian benchmark Equity index climbed 0.82% w/w. 10 Year G-SEC Yield closed at 6.0%. 1 year fwd premia is at 4.50% p.a. In June till date, FII’S have net bought Rs 4788 cr in Equity segment and have net sold Rs 1793 cr of debt. In this financial year, FII’S have net bought Rs 5237 Cr worth of Indian Equities and have sold Rs 1089 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 605 bn.

Spot Rupee trading was more subdued this week. Volatility was more dominant in fwds. Fwd premia bid/ask traded with 4ps spread at times.1 Year Fwd premia inched higher to 4.5%. IIP and CPI data are awaited. Indian trade deficit for May stands at USD 6.32 bn. Indian exports is at USD 32.21 bn and imports is at USD 38.53 bn.

Indian Equity indices continued to surge and posted another week of gains.

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

Global developments: USD managed to stay in a tight range despite strong US inflation data. Fed is meeting against the back drop of surging inflation. But Fed has consistently maintained that inflation will be transitory. Fed is more concerned about employment which is still well below the pre pandemic levels.

Due to shift in digital landscape and personal interaction attitude enforced by corona, unemployment will remain higher despite job openings. Supply side constraints may also be contributing to inflation. But it will be interesting to see if Fed opens up on what it would do if inflation is persistent.

ECB maintained status quo and signalled it was too early to taper its bond purchases, saying that it expects an accelerated pace of purchases to continue during Q3. ECB now forecasts Eurozone GDP growth of 4.6% in 2021 (compared to 4.0% in March) and 4.7% in 2022 (4.1% in March). For inflation, the ECB expects the CPI to rise 1.9% in 2021 (compared to 1.5% in March) and by 1.5% in 2022 (1.2% in March). 

EU GDP declined -0.3% q/q and -1.3% y/y. Japanese Q1 GDP contraction was finalized at -1.0% qoq, revised up from -1.3% qoq. Annualized rate was finalized at -3.9%.

Focus is on US FOMC Meeting.

Currency range forecast: USDINR:72.75/72.35(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 72.75/72.35. 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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