Currency Map:
| Currency Pairs | WEEKLY CLOSE | PRIOR WEEK CLOSE | % change |
| USD/INR | 68.80 | 68.56 | 0.35 |
| EUR/INR | 77.27 | 77.27 | 0.00 |
| GBP/INR | 86.08 | 86.21 | -0.15 |
| JPY/INR | 63.86 | 63.53 | 0.51 |
Brent Crude closed at USD 62.45 VS prior week close of USD 66.45
Nifty closed at 11419 vs prior week close of 11544.
G-SEC Yields continue to decline. 10 Year G-SEC Yield closed at 6.36. In the last one month, 10 year yield has declined around 50 bps.
Major developments: Indian CPI inched higher to 3.18% in June. However, core inflation remained muted. The retail inflation in May had inched up to 3.05 per cent from 2.92 per cent in April, on account of rise in vegetable prices, even as prices remained comfortably within the Reserve Bank of India’s target level of 4 per cent. WPI inflation hit 2 year low of 2.02%. May Index of Industrial production (IIP) growth stood at 3.1 per cent as against 3.8% in May 2018.Mfrg sector grew only by 2.5%. Power generation was up 7.4% and mining grew by 3.2%.
India’s current account deficit (CAD) narrowed sharply to 0.7 per cent of the gross domestic product (GDP) in the fourth quarter ended March 31, 2019 (Q4), from 2.7 per cent in the third quarter ended December 2018, primarily on account of a lower trade deficit, even as foreign portfolio inflows remained robust. The trade deficit for the full year 2018-19 increased to $180.3 billion in FY19 from $160 billion in FY18.
India’s trade deficit narrowed to USD 15.28 billion in June 2019 from USD 16.60 billion in the same month last year and below market expectations of USD 15.64 billion. Merchandise exports plunged 9.71 percent to USD 25.01 billion, imports were down 9.06 percent to USD 40.29 billion. In April-June 2019-20, the trade deficit widened to USD 45.96 billion.
Indian Equities continued to plunge after budget due to higher taxes on income beyond Rs 2 cr. This has affected FPI flows into Equity markets as many were registered as individuals.
G-SEC continued to decline, as Govt has announced that it will also borrow directly in overseas markets. Also, with expectation of further rate cuts, yields have softened. USDINR fwd premia continued to remain high.
Global developments:
-US Fed is holding its meeting on July 30th/31st. Markets have priced 25 bps cut.
-Pound is pressured as UK may leave EU without any deal on Oct end, leaving a big gap in its finances.
-Euro was also soft as there are reports that ECB may change its inflation target, which will allow inflation to shoot above 2%, without triggering rate hike.
-Oil prices fell despite Iran’s seizure of British Oi tanker. US Oil companies have opened more platforms for production.
-US data remained strong. Retail sales and CPI data were better than expected.
Important developments in coming week: US GDP.
Currency range forecast for coming week:
USDINR: 68.55-69.35, EURINR: 77-78.20, GBPINR: 85-87.50, JPYINR: 63.50-64.75
Suggestion: Cover 1 month import payables on dips to 68.60, EURINR receivables can be hedged on spike to 78+ levels. Payables can be covered closer to 77. GBPINR receivables can be covered on rally to 87.50.
