FX – WEEKLY UPDATE :
FX Weekly Currency Score Week 32
Weekly SYNOPSIS: 02/08/2024
Currency Map:
|
Currency Pairs |
WEEK CLOSE |
PRIOR WEEK CLOSE |
% change |
|
USD/INR |
83.75 |
83.74 |
|
|
EUR/INR |
90.46 |
90.86 |
-0.44 |
|
GBP/INR |
106.64 |
107.86 |
-1.13 |
|
JPY/INR |
56.15 |
54.48 |
3.06 |
Brent Crude closed at USD 80.50 VS previous month close of USD 77.50. Gold closed at USD 2442. Nifty closed at 24717 vs prior week close of 24834. 10 Year G-SEC Yield is now at 7.02%.
Major developments: USDINR traded in the 83.68-83.77 range last week, and Rupee declined 1 ps against USD w/w. However, Rupee declined 37 ps m/m. EUR declined 0.44% w/w and GBP declined 1.13 w/w against Rupee.
Indian benchmark Equity declined 0.47% w/w. 10 Year G-SEC Yield closed at 7.02%. 1-year fwd premia is at 1.88% p.a.
FX reserves stood at USD 667 bn, as on July 26 th. Reserves declined by US D 3.5 bn w/w.
In July , FPI’S have bought Rs 27957 Cr of Equities and bought Rs 21863 Cr of debt . In FY 23-24, FII’S have net bought Rs 206279 Cr of Equities and have net bought Rs 123120 Cr of debt.
Indian GST Collections grew by 10.3% to Rs 1.82 lac Cr in July. Core sector climbed 4% in June.
Rupee is declining mildly, well controlled by RBI along the forward curve. Rupee’s decline is well organised despite surge in FPI inflows. FX reserves has increased by USD 20 bn since March 2024. With USD declining, post employment data, RBI could sell USD to control Rupee weakness. Rupee is heading to 84.10. USDINR fwd premia is climbing steadily with 1 year premia at 1.88% p.a.
Hedging advise: Imports be hedged on decline to 83.56. Exports be hedged in the 83.90/84.10+ range.
Global developments: The week event was dominated by actions of major Central banks. While Fed maintained status quo, BOE cut rates by 25 bps and BOJ increased rates by 25 bps. JPY’S massive gains, melt down in US stocks and steep fall in US Yields are major reactions to weak Global data and to central banks actions.
Fed kept interest rates unchanged at 5.25-5.50%, as widely anticipated, with a unanimous vote. The accompanying statement closely mirrored June’s guidance for future decisions, maintaining that the Fed is “prepared to adjust the stance of monetary policy as appropriate.”
Fed emphasized that its assessments will consider a “wide range of information,” indicating that it is keeping its plans for potential rate cuts close to the chest for now.
On the economic front, Fed acknowledged that job gains have “moderated” and the unemployment rate has “moved up.” Additionally, the statement noted “some further progress” in reducing inflation towards the target. Fed also mentioned that risks to inflation and employment are continuing to “move into better balance.”
On data front, US ISM (mfrg) and employment data triggered fears of recession. US ISM Manufacturing PMI dropped from 48.5 to 46.8 in July, falling below the expected 48.8. This marks the fourth consecutive month of contraction for the manufacturing sector, with the decline accelerating. Historically, the relationship between the Manufacturing PMI and the overall economy suggests that the July reading of 46.8 corresponds to a change of plus-1.2 percent in real GDP on an annualized basis.
US non-farm payroll employment grew only 114k in July, well below expectation of 176k. That’s all well below average monthly gain of 215k over the prior 12 months. Unemployment rate jumped from 4.1% to 4.3%, above expectation of 4.1%. Participation rate ticked up by 0.1% to 62.7%. Average hourly earnings rose 0.2% mom, below expectation of 0.3% mom. Annual wages growth slowed from 3.8% yoy to 3.6% yoy, below expectation of 3.7% yoy.
The market’s reaction to mfrg and employment reports has shifted expectations towards more aggressive monetary easing. Investors are now starting to bet on a 50bps rate cut by Fed in September, and more rate cuts in Nov and Dec. However, rather than cheering the potential for fast monetary easing, investors seem more concerned about a looming recession.
BoJ raised the uncollateralized overnight call rate from 0-0.10% to around 0.25%. BoJ stated that economic activity and prices have been “developing generally in line with the Bank’s outlook.” Moves to raise wages have been spreading, and the annual rate of import price growth has “turned positive again,” with upside risks to prices requiring attention. It also noted if the outlook presented in the July Outlook Report is realized, BoJ will continue to raise the policy interest rate and adjust the degree of monetary accommodation accordingly.
BOE cut rates by 25 bps to 5%, but cautioned against expectations of series of rate cuts. BoE acknowledged the risk that inflationary pressures from second-round effects could prove more enduring in the medium term. Balancing these factors, the BoE said it is now appropriate to reduce the degree of policy restrictiveness “slightly.” The central bank repeated, however, that “monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.” And finally, the BoE said it will decide the appropriate degree of monetary policy restrictiveness at “each” meeting.
According to BOE, GDP is expected to grow by 1.2% in 2024 and headline inflation is expected to creep to 2.7%.
US Yields declined over 20 bps and Equity markets collapsed. USD declined against majors.
Japanese stock market index decline continued with Nikkei falling 5% on Friday. Yen has swiftly gained to 146.50 as carry trades are being unwound.
Currency technical levels: USDINR: 83.56/83.32 (Supports), 83.90 (resistance),
EURINR:91.50/92.25(Resistance)
GBPINR: Supports: 106.50( supports), Resistance:109(Resistance).
JPYINR: Resistance:57.70, Supports: 55.50 (support).
Hedging advise: USDINR imports be hedged on decline to 83.55. EUR nearby payables be covered on dips. GBP receivables can be covered at 109+.
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