FX – WEEKLY UPDATE :
FX Weekly Currency Score Week 35
Weekly SYNOPSIS: 26/07/2024
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|
Currency Pairs |
WEEK CLOSE |
PRIOR WEEK CLOSE |
% change |
|
USD/INR |
83.74 |
83.67 |
0.08 |
|
EUR/INR |
90.86 |
91.06 |
-0.21 |
|
GBP/INR |
107.68 |
108.16 |
-0.44 |
|
JPY/INR |
54.48 |
53.01 |
2.77 |
Brent Crude closed at USD 80.50 VS previous month close of USD 82.60. Gold closed at USD 2387. Nifty closed at 24834 vs prior week close of 24530. 10 Year G-SEC Yield is now at 7.05%.
Major developments: USDINR traded in the 83.61-83.75 range last week, and Rupee declined 7 ps against USD w/w. EUR declined 0.21% w/w and GBP declined 0.44 w/w against Rupee.
Indian benchmark Equity climbed 1.23% w/w. 10 Year G-SEC Yield closed at 7.05%. 1-year fwd premia is at 1.78% p.a.
FX reserves stood at USD 670.85 bn, as on July 12 th. Reserves climbed by US D 4.2 bn w/w.
In July , FPI’S have bought Rs 30824 Cr of Equities and bought Rs 15824 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.
Union budget cut Fiscal deficit to 4.9% and maintained its journey of fiscal consolidation with Govt capex of 11.11 lac Cr to maintain GDP growth. Focus was on employment, rural connectivity, digitisation of land records and construction of 12 major industrial parks. There was marginal relief to IT payers. Capital gains taxation for real estate sector was streamlined. Listed financial assets like Equity investments will be taxed at 12.5% for 1year or more holding period. Short term capital gains tax has been increased to 20%. Budget was well received by rating agencies.
Rupee is declining mildly, well controlled by RBI along the forward curve. Rupee’s decline is well organised despite surge in FPI inflows. RBI increased its reserves by another US 4.19 bn w/w.
Hedging advise: Imports be hedged on decline to 83.56. Exports be hedged in the 83.70+ range.
Global developments: US growth momentum was favourable in first half of the year with inflation cooling. This is a good news ahead of Fed meeting. Fed will maintain status quo, but hint strongly on a sept rate cut.
The advance estimate of US GDP growth in Q2 2024 showed a robust 2.8% annualized increase, significantly exceeding the anticipated 2.0% and doubling Q1’s pace of 1.4%. This stronger-than-expected growth was driven by rises in consumer spending, private inventory investment, and nonresidential fixed investment. Notably, imports also increased, which are subtracted in the GDP calculation.
US PCE price index rose 0.1% mom in June, matched expectations. Core CPI (excluding food and energy) rose 0.2% mom, matched expectations. From the same month one year ago, PCE price index growth slowed from 2.6% yoy to 2.5% yoy, matched expectations. However, core PCE price index was unchanged at 2.6% yoy, above expectation of 2.5% yoy.
Germany’s Ifo Business Climate Index fell from 88.6 to 87.0 in July, missing expectations of 89.0. Ifo noted that sentiment has “declined considerably,” with companies expressing growing dissatisfaction with the current business situation. The level of skepticism regarding the coming months has increased notably. The German economy, as described by Ifo, is currently “stuck in crisis.”
Euro is under pressure following disappointing PMI data, which showed significant deterioration in the manufacturing sector while services growth remained moderate only. This data should justify a September ECB rate cut, although inflation data might complicate further cuts beyond that. On the other hand, Sterling is supported by solid PMI figures, bolstering the stance of BoE hawks against a rate cut in August.
Disappointing earnings from heavyweight technology stocks sparked deep losses on Wall Street. Tech was already nursing steep losses over the past weeks, as the sector saw heavy profit-taking after hype over AI drove a major melt-up in valuation over the past year. Expectations of lower interest rates- on which the Fed is set to provide more cues next week- also sparked a rotation into more economically sensitive sectors.
Fed, BOE meetings along with US employment data are important events for the week.
Currency technical levels: USDINR: 83.56/83.32 (Supports), 83.90 (resistance),
EURINR:91.50/92.25(Resistance)
GBPINR: Supports: 107.40/106.70( supports), Resistance:109(Resistance).
JPYINR: Resistance:54.70/55.25, Supports: 51.50 (support).
Hedging advise: USDINR imports be hedged on decline to 83.55. EUR nearby payables be covered in the 90 zone. GBP receivables can be covered at 109+.
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