FX – WEEKLY UPDATE :
FX Weekly Currency Score Week 32
Currency Map:
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Currency Pairs |
WEEK CLOSE |
PRIOR WEEK CLOSE |
% change |
|
USD/INR |
83.95 |
83.75 |
0.23 |
|
EUR/INR |
91.67 |
90.46 |
1.33 |
|
GBP/INR |
107.12 |
106.64 |
0.45 |
|
JPY/INR |
57.02 |
56.15 |
1.54 |
Brent Crude closed at USD 79.50 VS previous month close of USD 80.50. Gold closed at USD 2431. Nifty closed at 24367 vs prior week close of 24717. 10 Year G-SEC Yield is now at 7%.
Major developments: USDINR traded in the 83.76-84.10 range last week, and Rupee declined 20 ps against USD w/w. EUR climbed 1.33% w/w and GBP climbed 0.45 w/w against Rupee.
Indian benchmark Equity declined 1.41% w/w. 10 Year G-SEC Yield closed at 6.99%. 1-year fwd premia is at 2.02% p.a.
FX reserves stood at USD 674.91 bn, as on Aug 2 nd. Reserves climbed by US D 7.5 bn w/w.
In Aug , FPI’S have sold Rs 10577 Cr of Equities and bought Rs 4533 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.
RBI kept repo rates unchanged at 6.5% by 4-2 vote. GDP is expected to be 7.2% and inflation is expected to average 4.5%. RBI Governor said that bank cannot overlook persistent high Food inflation as it will have spillover effect. He said that Indian growth is strong with inflation declining. He also added that while short term Global economic outlook is strong, medium term is challenging. He also added that Current account deficit is manageable. He also directed Banks to boost deposits growth to avoid structural liquidity issues.
Rupee’s magnitude of decline is increasing, though it is still not clear as to whether it is due to Global risk aversion. RBI’S increasing flow absorption is distorting USDINR’s real path. RBI increases FX reserves by USD 7 bn, despite FII selling in Aug. With US index down and crude remaining soft, it is still a paradox as to why RBI is not allowing two way movement within a larger range. This implies that Rupee’s strength even marginally is doubtful and a well-controlled decline along or more than fwd curve could be expected. Since US inflation is expected to decline to 2.5% and Indian inflation is expected to average 4.75%, we could expect 2% decline in Rupee on y/y basis.
USDINR fwd premia has already touched 2% p.a. for 1 year. It is expected to expand to 2.5% by Dec end as Fed starts cutting rates.
Hedging advise: Imports be hedged on decline to 83.65. Exports be hedged in the 84.10+ range for less than 3 months.
Global developments: Markets have calmed as panic about US recession seems to have faded slightly and comments by Fed members have also helped in calming the market. However, there is still nervousness and it could be only allayed by a steep decline in US CPI. US CPI, PPI and retail sales are important data events for next week. While CPI is expected to remain in declining mode, any opposite data set could lead to heavy sell off again. Investors see a real risk that the Fed’s delay in cutting rates has made a downturn inevitable. Sticky inflation is the main reason why the Fed has stayed this cautious. Recent volatility stems from a combination of weak economic data, geopolitical uncertainties, and central bank actions, compounded by stretched positioning in equity futures.
Fed’s Boston member noted that she anticipates interest rates to be lower in the coming years, although she refrained from providing specific details on the timing and pace of rate cuts. She highlighted the importance of incoming data before Fed’s September meeting, stating, “We’ll have more data before our September meeting, and I don’t want to get out ahead of that.”
Yen rally is currently taking a breather after the impressive gains over the past month. Incoming GDP data will guide the future movement.
Nikkei staged a dramatic 10% rebound in early trading after last Monday’s historical plunge of -12.4%. However, this recovery was not mirrored by other Asian markets. Investor sentiment remains fragile, with worries over US recession dominating the headlines.
BOJ Deputy Governor said the central bank won’t hike interest rates when markets were unstable. His comments sparked some optimism that Japanese interest rates will not rise as sharply as initially forecast by the bank.
BoJ Deputy Governor emphasized the necessity of maintaining monetary easing with the current policy interest rate “for the time being”, citing “extremely volatile” recent developments in both Japanese and global financial and capital markets.
Eurozone PMI Services was finalized at 51.9 in July, down from June’s 52.8, a 4-month low. PMI Composite was finalized at 50.2, down from June’s 50.9, a 5-month low. These figures indicate a slowing economy as the services sector loses momentum and the industrial sector continues its decline.
UK PMI Services was finalized at 52.5 in July, up from June’s 52.1. PMI Composite was finalized at 52.8, up from June’s 52.3.
Currency technical levels: USDINR: 83.56/83.32 (Supports), 84.10 (resistance),
EURINR:92.25(Resistance),90.
GBPINR: Supports: 1061/105.50( supports), Resistance:109(Resistance).
JPYINR: Resistance:59.50, Supports: 57.70/56.50 (support).
Hedging advise: USDINR imports be hedged on decline to 83.68. EUR nearby payables be covered on dips. GBP receivables can be covered at 109+.
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