WEEKLY SYNOPSIS: 09/07/2021

Currency Map:

Brent Crude closed at USD 76.10 VS prior week close of USD 76.78. Gold closed at USD 1808.Nifty closed at 15689 vs prior week close of 15722. 10 Year G-SEC Yield closed at 6.15%.

Major developments: USDINR traded in the 74.24-74.94 range and closed at 74.65 as against prior week close of 74.78. Rupee gained 0.17% w/w. EUR declined 0.25% and GBP declined 0.11% w/w against Rupee. Indian benchmark Equity index declined 0.2% w/w. 10 Year G-SEC Yield closed at 6.15%. 1 year fwd premia is at 4.45% p.a. In July, FII’S have net sold Rs 4256 cr in Equity segment and have net bought Rs 1983 cr of debt. In this financial year, FII’S have net bought Rs 4795 Cr worth of Indian Equities and have sold Rs 2142 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 gained to 74.24 and then declined again to 74.80. Rupee decline was halted by IPO related inflows. RBI was not active in selling USD. Fwd premia was steady in the 4.40-4.45% p.a. range for 1 year.  Indian Equity indices whipsawed, and closed lower on w/w basis.

On data front, trade Deficit widened to USD 9.4 Bn in Jun-21 from USD 6.2 Bn in May-21. Imports expanded to USD 41.86 bn. Exports expanded sequentially for the second time in a row and registered 0.6% growth in June-21. June exports is at USD 32.4 bn. Exports in Q1 is at its highest reading of USD 95.36 bn. Imports in Q1 is at USD 126.14 bn. CPI and IIP data are awaited.

USDINR could trade in the 73.90-75 range. Since Rupee has declined steeply in the last 1 month, expect correction to 73.90.

Global developments: Focus continued to be on central banks statements on future monetary policy direction. USD gained as Fed is tilting towards QE tapering. FOMC minutes mentioned that :”various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings.”

ECB announced to adopt a symmetric 2% inflation target over medium term. Being symmetric meaning “negative and positive deviations of inflation from the target are equally undesirable”. This implies some tolerance for overshoot of mid-level inflation target.

In a note to G-20 Ministers and Central bank Governors, IMF said that “global growth has progressed broadly in line with projections, with clear signs of divergence.”. It urged “immediate action” by G20 to “arrest the rising human and economic toll of the pandemic”. Additionally, IMF said policy support should be “tailored to the stage of the crisis, avoiding abrupt transitions.” Monetary policy should “remain accommodative in most economies”. In particular, where “inflation expectations are anchored,” continued monetary accommodation is warranted”.

USD could correct lower, as markets shrugged off various bearish news like spread of delta variant, Chinese crackdown on leading technology stocks and Fed’s possible change of stance on QE.

US 10-year yield dived sharply to as low as 1.268 last week but recovered notably from there to close at 1.356. US Equities rally supported Global indices as intra week sell off proved to be a temporary blip. The decline in US 10 Year yield implies declining inflation expectation and hence drag USD lower in coming weeks.

Focus is now on US CPI and retail sales.

Currency range forecast: USDINR:74.25/73.90 (support)-74.90(Resistance), EURINR: 87.50(support), 89/89.50(Resistance), GBPINR: 102(support), 104- Resistance, JPYINR: 66.50-69.                         

Suggestion: Cover USD import payables on dips to 73.90. EURINR receivables can be hedged closer to 89. GBPINR receivables hedging can be done at around 103.50.

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