FX – WEEKLY UPDATE :

FX Weekly Currency Score Week 50 of 2023

WEEKLY SYNOPSIS: 08/12/2023

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Currency Map:

Currency Pairs	WEEK CLOSE	PRIOR WEEK CLOSE	% change
USD/INR	83.38	83.36
EUR/INR	89.89	90.94	-1.15
GBP/INR	104.91	105.37	-0.43
JPY/INR	57.88	56.27	2.86

Brent Crude closed at USD 75.50 VS prior week close of USD 79.50. Gold closed at USD 2004. Nifty closed at 20969 vs prior month close of 20267. 10 Year G-SEC Yield closed at 7.265%.

Major developments: USDINR traded in the 83.29-83.40 range last week and closed at 83.38, gain of 2 ps for USD as compared to prior week close of 83.26. EUR declined 1.15% w/w and GBP declined 0.43 w/w against Rupee. Indian benchmark Equity index climbed 3.46% w/w. 10 Year G-SEC Yield closed at 7.265%. 1-year fwd premia is at 1.62% p.a.

FX reserves stood at USD 604 bn as on Dec 1 st.  FX reserves climbed USD 6 bn. In Dec, FPI’S have bought Rs 16761 Cr of Equities and bought Rs 5596 Cr of debt . In 2022-23 fiscal year, FII’S have net sold Rs 27593 Cr of Equities and have net bought Rs 838 Cr of debt.

RBI kept repo rates steady at 6.5%. FY 24 GDP has been revised upwards to 7% and inflation is projected at 5.4%.

Indian Equities surged on hopes of political stability and policy continuation after ruling party’s victory in 3 crucial state elections.

RBI kept a tight leash on USDINR pair. RBI seems to be active on either side. FII inflows could accelerate from now, as Fed seems to have come to the end of rate tightening cycle. Crude has been declining, due to underwhelming production cut and growing unease about Chinese growth.

Hedging advise: Imports be hedged closer to 83.03. Exports be hedged closer to 83.45.

Global developments: Focus of the week was on US jobs and services data. Labor market remains strong, despite recent moderation. US Non-Farm Payroll employment grew 199k in November, slightly above expectation of 190k. That was below the average monthly gain of 240k over the prior 12 months. Unemployment rate fell from 3.9% to 3.7%, below expectation of 3.9%. Participation rate rose 0.1% to 62.8%.Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over the past 12 months, average hourly earnings rose 4.0% yoy. Strong wage growth indicates that inflation pressures are persistent and Fed needs to be convinced that labor market has turned soft, before indicating rate cuts.

US ISM (services) data showed moderate expansion. US Yields is below mid Oct highs and is at 4.22%, aiding Global Equities rally. Fed is meeting this week and Fed Chair Powell had earlier noted that the central bank can “let the data reveal the appropriate path” and this week’s data points to a steady course.

Rating agency Moody downgraded China’s Credit ratings from stable to negative. This adjustment reflects increasing expectations that the Chinese government will be compelled to provide additional financial support to heavily indebted local governments and state-owned enterprises. According to Moody’s, this necessity poses significant risks to China’s overall fiscal, economic, and institutional integrity. The statement from Moody’s emphasizes concerns about “structurally and persistently lower medium-term economic growth” and challenges within China’s property sector, indicating broader economic issues that could impact global markets.

UK’s PMI Services for November improved to 50.9 from October’s 49.5, indicating expansion for the first time in four months. 

Crude Oil continued to remain near its recent lows as caution by rating agency on Chinese economy and underwhelming supply cuts by OPEC weighed on prices.

BoE Governor stated that “rates are likely to need to remain at these levels for an extended period to bring inflation back to target on a sustained basis,” referring to the current bank rate at 5.25%. He also noted that the full impact of the higher interest rates is yet to be fully realized, and highlighted the central bank’s vigilance towards potential financial stability risks that might emerge as a result.

Focus of the week will be on Fed, ECB and BOE rate decisions and US CPI and retail sales data.

Currency technical levels: USDINR: 83.03 (Supports), 83.30/83.47 (resistance),

EURINR:91.80(Resistance),89.50/88.75(Support),

GBPINR: Supports: 104.60/103.40( supports), Resistance:106.30(Resistance).

JPYINR: Resistance:59, Supports: 54.70 (support).

Hedging advise: USDINR imports be hedged on decline to 83.10. EUR and GBP exports can be covered.