Currency Map:

USD/INR 75.01 76.08 -1.40
EUR/INR 85.13 86.39 -1.45
GBP/INR 100.65 101.55 -0.88
JPY/INR 65.69 67.07 -2.05

Brent Crude closed at USD 76.50 VS prior week close of USD 73. Gold closed at USD 1810.Nifty closed at 17003 vs prior week close of 16985. 10 Year G-SEC Yield closed at 6.47%.

Major developments: USDINR traded in the 75-76.16 range and closed at 75.01 as against prior week close of 76.08. Rupee gained 1.40% w/w. EUR declined 1.45% and GBP declined 0.88% w/w against Rupee. Indian benchmark Equity index closed flat w/w. 10 Year G-SEC Yield closed at 6.47%. 1 year fwd premia is at 4.58% p.a.

Rupee’s reversal was stunning, gaining 1.4% as custodial banks sold USD. Rupee could gain to 74.80/74.50 levels. There were no major economic data releases.

In Dec, FII’S have net sold Rs 8315 cr in Equity segment and have net sold Rs 6495 cr of debt. In this financial year, FII’S have net sold Rs 1638 Cr worth of Indian Equities and have bought Rs 13830 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: Omicron fears dominated headlines. However, Equity markets shrugged off fears as the economic damage is likely to be limited. However, the new variant has alerted the society to the risk of public health. Economic data from US and India suggests that consumers are desensitised due to frequent waves and news associated with it. While travel plans are rattled, there is likely to be less damage to consumer spending.

US inflation is a major issue now and markets are even factoring rate hike by March 2022.

PCE index, the Federal Reserve’s preferred inflation gauge, jumped to 5.7% in November from 5% in the prior month. That’s the highest rate since 1982.The core PCE rate that strips out food and energy surged to 4.7% from 4.1% on an annual basis. That’s the highest rate since 1989.

Fed has announced USD 30 BN/month tapering and possibility of 3 rate hikes. Financial markets are also adjusting to a more hawkish pivot from the Fed as well. If economy is not derailed by Omicron and inflation persists, markets may revise its pricing. This could support USD.

Currency range for next week: USDINR: 74.80/75.40, EURINR: 84.40/85.35, GBP/INR: 100/102.50, JPY/INR:64.50/67.

Suggestions: USD Imports can be covered at 74.80/74.40. EURINR imports can be covered at 84.40. GBPINR exports can be covered at 102.50/103.50.

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