Currency Map:

USD/INR 74.99 74.12  1.17
EUR/INR 86.59 86.01 0.67
GBP/INR 102 99.93 2.07
JPY/INR 67.01 66.83 0.26

Brent Crude closed at USD 82.54 VS prior week close of USD 79.90. Gold closed at USD 1756.Nifty closed at 17895 vs prior week close of 17532. 10 Year G-SEC Yield closed at 6.31%.

Major developments: USDINR traded in the 74.13-75.16 range and closed at 74.99 as against prior week close of 74.12. Rupee declined 1.17% w/w. EUR climbed 0.67% and GBP climbed 2.07% w/w against Rupee. Indian benchmark Equity index climbed 2.07% w/w. 10 Year G-SEC Yield closed at 6.31%. 1 year fwd premia is at 4.40% p.a.

USDINR steepened its climb and breached 75 levels as Crude rally weighed on the pair. USD’S strength against majors is another reason. Sept trade deficit widened, despite increasing exports. India’s exports grew by 21.3% in Sept to US D 33.44 bn, while imports climbed to USD 56.38 bn. Sept trade deficit hit USD 23 bn (nearly). In Apr- Sept, exports stands at USD 197.11 bn. Trade deficit stands at USD 78.81 bn.

RBI maintained status quo on repo and reverse repo rates. Repo rate is at 4%. GDP is expected to be 9.5% and inflation is expected to be 5.3% for full year. RBI Governor said that he is optimistic on growth and said that investment activity has picked up. RBI has taken the first step in normalising liquidity. Indian 10 Year G-SEC bond yields crossed 6.30% vs 6.17% in prior week. In coming week, CPI and IIP data will be released.

Govt also announced 100% disinvestment of its stake in Air India to the successful bidder, Tata Group.

Rupee’s movement hinges on Crude prices. RBI has not intervened effectively till now. But, it could intervene considering the twin negative impact of higher Oil prices and Rupee fall on inflation.

USDINR is expected to trade in the 74.50-75.50 range in coming weeks.

In Oct, FII’S have net bought Rs 3522 cr in Equity segment and have net bought Rs 57 cr of debt. In this financial year, FII’S have net bought Rs 8809 Cr worth of Indian Equities and have bought Rs 19445 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: US employment data disappointed with lower job additions. However, unemployment rate declined. US non-farm payroll employment grew 194k only in September, well below expectation of 500k. Total employment is still down by -5.0m, or -3.3% from its pre-pandemic level in February 2020. Unemployment rate dropped notably from 5.2% to 4.8%, better than expectation of 5.1%. Labor force participation rate was little changed at 61.6%. Average hourly earnings rose 0.6% mom versus expectation of 0.5% mom.

US lawmakers moved closer to finding a solution to increasing debt ceiling limit.

In the accounts of ECB’s September 8-9 meeting, Governing Council members concurred with the assessment that “an accommodative monetary policy stance remained”. Also, “policy support from a sustained pace of net purchases under the PEPP, along with the other instruments and the recalibrated forward guidance, was deemed essential”.

Despite a dismal US NFP data, Euro could not take control as EU economic data is worsening compared to US data. Also, Fed is at least conscious of the need to begin QE tapering. ECB seems comfortable in maintaining surplus liquidity. Supply bottlenecks and soaring energy prices are disruptive to economic scenario and inflation. US CPI and retail sales are key data events for this week.                                          

Currency range forecast: USDINR: 74.50/74.35(support)-75.35(Resistance), EURINR: 85.75 (support), 

87/87.25(Resistance), GBPINR: 101/100.40.(support), 102.50- Resistance, JPYINR: 66-68.50.   

Suggestion: Cover USD import payables on dips to 74.50. Receivables can be monitored and hedging can be initiated at 75.18/75.35. EURINR receivables can be hedged closer to 87+. GBPINR receivables hedging can be done at around 102.50. 

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