FX – WEEKLY UPDATE :
FX Weekly Currency Score Week 27
Weekly SYNOPSIS: 05/07/2024
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|
Currency Pairs |
WEEK CLOSE |
PRIOR WEEK CLOSE |
% change |
|
USD/INR |
83.47 |
83.38 |
0.10 |
|
EUR/INR |
90.37 |
89.25 |
1.25 |
|
GBP/INR |
106.65 |
105.46 |
1.12 |
|
JPY/INR |
51.97 |
51.86 |
0.21 |
Brent Crude closed at USD 87 VS previous month close of USD 85. Gold closed at USD 2391. Nifty closed at 24323 vs prior week close of 24010. 10 Year G-SEC Yield is now at 7%.
Major developments: USDINR traded in the 83.38-83.56 range last week, and Rupee declined 9 ps against USD w/w. EUR climbed 1.25% w/w and GBP climbed 1.12 w/w against Rupee.
Indian benchmark Equity climbed 1.30% w/w. 10 Year G-SEC Yield closed at 7%. 1-year fwd premia is at 1.63% p.a.
FX reserves stood at USD 652 bn, as on June 28 th. Reserves declined by US D 1.73 bn w/w.
In July , FPI’S have bought Rs 6408 Cr of Equities and bought Rs 4097 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 June GST collections climbed 7.7% y/y to Rs 1.74 lac Cr. Indian June PMI(mfrg) rose to 58.3, up from 57.5 in May.
Indian Equities continued its climb despite caution from many quarters on valuations. Corporate result season has begun. Union budget is on July 22 nd. FII’S and DII’S continues to be on investment spree as macro indicators remain attractive despite frothy valuations in some sectors and stocks.
Rupee movement remains stuck in narrow range. RBI has till now controlled USDINR movement in a very tight range. It has absorbed FX inflows and stemmed Rupee gains in the past. With USD stagnating against majors, it is difficult to build a bearish narrative for Rupee. USDINR could trade in the broad 82.95-83.70 range in coming period.
Focus is now on US rate path, and Union budget to be presented in July.
Hedging advise: Imports be hedged on decline to 83.30. Exports be hedged in the 83.60+ range.
Global developments: US macro indicators points to growth and labor markets cooling off, providing leeway for rate cut by Fed in Sept.
US ISM – composite index slipped into contraction mode in June and for the full quarter it stood at 50.5. Jobs market also showed tentative signs of moderation. US Non-Farm Payroll employment increased by 206k in June, above expectation of 180k. Growth was slightly lower than average monthly gain of 220k over the prior 12 months.
However, prior month’s growth was revised sharply lower from 272k to 218k. April’s figure was also revised sharply lower by -57k to 165k. That is, April and May’s combined downward revision was -111k. Unemployment rate ticked up from 4.0% to 4.1%, above expectation of holding steady at 4.0%. Average hourly earnings rose 0.3% mom, matched expectations. Annual hourly earnings growth slowed from 4.0% yoy to 3.9% yoy.
At the ECB forum, Fed Chair Jerome Powell highlighted the “quite a big of progress” made in reducing inflation toward 2% target. He also acknowledged the recent inflation readings, stating, “The last reading and the one before it, to a lesser extent, suggest that we are getting back on the disinflationary path.”Powell emphasized the need for Fed to be confident that inflation is sustainably moving toward the 2% target before considering policy easing.
He also cautioned against premature rate cuts, “We’re well aware that if we go too soon, we can undo the good work we’ve done. If we do it too late, we could unnecessarily undermine the recovery and the expansion.”
USD fell against Euro as ECB members downplayed series of rate cuts.
ECB’s June meeting minutes reveal that “almost all members” supported the 25bps rate cut. However, there was a significant “dissenting view”, arguing that recent data and ongoing inflationary risks “did not support the case for a rate cut”.
The dissenters pointed to “stickiness” in inflation and highlighted the risk that geopolitical factors could exacerbate inflation this “stickiness”.
ECB President Christine Lagarde hinted that the central bank is not in a hurry to cut interest rates again following its initial rate cut in June. She highlighted that the central bank is facing “several uncertainties” concerning future inflation. These uncertainties primarily revolve around the dynamics of profits, wages, and productivity, and the potential impact of new supply-side shocks. Lagarde emphasized that it will take time to accumulate sufficient data to be confident that the “risks of above-target inflation have passed.”
Focus is now on US CPI.
Currency technical levels: USDINR: 83.32 (Supports), 83.70 (resistance),
EURINR:91(Resistance),89.70/
GBPINR: Supports: 106/105.20( supports), Resistance:107.40(Resistance).
JPYINR: Resistance:52.70, Supports: 51.40 (support).
Hedging advise: USDINR imports be hedged on decline to 83.30. EUR nearby receivables be covered in the 90.50-91 zone. GBP receivables can be covered at 106.50+.
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