Currency Map:

USD/INR79.2678.97 0.36

Brent Crude closed at USD 104 VS prior week close of USD 112. Gold closed at USD 1765.Nifty closed at 17158  vs prior week close of 15780. 10 Year G-SEC Yield closed at 7.46%.

Major developments: USDINR traded in the 78.87-80.07 range in July and closed at 79.26 as against prior June close of 78.97. Rupee weakened by 0.36% m/m. EUR declined 1.71% m/m and GBP climbed 0.97% m/m against Rupee. Indian benchmark Equity index rallied steeply by 8.9% m/m. 10 Year G-SEC Yield closed at 7.32%. 1-year fwd premia is at 3.19% p.a. FX reserves stands at USD 571 bn as on July 29 th.

Rupee weakened to 80.06 in July and was met with RBI selling. As fear mounted on further decline in Equities and Rupee, there was a surprising turnaround on Friday. Rupee gained from 80.06 to 79.16. Equities have been steadily climbing this month, tracking US market gains. FII selling tapered after consistent selling since Jan.

Rupee gained 49 ps on Friday alone as market pared expectations of aggressive rate hike in US, following GDP contraction in Q2. USDJPY declined steeply and was tracked by EM Currencies. Steep climb in Indian Equity markets and inflows due to 5-G auctions also added to positive sentiment.

RBI meeting is scheduled for Aug 3 rd-5 th. RBI is expected to hike rates by atleast 50 bps.

In July till date FII’S have net sold Rs 1200 Cr of Equities in Cash segment and have sold Rs 1130 Cr of debt till date. In this Calendar Year, FII’S have sold close to Rs 2.02 lac Cr worth of Equities. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of 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.

USDINR has supports at 79.10 and later at 78.84. Resistance is expected near 79.40/79.70. Rupee movement will depend on Crude price and USD movement against majors.

Global developments: US entered into recession, following two quarters of GDP contraction. However, US spending data, employment level and ISM (mfrg) contradict GDP contraction, implying that it is a technical recession. Markets climbed steeply due to mixed data as it pared expectation of aggressive rate hike by Fed. US GDP contracted an annualized -0.9% in Q2, much worse than expectation of 0.4% rise. That’s the second quarter of contraction, after Q1’s -1.6% annualized.

Fed hiked rates by 75 bps to 2.25-2.5% band and indicated another large hike in Sept. However, Fed Chairman indicated that it could slow the process of rate hikes to assess the impact on inflation and economy. He also noted that “job gains have been robust in recent months, and the unemployment rate has remained low.”

US rates have moved into neutral zone, implying that it is neither restrictive nor accommodative. Fed Chairman said that he intends to move the rates into restrictive territory to return to price stability without committing on any explicit guidance. Since Core PCE index implies strong wage growth, though spending and investment have slowed, Fed is poised to raise rates by 75 bps in Sept meeting.

US Tech stocks rallied as leading companies reported better than expected results.

Eurozone GDP grew 0.7% qoq in Q2, well above expectation of 0.1% qoq. Compared with same quarter of last year, GDP grew 4.0% yoy. EU inflation rose to record high.

US employment data and ISM data will bring more information on US growth.

Currency technical levels: USDINR: 79.40/79.70/79.90 (Resistance), 79.10/78.85 (Supports), EURINR: 81.85/82.20(Resistance), 80.60/79.50 (Support), GBPINR: 95.50 (Support)/ 97.50-98.80 (Resistance). JPYINR: 57.50-62 range.

Hedging advise: USDINR exports be hedged till 79.70 is not broken. Imports can be hedged at 78.85. EURINR receivables be hedged on spike to 82, GBP Exports be hedged at 97.50+.

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