FX – WEEKLY UPDATE :
FX – WEEKLY UPDATE
Weekly SYNOPSIS: 16/08/2024
Currency Map:
|
Currency Pairs |
WEEK CLOSE |
PRIOR WEEK CLOSE |
% change |
|
USD/INR |
83.90 |
83.95 |
-0.05 |
|
EUR/INR |
92.21 |
91.67 |
0.58 |
|
GBP/INR |
108.15 |
107.12 |
0.96 |
|
JPY/INR |
56.37 |
57.02 |
-1.13 |
Brent Crude closed at USD 79.50 VS previous week close of USD 79.50. Gold closed at USD 2508. Nifty closed at 24541 vs prior week close of 24367. 10 Year G-SEC Yield is now at 7%.
Major developments: USDINR traded in the 83.895-84 range last week, and Rupee gained 5 ps against USD w/w. EUR climbed 0.58% w/w and GBP climbed 0.96 w/w against Rupee.
Indian benchmark Equity climbed 0.71% w/w. 10 Year G-SEC Yield closed at 6.99%. 1-year fwd premia is at 2.04% p.a.
FX reserves stood at USD 670 bn, as on Aug 9 th. Reserves declined by US D 4.7 bn w/w.
In Aug , FPI’S have sold Rs 18347 Cr of Equities and bought Rs 7404 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.
CPI declined to 5 year low of 3.54%. Food inflation also declined to 5.42%. According to RBI, CPI is expected to average 4.5% in this year. Inflation has now fallen to RBI’S comfort zone. IIP climbed 4.2% in June. Mfrg sector climbed 2.6%. In June this year, mining production rose 10.3 per cent, and power output increased 8.6 per cent. In the April-June quarter of this fiscal, the IIP grew 5.2 per cent compared to 4.7 per cent in the year-ago period.
Indian trade deficit widened to USD 23.5 bn in July. India’s merchandise exports were $33.98 billion in July, while imports were $57.48 billion. Services exports were $28.43 billion in July, while services imports were $14.55 billion, compared with $28.82 billion and $15.02 billion, respectively, in June. Gold imports were $3.13 billion in July, compared with $3.06 billion in June. India, which is the world’s third largest consumer of oil, imported $13.8 billion worth of oil in July, compared with $15.05 billion in the previous month.
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. 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 2.05% 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 calmed and assets prices rose as incoming data were supportive for Sept rate cut.US Dollar is under pressure and the euro rose as much as 1.2% this week. On Wednesday, the euro hit 1.1047, its highest level against the US dollar this year. US equity markets rose on the week with the S&P 500 up 3.7% as of the time of writing, while U.S. Treasury yields steadied with the two-year yield roughly unchanged at 4.08%.
US CPI 3-month annualized percentage change in core CPI fell to its lowest level since early 2021. While the Fed’s preferred inflation metric, core PCE, sat at 2.6% in June, momentum in CPI inflation continues to indicate that inflation pressures will likely ease further moving forward.
US CPI rose 0.2% mom in July, matched expectations. CPI core (all items less food and energy) rose 0.2% mom, matched expectations. For the 12-month period, CPI slowed from 3.0% yoy to 2.9% yoy, below expectation of 3.0% yoy. Headline CPI reading was the lowest since March 2021. CPI core slowed from 3.3% yoy to 3.2% yoy, matched expectations. US retail sales rose 1.0% mom to USD 709.7B in July, above expectation of 0.3% mom.
Japanese economy showed stronger-than-expected growth in Q2, with real GDP rising by 0.8% qoq, surpassing the anticipated 0.6% qoq increase. On an annualized basis, GDP surged by 3.1%, well above the expected 2.1%.
UK GDP showed no growth in June, matched expectations.
OPEC downgraded its global oil demand forecast for 2024, now expecting an increase of 2.11 million barrels per day (bpd), slightly lower than the 2.25 million bpd projected last month. The organization also adjusted its demand growth estimate for next year, lowering it to 1.78 million bpd from the previous forecast of 1.85 million bpd.
Germany’s ZEW Economic Sentiment index took a significant hit in August, falling sharply from 41.8 to 19.2, well below the expected 30.6. This marks the steepest monthly decline since July 2022. Current Situation Index also worsened, dropping from -68.9 to -77.3. ZEW President Achim Wambach noted that the economic outlook for Germany is “breaking down.” He highlighted that this month’s survey revealed the sharpest decline in economic expectations over the past two years, not just for Germany, but also for the Eurozone, the US, and China.
FOMC minutes is the focus event for the week.
Currency technical levels: USDINR: 83.76/83.65 (Supports), 84.10 (resistance),
EURINR:92.65(Resistance),91.
GBPINR: Supports: 107.30/105.50( supports), Resistance:109.50(Resistance).
JPYINR: Resistance:57.50/59.50, Supports: 55.50/54.50 (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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