Important developments in the last few weeks:
-US Fed hiked rates and is on course to hike rate twice before the end of this calendar Year. Increasing USD interest rates is negative for Rupee, unless RBI keeps pace with it. RBI may be forced to hike rates to check Rupee fall or allow Rupee weakness as FPI outflow from debt markets continue and CAD expands.
-ECB to end QE by Dec, Interest rate hike will not happen till mid 2019.
-OPEC is meeting this week to consider supply boost. Crude Oil is stabilising. This is positive for Rupee.
-US- China trade spat intensifies. If it continues it could lead to a serious risk to growth in EM markets. US Consumers may pay more and US inflation could creep higher.
-Indian Equity indices move sideways. In the last quarter, Nifty 50 companies excluding PSU banks have reported healthy growth in profit.
-Indian Current account deficit expands to 1.9% of GDP in Q 4 of last fiscal. Trade deficit expands to USD 14.9 bn in May, due to high crude prices.
Technicals : USDINR may be nearing an important peak of 68.40/68.80 and then temporarily correct lower to 67. Expect 67-68.40/68.80 range for USDINR in coming weeks.
EURINR may trade in the 78.40-80.20 zone.
Suggestion: USDINR exports be 50% covered on rally towards 68.40/68.80. Imports be covered from cost angle.
EURINR exports be covered on rally to 80 and imports be covered on decline to 78.75/78.50. This is valid till 80.20 is intact on the upside and 78.20 is intact on the downside.