Currency Map:

USD/INR 73.86 73.07 1.08
EUR/INR 88.02 88.82 -0.90
GBP/INR 102.68 103.38 -0.67
JPY/INR 66.99 66.79 0.30

Brent Crude closed at USD 73.20 VS prior week close of USD 71.65. Gold closed at USD 1764.Nifty closed at 15683 vs prior week close of 15800. 10 Year G-SEC Yield closed at 6.02%.

Major developments: USDINR traded in the 73.10-74.28 range and closed at 73.86 as against prior week close of 73.07. Rupee declined 1.08% w/w. EUR declined 0.91% and GBP declined 0.67% w/w against Rupee. Indian benchmark Equity index declined 0.74% w/w. 10 Year G-SEC Yield closed at 6.02%. 1 year fwd premia is at 4.50% p.a. In June till date, In June till date, FII’S have net bought Rs 5848 cr in Equity segment and have net sold Rs 2293 cr of debt. In this financial year, FII’S have net bought Rs 6297 Cr worth of Indian Equities and have sold Rs 2289 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.

Rupee declined steeply on Thursday, flowing Fed’s announcement of QE tapering in coming months. Rupee’s decline tracked USD’S movement against majors and Asian Currencies.1 Year Fwd premia inched higher to 4.5%.  With Fed turning hawkish, Rupee is set to decline further. However, RBI could intervene due to negative impact of Rupee weakness on imported inflation. USDINR is set to trade in the 73.50-74.60 range with bias towards 74.60+.

Indian CPI climbed steeply to 6.3% and WPI surged to 12.94% due to steep increase in Crude and Metal prices. RBI has projected the CPI inflation at 5.1 per cent during the ongoing financial year 2021-22. Food inflation spiked to 5.01%. Inflation is above RBI’S target band. Though 10 Year yield climbed to 6.05%, it retraced back due to RBI’S G-SEC buying.

Indian Equity indices recovered from a steep fall on Friday. Equity market movement will be guided by global developments.                                                               

Global developments: USD had a monstrous rally following Fed’s shift in attitude due to hardening of inflation. Fed now expects two rate hikes by 2023. Fed members have started to discuss QE tapering. In fact 4 members expect rate hikes in 2022 itself. Fed upgraded growth and inflation levels. GDP is expected to expand by 7% this year and Core PCE is expected to be 3% as against 2.2% in last forecast. Policymakers acknowledged that the “progress on vaccinations has reduced the spread of COVID-19 in the United States”. Together with “strong policy support, indicators of economic activity and employment have strengthened”.

Gold declined and Euro fell close to 1.1850. Pound also declined. However, US Yields softened as investors shifted to safe haven status of buying bonds, expecting steep correction in Equity markets.

Fed Chairman’s testimony to US Congress is the focus event of this week.

Currency range forecast: USDINR:73.55(support)-74.60(Resistance), EURINR: 86.50(support), 88.50(Resistance), GBPINR: 100.60(support), 103- Resistance, JPYINR: 66.50-69.                         

Suggestion: Cover USD import payables on dips to 73.55. EURINR receivables can be hedged closer to 88.50. GBPINR receivables hedging can be done at around 103.50.

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