FX – WEEKLY UPDATE

Currency Map:

Currency Pairs WEEKLY CLOSE PRIOR WEEK CLOSE % change
USD/INR 73.68 74.39  -0.95
EUR/INR 86.61 86.86 -0.28
GBP/INR 100.97 101.30 -0.32
JPY/INR 66.96 67.85 -1.31

Brent Crude closed at USD 71.65 VS prior week close of USD 65. Gold closed at USD 1820.Nifty closed at 16705 vs prior week close of 16450. 10 Year G-SEC Yield closed at 6.25%.

Major developments: USDINR traded in the 73.68-74.31 range and closed at 73.68 as against prior week close of 74.39. Rupee gained 0.95% w/w. EUR declined 0.28% and GBP declined 0.32% w/w against Rupee. Indian benchmark Equity index climbed 1.55% w/w. 10 Year G-SEC Yield closed at 6.25%. 1 year fwd premia is at 4.28% p.a. Forex reserves is at USD 616 bn.

USDINR broke the 74.10 support level and declined steeply as stop losses got triggered. RBI’S lack of intervention also helped USD to climb. Rupee could gain further to 73.30, as US Fed Chairman stuck a dovish note. USD’S weakness against majors could impact Rupee positively early next week. However, if US NFP data comes stronger than expected, USD could climb and reverse this week’s Rupee trend. Indian Q1 GDP is to be released on Tuesday. Due to base effect, GDP may have climbed 20% y/y. Indian Equity indices continued to surge higher. Indian rating agency ICRA has noted that there is vast improvement in many high frequency indicators in industrial and service sector and growth is slowly getting entrenched.

In August, till date,, FII’S have net bought Rs 3543 cr in Equity segment and have net bought Rs 11440 cr of debt. In this financial year, FII’S have net sold Rs 3472 Cr worth of Indian Equities and have bought Rs 7277 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.

Global developments: Fed Chairman was ambiguous in his speech y’day. While he said that pandemic continuation and slack in labor market are concerns, the economy is strong and significant labor market improvement has happened. He added that if economy evolves broadly as anticipated, QE taper can happen in 2021. His statement is considered dovish and triggered decline in USD and a rally in Equities and commodities.

In the monthly report, Bundesbank said German economic output is “likely to rise sharply in summer 2021”, more strongly than in spring. Industry was unable to take advantage of the growth in Q2 due to increased delivery bottlenecks.

Focus shifts to US employment data and ISM(mfrg and services). If data is strong, Fed members may lean towards QE tapering and the announcement could come in Sept itself. USD’S weakness could turn temporary if data is strong. If data comes weaker than expected, USD weakness could get exacerbated.

Currency range forecast: USDINR:73.30 (support)-74.10(Resistance), EURINR: 86.35(support), 87.50(Resistance), GBPINR: 100.40.(support), 102.25- Resistance, JPYINR: 66-68.50.                         

Suggestion: Cover USD import payables on dips. Receivables can be covered on spike to 74. EURINR receivables can be hedged closer to 87.25.. GBPINR receivables hedging can be done at around 102.25. 

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