FX – WEEKLY UPDATE :

WEEKLY SYNOPSIS: 27/10/2023

Currency Map:

Brent Crude closed at USD 90.10 VS prior week close of USD 92.80. Gold closed at USD 2006. Nifty closed at 19047 vs prior week close of 19542. 10 Year G-SEC Yield closed at 7.35%.

Major developments: USDINR traded in the 83.06-83.26 range last week and closed at 83.25, gain of 6 ps for USD as compared to prior week close of 83.19. EUR closed flat w/w and GBP climbed 0.25 w/w against Rupee. Indian benchmark Equity index declined 2.5% w/w. 10 Year G-SEC Yield closed at 7.35%. 1-year fwd premia is at 1.74% p.a.

FX reserves declined by USD 2.36 bn and stood at USD 583.50 bn as on Oct 20 th.  Foreign Currency assets decreased by USD 4.15 bn last week, due to USD rally. In Oct, FPI’S have sold Rs 17488 Cr of Equities and bought Rs 5221 Cr of debt . In 2022-23 fiscal year, FII’S have net sold Rs 27593 Cr of Equities and have net bought Rs 838 Cr of debt.

USDINR volatility continues to remain subdued, aided by RBI intervention at higher levels. Fwd premia traded steady at 1.74% p.a. for 1 Year. Rupee remains rock steady despite higher Oil prices, steep climb in USD index and FPI outflows. RBI rolled over buy/sell swap. Rupee liquidity was marginally in deficit.

Sliding Equity markets, FII’s pullout amidst surging US Yields and RBI’S action continued to impact on USDINR pair both sides. Considering convergence of negative factors and the possibility of expansion in Middle East conflict, RBI may be pressed to allow decline in Rupee to 83.70 levels.

Indian Equities continued to slump on slower than expected Q/Q Corporate results. Surging US Yields and Middle east tensions also weighed on markets.

Hedging advise: Imports be hedged. Exports be hedged gradually.

Global developments: US economy continues to remain resilient supported by consumer spending.

U.S. GDP remained exceptionally strong, accelerating to an annualized rate of 4.9%. That was also the fifth consecutive increase since Q2/22 and largest since Q4/21. GDP number indicates the U.S. economy still performed remarkably well in Q3, led by resilient household spending. Consumer spending is attributed to excess savings created during pandemic.

Consumer spending expanded 4% q/q. The spending spree was fuelled by a resilient labor market and a further drawdown of the excess savings accumulated during the pandemic.

Fed is meeting against the back drop of robust growth and spending spree. Higher consumer spending could trigger inflationary trends again.

ECB kept interest rates unchanged as widely expected. The main refinancing, marginal lending and deposit rates are held at 4.50%, 4.75%, and 4.00% respectively.

The central bank maintains that key interest are “at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.” Future decisions will ensure the policy rates are set at sufficiently restrictive levels for “as long as necessary”. Nevertheless, ECB still “stands ready” to adjust all of its instruments.

Focus is on US ISM(mfrg), ISM (services), Fed meeting and BOE rate decision.

Currency technical levels: USDINR: 83.03 (Supports), 83.30/83.47 (resistance),

EURINR:88.40/89.10(Resistance),86.90/85.60(Support),

GBPINR: Supports: 100.25/99( supports), Resistance:102.50/103.50(Resistance).

JPYINR: Resistance:56.50/59.50, Supports: 55.40/54.50 (support).

Hedging advise: USDINR imports be hedged on decline. EUR and GBP exports can be covered on rally to 88.50 and 102.50/103.50+ respectively.