FX – WEEKLY UPDATE :
WEEKLY SYNOPSIS: 03/11/2023
Currency Map:
|
Currency Pairs |
WEEK CLOSE |
PRIOR WEEK CLOSE |
% change |
|
USD/INR |
83.27 |
83.25 |
|
|
EUR/INR |
88.52 |
87.89 |
0.71 |
|
GBP/INR |
101.62 |
100.91 |
0.70 |
|
JPY/INR |
55.40 |
55.42 |
|
Brent Crude closed at USD 85 VS prior week close of USD 90. Gold closed at USD 1992. Nifty closed at 19230 vs prior week close of 19047. 10 Year G-SEC Yield closed at 7.32%.
Major developments: USDINR traded in the 83.18-83.33 range last week and closed at 83.27, gain of 2 ps for USD as compared to prior week close of 83.25. EUR climbed 0.71% w/w and GBP climbed 0.70 w/w against Rupee. Indian benchmark Equity index climbed 0.96% w/w. 10 Year G-SEC Yield closed at 7.32%. 1-year fwd premia is at 1.62% p.a.
FX reserves climbed by USD 2.5 bn and stood at USD 586 bn as on Oct 27 th. In Nov, FPI’S have sold Rs 2979 Cr of Equities and bought Rs 1185 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 declined to 1.62% p.a. for 1 Year. With Fed signalling end of rate hike, threat to steeper Rupee decline seems to have faded. Since RBI has sold USD at higher levels, they may mop up USD on dips and also prevent any significant gains. It seems that 83.30 may hold and Rupee could gain marginally to 82.75, if USD Index strength abates.
While US economic data is softening, EU and UK data are exhibiting greater weakness. Relative economic strength of US economy will still help USD to make further, but marginal gains against crosses. With Oil price unable to make big gains, despite Middle East tensions, threat to bigger trade deficit has also reduced. The above situation favors continuation of range bound trading activity in USDINR pair.
India Manufacturing Purchasing Managers’ Index stood at 55.5 in October, compared with 57.5 in September. This is the lowest reading in 8 months. GST Collections surged 13% y/y to 1.72 lac Cr. Average gross monthly GST collection in FY 2023-24 now stands at Rs 1.66 lakh crore, which is 11 per cent higher compared to the previous financial year.
Indian Equities recovered after a steep fall.
Hedging advise: Imports be hedged closer to 83. Exports be hedged closer to 83.30.
Global developments: Fed left rates on hold and Fed Chairman sounded less hawkish. He said that while Fed has a long way to go to reach 2% inflation target, he also cited that surging yields have tightened financial conditions and there are emerging risks to economy. While the Fed is not expected to hike rates further, it is also expected to keep rates higher for longer, pressuring the economy as it moves to curb high inflation.
US non-farm payroll employment grew 150k in October, below expectation of 172k. That’s well below average monthly gain of 258k over the prior 12 months. Unemployment rate rose from 3.8% to 3.9%, above expectation of being unchanged at 3.8%. Participation rate dropped from 62.8% to 62.7%.Average hourly earnings rose 0.2% mom, below expectation of 0.3% mom. Over the 12 months, average hourly earnings rose 4.1% yoy.
October’s cooling in US labor market combined with expectations that economic activity will pullback in Q4, suggests that Fed will maintain rates and not increase until inflation rears again.
US ISM (non mfrg) data was also below expectation at 51.8. ISM said: “The past relationship between the Services PMI and the overall economy indicates that the Services PMI for October (51.8 percent) corresponds to a 0.7-percent increase in real gross domestic product (GDP) on an annualized basis.” US ISM (mfrg) also showed signs of deceleration.
US yields declined due to Treasury auction announcement, that it will slow the recent flood of new long-dated debt.
BOE left rates unchanged at 5.25%. BoE ,like many of its peers, seems to be done with the tightening cycle and it’s now a case of how long it remains at the peak.
Currency technical levels: USDINR: 83.03 (Supports), 83.30/83.47 (resistance),
EURINR:89.70(Resistance),88.
GBPINR: Supports: 101.50( supports), Resistance:104(Resistance).
JPYINR: Resistance:56/56.75/57.30, Supports: 54.50 (support).
Hedging advise: USDINR imports be hedged on decline. EUR and GBP exports can be covered on rally to 89.70 and 104+ respectively.