WEEKLY SYNOPSIS: 26/11/2021

Currency Map:

Brent Crude closed at USD 73 VS prior week close of USD 78.50. Gold closed at USD 1791.Nifty closed at 17026 vs prior week close of 17764. 10 Year G-SEC Yield closed at 6.33%.

Major developments: USDINR traded in the 74.30-74.92 range and closed at 74.85 as against prior week close of 74.15. Rupee declined 0.94% w/w. EUR closed flat and GBP declined 0.68% w/w against Rupee. Indian benchmark Equity index declined 4.15% w/w. 10 Year G-SEC Yield closed at 6.33%. 1 year fwd premia is at 4.80% p.a.

USDINR met with resistance at 74.58 for most part of the week. However, it broke that level to rally to 74.92 as new variant of covid detected in South African region unleashed wave of selling in Equities and commodities. Though Rupee could weaken to 75.50 levels, strong inflows could bring it back to 74.50. Star insurance IPO and LIC IPO’S could flood USD.

In NOV, FII’S have net bought Rs 15102 cr in Cash Equity segment and have net bought Rs 2389 cr of debt. In this financial year, FII’S have net bought Rs 6676 Cr worth of Indian Equities and have bought Rs 20077 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:

Early last week, EUR/USD declined to 1.12 . However, there was a mild reversal on Friday and Euro jumped to 1.1319 and Yen gained from 115.40 to 113 levels as new covid variant made the market reassess Fed’s QE tapering path. US 10 Year yields pulled back sharply to 1.48%. WT1 and Brent crude crashed almost 8% on Friday. Fears of new economic slowdown and release of Oil from strategic reserves by US, China, India, Japan and Korea brought Crude prices significantly down.

Earlier in the week, USD was supported by Fed’s hawkish minutes which noted that “Various participants noted that the Federal Open Market Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher,” 

US GDP grew 2.1% quarter-on-quarter in the third quarter.

In the accounts of the ECB’s October 27-28 meeting, it’s noted, “since the monetary policy space was constrained by the effective lower bound on interest rates, the increase in the inflation rate was seen as an opportunity to re-anchor inflation expectations solidly at the Governing Council’s 2% target over the medium term.”

Also, “a continued accommodative monetary policy stance would also be in line with the Governing Council’s new monetary policy strategy, which called for policy to be persistent when interest rates were at the lower bound and explicitly allowed for inflation to moderately exceed the target for a transitory period”.

The mood is summarised now as one of fear on the unknown factor surrounding the new variant and the efficacy of vaccination against the new strain.

Currency range forecast: USDINR: 74.60(support)-75.15/75.65(Resistance), EURINR: 83.50(support),85.50(Resistance), GBPINR: 98(support), 101.50/102.30- Resistance, JPYINR: 64-66.   

Suggestion: Cover USD import payables on dips to 74.60. Receivables can be monitored and hedging can be initiated at 75.50+. EURINR receivables can be hedged closer to 85.50+. GBPINR receivables hedging can be done at around 101.50+/102.50.

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