FX – WEEKLY UPDATE :
FX Weekly Currency Score Week 13
Weekly SYNOPSIS: 22/03/2024
Thank you for reading this post, don't forget to subscribe!Currency Map:
|
Currency Pairs |
Week CLOSE |
Prior week CLOSE |
% change |
|
USD/INR |
83.67 |
82.89 |
0.94 |
|
EUR/INR |
90.27 |
90.16 |
0.09 |
|
GBP/INR |
105.25 |
105.58 |
-0.31 |
|
JPY/INR |
55.05 |
55.90 |
-1.52 |
Brent Crude closed at USD 85.50 VS previous week close of USD 85. Gold closed at USD 2165. Nifty closed at 22096 vs prior week close of 22023. 10 Year G-SEC Yield is now at 7.05%.
Major developments: USDINR traded in the 82.84-83.70 range last week and closed at 83.67, gain of 78 ps for USD as compared to prior week close of 82.89. EUR was flat w/w and GBP declined 0.31 w/w against Rupee. Indian benchmark Equity climbed 0.33% w/w. 10 Year G-SEC Yield closed this week at 7.05%. 1-year fwd premia is at 1.61% p.a.
In March, FPI’S bought Rs 35926 Cr of Equities and bought Rs 13439 Cr of debt . In last calendar year, FII’S have net bought Rs 172853 Cr of Equities and have net bought Rs 70489 Cr of debt.
FX reserves stood at USD 642 bn, as on March 15 th. Reserves climbed USD 6 bn w/w.
It was an unexpected, volatile week for Rupee. For the last 18 months, RBI has been intervening on both sides to lock the pair in a tight range of 70 ps. RBI started to absorb inflows heavily in the last two weeks. This led to cash Dollar shortage, leading to abrupt fall in Rupee. In last two weeks, RBI ‘S FX reserves has swelled by USD 17 bn. Besides, USD’S strength against majors and Asian peers also weighed down on Rupee. Fiscal year end payments by importers and debt repayment flows also contributed to Rupee fall. RBI did not intervene effectively and for the first time in 18 months, they have allowed higher than normal volatility.
It remains to be seen as to whether RBI will step to sell USD or allow more fall to 84. RBI’S thought process will decide the range and volatility of Rupee.
Due to Global trend favouring USD, it looks better to cover imports on dips.
USDINR has major support at 83.45. Next resistance is at 84.10.
Hedging advise: Imports be hedged closer to 83.45/83.35.
Global developments: The week was dominated by major shifts in Global central banks monetary policy decisions. In a surprise move, Swiss central bank cut rates by 25 bps, setting the stage for bigger inflows into USD. BOJ announced end to negative interest rates and control of yield curve. Yen weakened, despite BOJ’S decision favouring move towards normalisation. Though Fed hinted at three rate cuts, careful reading of voting and discussions points to gradual easing of rates. This has swung the FX market direction in favor of USD. Asian Currencies, including Yuan weakened. Yuan weakness was also due to likely restrictions by US on US MF’S investment in Chinese stocks.
Federal Reserve kept rates steady and stuck to its forecasts of at least three rate cuts this year. Fed Chairman flagged continued resilience in the U.S. economy- a trend that bodes well for corporate earnings. However, he stuck caution on inflation. Fed’s projections suggest a more gradual path to easing, with the federal funds rate expected to decrease to 3.875% by the end of 2025 (vs prior 3.625%) and 3.125% by the end of 2026 (vs prior 2.875%). This revised outlook, including a slight increase in the long-term federal funds rate estimate from 2.5% to 2.6%, indicates that the projections are clearly not dovish at all.
US economy continues to be resilient with robust labor market and strong Consumer spending. Risks remain skewed to the upside for the economy, inflation and interest rates. The labor market expanded by an average of 265k jobs (SAAR) in the three months through February.
BoE maintained the Bank Rate at 5.25% as widely expected. BOE said that most measures of short term inflation is on a downtrend. BoE provided no definitive guidance on rate reductions. Despite some progress in reducing inflation, service sector prices continue to be a concern, remaining stubbornly high.
Technically, Dollar index seems to have made a bottom and is poised to climb higher.
Focus is now on US Personal spending, income and Core PCE index.
Currency technical levels: USDINR: 83.45 (Supports), 84.10 (resistance),
EURINR:90.75/91.20(Resistance)
GBPINR: Supports: 104( supports), Resistance:106.75/107.80(
JPYINR: Resistance:56.80/57.60, Supports: 54.95 (support).
Hedging advise: USDINR imports be hedged on decline to 83.45. EUR nearby payables be covered at 89.50. Receivables can be covered. GBP receivables can be covered at 106+.