Thursday, October 19, 2017 New York : London: India: Tokyo:




Weekly Report :- 22-May-2015

Rupee maintained a firm undertone within the narrow range of 63.50 to 63.80 after weaker than expected economic data in the US post the release of dovish minutes of the US FOMC strengthened expectations of a delayed rate hike.

The minutes from the April 28-29 policy-setting meeting highlighted that it would be premature to hike interest rates in June even though the most felt the US economy was set to rebound from a dismal start to the year. With an increased amount of uncertainty and signs of softness across the economy, the minutes showed Fed officials pushing the prospect of rate hike later into the year. The yield on US 10-year benchmark Treasury note was 2.20%. Though the local stock market is flattish, FII inflows will be seen into our markets in the short to medium term as the Fed has refused to hike the rates yet again. Market participants are increasingly looking toward September or beyond for a Fed rate increase.

US CPI inflation is expected to be weak and this would further support the case for the Fed not to hike rates in the immediate term. Following the weak economic data release the dollar index fell to the current level of 95.20.

On Wednesday rupee touched a 1-week low of 63.8750 on dollar demand from oil importers amid a globally strong dollar and higher prices of crude oil. Since the dollar has strengthened and the oil prices are expected to remain at elevated levels importers will be demanding dollars at regular intervals which may keep the rupee with a softish undertone.

Over the near-term, however, rupee is expected to remain stable at the lower levels(63.30-63.60) as the Government managed to contain the fiscal deficit at 4% of GDP improving its own target of 4.1% thereby making the case of a rate cut by RBI in June stronger.

A weak dollar persisted overseas after a series of anaemic data in the US matched the expectations the recovery is insufficient for the Fed to proceed with the hike in interest rates. We can now expect the Fed to postpone any hike till September as slowdown in the US may continue beyond the first quarter. Though the local stock market gained today, its outlook in the near-term is flattish. Moderate equity inflows can pour in the last week of this month bringing down the net negative outflow to below USD 250 million in this month.

With the rupee’s resistance at 63.30 firmly in place, we recommend the importers to hedge their payables at the spot exchange rate of 63.40 or better as there is a strong possibility of the Reserve Bank of India to mop-up the dollars close to 63.30 level to increase the forex reserves and to keep the rupee moderately weaker to promote the already sagging export growth. Importers are waiting for a definite clue on the Fed rate hike and if the rate hike takes place in the June-September timeframe, rupee can weaken above 65.30 level and stablise thereafter. Exporters will get a chance in the short-term to see a level above 64 to target selling their receivables in near-term deliveries.

The forward curve is inverted at the long-end demonstrating that there is more paying interest in short-term tenors.The differential between the 6 month and 1 year Libor is about 32 basis points and the local forward market differential between 6 month and 12 month maturities is about 12 basis points. RBI is expected to cut the repo rate by 25 bps in the June,2 meeting. Consequent to the rate cut, the 1-year forward dollar premium may fall below 7% per annum and the forward dollar premia for other maturities may drift lower by 10 to 15 basis points across the curve.

Weekly Report :- 15-May-2015

In the early part of the week, rupee tested a low of 64.26 on demand from oil and defence importers. There was heavy dollar buying at above 64.10-15 level not only from importers but also from investors who took advantage of the arbitrage opportunities between the spot market and the offshore market. Weakening in the exchange rate was attributed to the recent sell-off in Indian equities over concerns about retrospective tax and rising global yields. Investors have also been lured by gains in Chinese equity markets.

On Friday, rupee tested a high of 63.45 on inflows into local shares and a globally weak dollar as investors expect the Fed not to hike interest rates in the near-future. Most investors expect the Fed to refrain from near-term hike and this is expected to keep the dollar weak.

The timing of the Fed’s first interest rate hike since 2006 continues to be the most significant factor driving trading in the forex market. The dollar is trading lower against the major currencies as US Treasury yields turned lower. The dollar index fell to 93.14, a 4-month low,   following the weaker data on fears that the Fed will delay any rate hike. The dollar dropped more than 7% from a 12-year peak of 100.39 set in March.  Disappointing US economic reports added to concerns over the outlook for the second quarter growth after a sharp slowdown in the first quarter.

A fall in retail inflation and industrial output growth strengthened expectations that economic growth may be sluggish and would benefit from a cut in interest rates from the Central Bank. Investors expect the RBI to cut the interest rates to revive growth in India and this will cause most investors to infuse funds over the medium-term. Expectations that the Fed may postpone as the hike beyond June is expected to keep the greenback under pressure and also attract inflows into local shares, as risk sentiments remain strong.

In the previous week, the aggregate FII outflow was USD 1548 million comprising of debt outflows of USD 942 million and equity outflows of USD 606 million. This was the highest FII outflow in a single week since July 2013.

In a separate move, the Finance Ministry ordered the tax officers to withhold issue of fresh notices on payment of retrospective taxes by FIIs but its impact was minimal on the currency. Although the Government has formed the Committee there is still a lack of clarity on the issue.

In the coming week, we look to see the rupee to trade in a narrow range between 63.40 to 64.10 with a weaker bias. The rupee’s strong resistance at 63.30 still holds good in the near future. Importers are well advised to hedge their near-term payables at the target spot exchange rate of 63.40 or better while the exporters can target a spot level of 64 or above for selling their short-term receivables.

As the rupee exchange rate remained firm, importers hedged their short-term payables and the forwards drifted higher across the maturities. The benchmark 1-year forward dollar premium was quoted at 7.23%. We forecast the forwards to marginally ease in the coming week.

Weekly Report :- 30-April-2015

Rupee touched a low of 63.71 today as oil importers were seen demanding the dollar for month end requirements which pushed the rupee sharply down. Despite the lower dollar overseas, the rupee remained weak. A test of 64 mark is on the cards if the local stock market continues to ease. During this month, the BSE sensex fell by over 1170 points and the local stock market had fallen to near 5-months low on FII outflows due to sluggish corporate earnings and overseas taxation issues. The debt outflows in April 2015 amounted to over USD 25 million as compared with the net debt inflow of USD 6.9 billion in the first quarter of 2015. Oil importers would find the present level of the currency attractive to cover their positions even though the dollar remains weak against other currencies. Since oil bids have accumulated in the last 2 to 3 days, it would be difficult for the rupee to rise.

The US dollar slipped to a fresh 2-month low against major currencies overseas late yesterday after data showed US economic growth slowed more than expected in the first quarter thereby reducing expectations for higher interest rates. GDP inched by just above 0.2% in the first quarter following the 2.2% seen in the fourth quarter. The dollar index was down to 94.75, the weakest since March 18.

The FOMC sought to foster maximum employment and price stability.Although growth in output and employment slowed during the first quarter, the FOMC continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The FOMC reaffirmed its view that the current 0 to 0.25% target range for the Fed funds rate remains appropriate. The Committee anticipates that it will be appropriate to raise the target range for the Fed funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.

Despite the Fed maintaining status-quo and not giving any hawkish signal, overseas investors will not be seen infusing funds into Indian markets as the Government is yet to clarify on payment of capital gains tax for foreign investors. Since FIIs did not have clarity over MAT payments, they would continue to withdraw funds from Indian shares. No clarity has been given for payment of capital tax for investments coming from the US and Eurozone.

As the REER is ruling above 112 against the 36 country index, the resistance level of the rupee is slowly rising even as the monetary authorities are looking to see the rupee above the 62.50 level to maintain export competitiveness and to boost export growth. RBI is expected to keep the rupee slightly weaker near the 63 level. We expect the rupee to find good resistance at 62.80 and support at 64.00. Exporters are well advised to sell dollars above the 63.60 level and importers can position themselves to hedge their payables at close to 63 mark. This is our recommendation after reviewing the currency outlook in the next one month or so.

To take advantage of the weaker rupee exchange rate, exporters sold forward dollars and the premia drifted lower across the maturities. The 1-year forward dollar premium fell below the 7% level to end the week at 6.97%. As the rupee exchange rate may marginally recover in the coming week, we expect the far forwards to inch higher from the current levels.

Weekly Report :- 24-April-2015

Rupee breached the strong support at 63.30 on heavy dollar buying by Banks and corporates amid month-end demand for the dollar from oil importers. After brent crude oil prices crossed the USD 65/barrel level, PSU Banks were mostly buying dollars on behalf of oil importers. Rupee touched a near 4-month low of 63.65 in intra-day trade on Friday. The next support level for the rupee is at 64 and the market is positioned to test that level before any recovery.

Weak US data will delay the rate hike by the Fed and the dollar remained weak in the global market following lower job data in the US. Oil futures rallied with WTI and brent crude settling at their highest levels of the year, as traders fretted over potential disruptions in the Middle East and as weak data from China raised prospects for economic stimulus.

A reading of manufacturing activity in China shows that the PMI fell to 49.2 in April from 49.6 a month ago signaling a contraction in manufacturing. The fall in China’s manufacturing sector growth may trigger outflows from local shares. The rupee has depreciated as investors resorted to dollar buying after India’s trade deficit fell to a 4-month low amid rate cut in China stoking demand for the greenback. India’s trade deficit rose to USD 11.79 billion in March 2015 from March 2014. Exports shrank by 21% to USD 23.95 billion while non-oil imports including gold imports fell by 13.44% to USD 35.74 billion from a year ago. Since the trade deficit widened, capital outflows are expected to continue to take place. India’s widening fiscal deficit too added to the downward pressure on the rupee.

The Government’s clarification on taxation for countries having a DTAA agreement with India has provided relief to overseas investors. The Government clarified that foreign portfolio investors coming from countries having a tax treaty with India will be exempt from payment of the Minimum Alternate Tax. Funds routed through countries like Singapore and Mauritius with which India has a DTAA will not be subjected to payments of the capital gains tax. Tax notices already sent to countries having the treaty would be annulled.

We feel that the rupee will find strong support at 63.80 and exporters are well advised to sell dollars for short-term deliveries above the 63.60 level to improve their realization. Importers may have to wait for a pull back to 63.00 or so to hedge their near-term payables. RBI will be looking to sell dollars at the above strong support level to avoid any sharp weakness in the rupee exchange rate.

To take advantage of a weaker rupee exchange rate, exporters sold forward dollars and the forward dollar premia fell across the maturities. The comfortable money market situation and the contraction in the rate differential between the USD and INR have influenced a downside shift in forwards specifically at the long-end. The 1-year forward dollar premium drifted sharply lower to end the week at 7.02% per annum.

Weekly Report :- 10-April-2015

Rupee was traded with a slightly weaker undertone on dollar demand from oil and defence importers and a globally strong dollar. However, the risk appetite improved following the repayment of debt by Greece to the IMF and better-than-expected inflation in China and we expect FIIs to demand more of emerging market assets. But investors are more worried of a Fed rate hike.

The overseas inflows due to upgradation in ratings outlook would remain subdued as FOMC minutes have raised fear of rate hike taking place in US early. The minutes clearly indicate a bias towards June rate hike and this has pushed up the dollar against most currencies and hence any upside in the rupee is capped beyond 62.10. Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. Those who were not very certain about a hike by June still feels that the economy had shown resilience to any threat from weak global growth. The members at the FOMC remained divided regarding a rate hike in the US with several members voting in of a rate hike in June, while only a couple stood for a rate hike later in the year. On the back of rate hike expectation, the US dollar index broke through its recent high today and touched 3-week high of 99.70 as of now. The greenback also rose to 3-week highs against the euro and the yen.

Moody’s investors services upgraded India’s credit rating outlook to positive from stable but this news had no impact on the currency rate after the outcome of the FOMC minutes of the meeting. Moody’s indicated that there is an increasing probability that actions by policy makers will enhance the country’s economic growth and in turn the sovereign’s financial strength over the coming years. The rating outlook was revised as it expected structural advantages supported by relatively benign global commodity prices and liquidity conditions which will keep India’s growth higher than that of its peers over the rating horizon.

Crude oil rebounded despite US dollar’s continuous strength. Iran insistence that all sanctions must be removed before a final deal can be signed and tensions in Yemen supported prices. Investors are keeping a close watch on US and OPEC oil production levels. The May month brent crude contract initially rose to as high as USD 57.00/barrel before settling at USD 56.50/barrel and WTI contract trading flat at USD 50.35/barrel.

All-in all, we look to see stiff resistance for the rupee at 62.10 and strong support at 63.00 in the near-term.

Forwards rose higher across the maturities on paying interest from importers and intervention-related paying interest from PSU Banks on behalf of RBI. The 1-year forward dollar premium was quoted a lot firmer at 7.47% per annum.


Weekly Report :- 01-April-2015

The rupee ended the financial year with a depreciation of 3.93% against the dollar having maintained the status as one of the best performing currency in the Asian and BRICS region after Chinese Yuan, Thai Baht and Philippine Peso. The rupee remained broadly steady in the holiday-truncated week and hovered in the range between 62.50 to 62.70.

Amongst the BRICS currencies, rouble had depreciated by 66% on account of the steep fall in the crude oil prices. Brazilian Real recorded a deprecation of 41%, the reason being the downgrading of the country's rating to junk status and the Central Banks’ reluctance to support the currency. Chinese Yuan was the best currency performer having appreciated by 0.28% against the dollar.

The dollar index(DXY) recorded a steep appreciation of 23% against major currencies and registered a 12-year high of 100.78 on 13-3-2015.

During the current fiscal, the foreign portfolio investments recorded a net inflow of USD 44.79 billion, highest in one financial year comprising of equity inflow of USD 17.71 billion and debt inflow of USD 27.08 billion. As a result of the large portfolio inflows, RBI resorted to intervention resulting in an increase of over USD 36 billion in forex reserves, after adjustment of dollar’s appreciation against gold and other currencies in the reserve basket.

The ongoing Middle East tension and the possible Fed rate hike poses a downside risk to the home currency and a possible depreciation of around 4 to 5% during the current fiscal year is quite possible. We expect the rupee to trade in the wide range between 62 to 65 per dollar with a weaker bias.

Followed by gains in stock market indices around the globe, the BSE sensex recorded an appreciation of 24.50% and an appreciation of 15 to 20% is expected in the current fiscal. The corporate results and the performance of the world stock indices however remains the key for the expected rally to materialize.

Importers are well advised to hedge their payables at or around the current spot level for short-term maturities and the exporters can wait for a pull back in the currency above 63 to sell their medium-term receivables.

The forward dollar premia broadly represents the interest rate differential between the INR and USD currency pair. With the possible increase in Fed rate and a 75 to 100 bps cut in the domestic repo rate expected, the forward dollar premia can drift lower across maturities with the 1-year forward dollar premium reaching a level of 6.75% per annum or lower during the course of the year.

Weekly Report :- 27-March-2015

In the early part of the week, rupee touched a 4-week high of 62.15 as market expected some resolution would be reached for Greece’s bail-out programme and the optimism lifted the risk appetite globally. Uncertainty over the timing of a rate hike continued to weigh on demand for the dollar and the US dollar index fell as the dollar remained broadly lower against the basket of major currencies. Currently dollar index is trading at 97.70 far from the high of 100.30 registered a fortnight ago. Dollar was pushed lower as profit taking, low yields and lack of market moving data discouraged the investors from buying dollars. The rate hike bets are lowered now, if one looks at the 10-year Treasury yield which is close to 2%.

Rupee was traded at a low of 62.80 on Friday morning as PSU Banks were buying dollars on behalf of oil importers. The month-end dollar demand will possibly take the rupee down to 62.90 -63.00 zone before Tuesday. Oil importers are trying to import as much crude as possible on fear the prices may appreciate over USD 60/barrel if conflict intensifies in the Middle East. The tension in the Middle East will keep the oil prices firm and the rupee to stay well above 62.50.  Escalation of the Middle East battle could disrupt world crude supplies and this had kept  the brent crude prices elevated. The comments from the FM stating that rupee shall be allowed to reflect its true value put some pressure on the local currency.

WTI crude surged to almost USD 52/barrel as Saudi Arabia said it started bombing rebel targets in Yemen with its allies.  Saudi Arabian officials launched air strikes for a second straight day against Houthi rebels. The air strikes raised concerns over the shipments of brent crude oil. Brent crude is currently trading at USD 58.20/barrel and the benchmark crude traded at a premium of USD 8/barrel to WTI. Geo-political tensions will push the prices of brent crude to above USD 60/barrel.During March, the BSE sensex fell by about 2000 points but the net FPI equity inflow remained positive at USD 1.4 billion.

US currency is declining against majors after Fed cut projections for interest rates and indicated the path to policy normalization would depend on the state of the recovery. The euro continued to strengthen against the dollar moving around 1.09 as overall US weak data strengthened the case for delaying a potential rate hike. The Dow Jones Industrial Average posted its fourth consecutive loss taking the local stock market indices down.
We feel the rupee will find stiff resistance at 62.30 level and the month-end dollar demand will take the currency lower back above 62.90 in the next one or two days establishing a trading range between 62.30 to 63.00 in the timeframe of next two weeks. RBI intervention can also be expected at around the 62.30 level to protect export competitiveness.

In the first half of the week, the intervention-related position adjustments led to a good paying interest in the market taking the forwards higher across the maturities. The 1-year forward dollar premium rose to a 5-month high of 7.85% per annum on Tuesday before recovering to end the week at 7.5% per annum. Towards end of the week, the forwards drifted lower as exporters took advantage to sell forward dollars of various maturities.

Weekly Report :- 20-March-2015

After completion of the FOMC meeting on Wednesday, the rupee opened at 62.38 on Thursday and traded as high as 62.35 before rebounding to trade above 62.50.Besides, the moderate fall in the local stock market indices, Central Bank also intervened to push the rupee back above 62.50 and this level will hold as strong resistance in the days to come. From the low of 63.02 on Friday last week, the selling of dollars by foreign Banks and exporters brought the rupee up to trade with a firm note.

As expected, the Fed removed the word “patient” from its language and decided to keep the target range for the fed funds rate at its record low of 0-0.25%. The Fed said it would raise rates when it is reasonably confident that low-inflation is on track to return to its 2% target and as long as the job market keeps improving.The FOMCalso said it is unlikely to raise rates at the April meeting. The Fed assured that when it decides to begin to remove policy accommodation, it will take a balanced approach. The FOMC anticipates that, even after employment and inflation are near mandate-consistent levels economic conditions may for some time warrant keeping the target fed funds rate below levels the Committee views as normal in the longer run. It is highly unlikely that the funds rate will be hiked in June. Instead the median estimate for the Fed funds rate at the end of 2015 stands at 0.625%.

Post-FOMC meeting, the dollar tumbled the most in six years against major currencies  on Wednesday and the volatility in the currency market is the highest it has been in the last 20 years, whipsawing more than during the European debt crisis. The dollar index fell below 98 price level to trade as low as 97.20 and recovered on Thursday and Friday to currently trade at just above 99.00. The currency markets made a complete about turn after reaction to the FOMC decision and Press conference on Wednesday.

Oil trading near its lowest price in six years is headed for a fifth weekly drop amidst signs the global supply glut is worsening and Kuwait also indicated that OPEC will continue to maintain high oil supplies despite lower prices. Brent is currently trading at USD 54.00/barrel in May futures. The European benchmark crude traded at a premium of over 9 dollar to WTI for the same month delivery compared with dollar 10 a week ago.

It will be interesting to see the performance of the rupee after June when the Fed will possibly indicate its time line for hiking the interest rates. In such an event the rupee exchange rate along with the other Asian currencies can weaken sharply. We expect the rupee to outperform the other emerging market currencies but a knee-jerk reaction to Rs.65/dollar cannot be ruled out. RBI’s intervention at that point of time will not be too effective as the possible rate hike will be accompanied with portfolio outflows from the country mainly debt outflows.

On the back of stronger rupee, exporters sold their near-term receivables pushing the forward dollar premia down. On the other side the intervention related paying interest neutralizes the receiving interest to a large extent thus keeping the forwards broadly stable. The 1-year forward dollar premium ended the week a lot firmer at 7.50% per annum. A marginal slide in the forwards can be expected in the swap market in the coming weeks.

Weekly Report :- 13-March-2015

Rupee exchange rate continues to be driven lower by the sharp climb in the US dollar. Dollar index touched a 12-year high of 100.06 on Thursday and currently trading at 99.40. With many traders predicting the euro against the dollar will reach parity, the US dollar index may well surpass the 103 level quite easily. This will exert additional pressure on the rupee to breach the 62.80 support and test the next support level at 63.50 or thereabout.

The euro fell to a 12-year low of 1.0493 against the dollar extending a broad decline after the ECB kicked off 1 trillion euro bond buying programme this week. And lingering market worry on Greece continues to pressure the single currency.

Asian stocks fell amid speculation the Fed is moving closer to raising interest rates. The local stock market indices also traded flat to guide a weaker undertone in the rupee exchange rate.

There were rumours of an increase of USD 5 billion in FPI G-sec limits and that discussion over increasing the limit were at an advance stage. The increase in the limit will bring in inflows to nudge the rupee towards 61.80 level. Rupee opened the day higher at 62.45 after US retail sales data came in below market expectations causing the dollar index to trade down. At the opening level, PSU Banks were seen buying dollars on behalf of RBI which pushed the rupee to trade back above 62.70.

The current account deficit narrowed to USD 8.2 billion in Q3 from USD 10.1 billion in Q2. On a year-on-year basis, however, the CAD doubled from USD 4.2 billion or 0.9 per cent of GDP in Q3 of the previous year.  The merchandise trade deficit widened to USD 39.2 million in Q3  on account of a larger decline of 7.3% in merchandise exports and 4.5% in merchandise imports. The reduction in the CAD in Q3 was primarily on account of net exports of services which picked on the back of an improvement in net earnings through travel and software services and lower net outflows under profit, dividend and interest.

On a BOP basis, there was a net accretion of USD 13.2 billion to India’s foreign exchange reserves in Q3 of 2014-15, almost double the accretion in the preceding quarter. We expect the current financial year, CAD at USD 26 billion or 1.3% of GDP on lower net oil imports offset by stronger gold imports. In March Q4 current account is expected to end with marginal surplus.

IMF raised India’s growth forecast for the current fiscal to 7.2% from 5.6% it had estimated previously. IMF called India a bright spot in the global economic landscape and said India has emerged as one of the fastest growing big emerging market economies and the growth rate could further accelerate 7.5% in the fiscal year 2015-16. IMF further stated the economy is reviving helped by positive policy actions that have improved confidence and lower global oil prices and to continue in this trend India needs to revitalize the investment cycle and accelerate structured reforms.

All-in-all, rupee will find stiff resistance at 62.30 and good support at 63.00. Exporters are advised to sell their short-term receivables at the target spot rate of 62.80 or above as the breach of 63.00 resistance is unlikely in the current circumstances.

Forward premia across maturities traded down as the exporters off loaded a part of their earnings after the rupee fell to over 2 month’s low of 62.80 in the middle of the week. Exporters are finding the current levels comfortable to convert their earnings as they do not see any further sharp depreciation in the local currency. The weakness in the rupee exchange rate has brought in receivers in the swap market and the forward dollar premia fell across the maturities. The 1-year forward dollar premium is currently trading at 7.28% per annum as compared with 7.60% per annum a fortnight ago.

Weekly Report :- 05-March-2015

On the back of surprise repo rate cut by RBI, the second inter-meeting rate cut this year, rupee opened at 61.66 on Wednesday morning and immediately RBI through the medium of Public Sector Banks aggressively intervened in the market to push the rupee above 62.00. Though the repo rate cut was surprising, it was anticipatory to the global trend towards easing. RBI stated that further rate cuts shall be dependent upon the continuing progress on high quality fiscal consolidation and developments in the international environment, besides other factors.

RBI delivered the second rate cut this year on the back of easing inflation and the Government’s commitment to fiscal discipline. Market indices hit record highs on Wednesday and the BSE sensex hit a record 30,000 mark for the first time and the Nifty rose above 9120 before retreating sharply to end the week lower.

Brent dipped but held above USD 60/barrel supported by a rise in Saudi crude prices and air strikes on oil facilities in Libya. OPEC kingpin raised the official selling prices for its oil deliveries to Asia and the US on Tuesday.

RBI indicated that an extremely strong rupee is undesirable and that statement reinforces our strong belief that rupee will find stiff resistance at 61.60 and well supported by foreign portfolio inflows at around 62.50 thus establishing a new trading range between the above levels till the end of March 2015.

It now seems that RBI will intervene aggressively to defend the 61.50 level and any temporary rise towards 61.60-70 should be utilized as a good opportunity to hedge the short-term payables by the importers. Higher forward dollar premium in near-term forwards will encourage the exporters to sell their near-term receivables as the possibility of the rupee weakness beyond 62.50 is remote in the current circumstances.

Upbeat economic data released in the US raised bets of a sooner than expected rate hike in the US and the dollar’s strength overseas limited the upside in the rupee. With the euro weakening, the dollar index touched a 11-1/2 year high of 96.31 today, its strongest level since September 2003. Benchmark 10-year note hovered near 2.13% after spiking about 13 basis points in the last 2 days.

In the first two months of the current calendar year, rupee appreciated by 1.93% against dollar amid fall in oil prices and cues from the Union budget 2015-16. Rating agency S&P raised its GDP growth forecast to 7.9% from 6.2% for the year ending March 2016, citing rising investment and low oil prices. The Reserve Bank of India is capping the gains on the rupee by intervening in the market and has built record foreign reserves of USD 334 billion It will be important to see if rupee continues to appreciate post -Union budget. Going forward, dovish Fed testimony is likely to increase the foreign portfolio inflows. Rupee remained the best performing currency in the BRICS and Asian region. The RBI intervention was aimed to maintain export competitiveness and build its armour of forex reserves.

After seeing the rupee falling to above 62.20, exporters sold their near-term receivables and the short-term forwards drifted lower. The 1-year forward dollar premium ended the week at 7.35% per annum as compared with 7.60% per annum on Wednesday.


Weekly Report :- 27-February-2015

The rupee maintained its firmer undertone during this week on news of Fed Chair Janet Yellen’s testimony to the US Senate Banking committee which suggested the Fed won’t be rushed into kicking off the US interest rate tightening cycle. The US rate outlook got tilted yesterday when one Fed official reiterated that Fed needs to see evidence of a rebound in inflation for a possible rate hike this summer. Another Fed President stated that the Central Bank will probably start raising interest rates sometime this summer as inflation bottoms out and begun to recover. US dollar index rallied to a high of 95.41 on Thursday, close to the more than 11 year high of 95.48 hit on 23-1-2015.

Reform-centric Union Budget is now anticipated which will take the rupee to test the next resistance at 61.50 in the post-budget period. This month, the month-end dollar demand from oil companies was comparatively lower and selling by foreign Banks outmatched the dollar demand in the market.

During February till 25-2-2015, the equity inflows turned positive at about USD 600 million and the total portfolio inflows aggregated to USD 2.20 billion taking the year-to-date net portfolio inflows to over USD 8.5 billion. On Thursday, foreign portfolio investors bought Rs.2,312.15 crores of shares on the back of continued rate cut expectations and optimism over this Saturday’s Union Budget. FM is due to unveil his maiden full year budget which is likely to be reform oriented and promote the Government’s “Make in India” campaign.

Brent crude edged up toward USD 62.60/barrel yesterday helped by better than expected Chinese factory activity data, Fed’s flexible stance on US interest rates and the eurozone’s approval of reform as proposed by Greece. But US crude is currently trading weaker at about USD 50/barrel on the back of bigger than expected crude stocks build-up. Currently Brent versus WTI crude spread hovers near USD 12/barrel.

At close to 61.75 level, the Public Sector Banks intervened in the market to buy dollars on behalf of RBI to curb the rupee’s rise. RBI’s intervention was aimed to shore up its forex reserves and to preserve export competitiveness. Till the end of March, we see the rupee to trade in a boxed range between 61.50 to 62.40 with bias clearly on the upside. Importers are well advised to hedge their near-term payables at close to 61.50 level to take advantage of the appreciating rupee exchange rate.

The RBI intervention in the spot market has encouraged active paying interest by Banks in the forward market making the forward dollar premia to rise across the curve. After having bought dollars in the spot market, RBI was seen paying in the forward market. The 1-year forward dollar premium was traded at a 3-month high of 7.45% on Friday. The near-term forwards also rose with the 3-month forward dollar traded at a premium of 8.25% over the spot rate. We expect to see a moderate drop in forwards in the first week of March 2015.


Weekly Report-20-June-14

At the beginning of the week, rupee breached the support at 60 and  recorded a 7-week low of 60.54 on Wednesday triggered by uncertainties over developments and persistent unrest in Iraq. Prices of brent crude rose to a high of USD 115.71 barrel, the highest since September 2013 on fears of disruptions in supplies following the civil war in Iraq. Disturbances in Iraq which has caused increase in oil prices, concerns over rainfall plus recently declared inflation numbers have all contributed to weakness in the exchange rate past the 60 level.

From the beginning of May 2014 till date, the net portfolio inflow was robust at over USD 11 billion. The BSE sensex recorded a surge of over 12.50% while the rupee was flat. After announcement of election results in the middle of May, the Central Bank was aggressive in buying forward dollars (through the medium of PSU Banks) to maintain export competitiveness. The intervention from the Central Bank effectively curbed the rupee’s rise against the dollar.

The oil refiners and corporates rushed for cover on seeing the breach of good support at 59.80. As we have seen in the past, rupee is susceptible to react on the weaker side on happening of any event, either internal or external. This time an external event, however temporary it can be, has triggered a weakness in the home currency. Going forward, the rise in global crude oil prices and dimming expectations of a market-friendly budget could cause the local stock indices to correct lower impacting the home currency to trade in the new range between 59.30 to 60.80, with a weaker bias. The Central Bank sold dollars through the state-run Banks aimed at containing the volatility in the currency. A re-visit to the earlier high of 58.33(on 23-5-2014) seems difficult in the current circumstances.

The Fed on Wednesday said it would leave its benchmark interest rates unchanged but cut its stimulus programme to USD 35 billion from USD 45 billion. Fed gave a positive assessment of the world’s largest economy and committed to retaining its accommodative monetary policy. This led to softening of dollar against the major currencies and influenced an uptick in the Asian currencies led by Malaysian Ringitt, Philippian Peso and Indonesian Rupiah. Rupee also climbed to a high of 59.85 on Thursday morning in reaction to the Fed news before moving lower.

Forward premia for dollars across maturities fell after FOMC maintained a dovish stance at its policy amid weak dollar globally. The Central Bank has been periodically conducting term repo auctions to maintain sufficient liquidity and to support credit growth. The comfortable liquidity situation in the market is guiding an easy trend in the swap market. However, the forward dollar premium for maturities upto 3-months ruled firm as importers were seen buying dollars to hedge their near-term payables. The 1-year forward dollar premium ended the week at 8.2% per annum.   

Weekly Report-13-June-14

In the last one month, RBI through the medium of state-run Banks has intervened aggressively to buy spot dollars and forward dollars in their effort to curb volatility. To maintain export competitiveness of India’s exports RBI will have to curtail appreciation in the exchange rate on the back of healthy portfolio inflows. In the absence of intervention from the Central Bank, we feel the rupee would have risen above the stiff resistance at 58.30.

Form the beginning of May 2014 till date, the BSE sensex has recorded a massive gain of over 12.50% influenced by the portfolio inflows of over USD 10 billion in the above period. Despite the surge in local stocks, rupee had appreciated by just 1% in the corresponding period.

The World Bank cut its 2014 global growth forecast to 2.8% from 3.2%. This combined with country’s adverse trade data for May could act as a negative factor for the currency in the short-term. The rupee also stayed under pressure after conflict in Iraq threatened to morph into a full-blown civil war that could roil the Middle East and probably send global oil prices climbing. In the current circumstances, a test of the next support for the rupee at 60.00 is very much on the cards.

Consumer price inflation (CPI) eased to 8.28% in May from a 3-month high of 8.59% in April aided by lower food prices. The industrial production (IIP) data for April 2014 stood at 3.4% versus a poll forecast of 1.6% revealing a pick-up in manufacturing, electricity and capital goods sectors. These numbers will bring fresh cheer to the market which has been rallying in hope of an economic turnaround.

Any change in gold import duty is expected to be eased only in Budget,  according to Commerce Secretary. Market participants widely expect the Government to relax duty on gold imports and lift curbs partially to meet the domestic demand. The envisaged reduction in gold imports duty could trigger widening of the current account deficit to 2.5% of GDP in FY 2014-15 as compared to 1.7% of GDP in the previous financial year.

The state-run Banks were payers in the swap market, swapping the spot dollars into forward dollar maturities specifically above the 3-month tenor. As a result of huge paying pressure in the market arising out of intervention, the forwards surged across the maturities in the early part of the week recording the higher levels since July 2013. On Monday, the 1-year forward dollar premium was quoted at over 9% per annum. From the middle of this week, the forwards sharply eased across the tenor as the paying pressure subsided consequent to absence of intervention from the Central Bank. Going forward, we expect the forwards to ease as the RBI is expected to cut the key rates in the third and fourth quarter of the current financial year. Also, the anticipation of higher US short-term interest rates would reduce the interest rate differential between the USD and INR for maturities upto one year.



The bunched-up dollar demand from oil refiners and corporates weighed on the rupee and the currency touched a low of 59.45 on Wednesday before recovering moderately to trade within the 59.15-25 range. Strong dollar index after better than expected data from US also influenced a moderate weakness in the rupee exchange rate.

The portfolio inflows remained strong aggregating to over USD 7.7 billion from the beginning of May 2014 till date. Despite the position of encouraging inflows, the rupee stayed weak as the state-run Banks were seen buying dollars on behalf of RBI. The continued intervention by RBI in the foreign exchange market was targeted to maintain the country’s export competitiveness and also to shore up forex reserves.

On Thursday, European Central Bank outlined its plan to inject Euro 400 billion worth of funds into the banking system under its long-term refinancing operation and cut its refinance and deposit rates by 10 bps each. Because of the wide spread between deposit rates of eurozone and emerging markets, good amount of inflows are expected to pour into local equity and debt. Most funds that were to get directed to Europe and US would now move towards emerging markets with higher deposit rates and India would remain the favorable destination of such flows.

We expect the rupee to gradually appreciate towards 58.75 in the coming week but the currency’s rise will be tempered by frequent intervention from the Central Bank. RBI in their recent policy statement allowed foreign portfolio investors (FPI) to hedge their currency risk by trading in derivatives over the exchange. This move is expected to help boost overseas inflows in the local market as it facilitates foreign investors to hedge their currency risk and may cause the rupee to strengthen above Rs.58.30 in a timeframe of 1 to 2 months from now.

The market is keenly waiting for the Budget announcement and initiation of new reform measures soon.  The Government is trying to build the level of comfort with the foreign sector and their increased participation in the short to medium-term would influence a favorable trend in the currency and stock markets.

As expected, the Central Bank left the key rates unchanged in their policy meeting on 3-6-2014. The SLR requirement for Banks was cut by 50 bps to 22.5% from 23% releasing around Rs.390 billion of funds locked in Government bonds for private credit. We believe that with major PSU Banks already running SLR assets at 4 to 5% in excess of the required ratio there would not be any impact on bond yields despite the easing in SLR rate. Recognizing the sluggish credit growth, the 10-year benchmark bond yield may ease to 8.40% in the coming months as the new Government undertakes reforms to spur growth and curb inflation, giving the RBI leeway towards a more accommodative policy stance.

The sharp rise in forward dollar premia for maturities upto 6-months was attributed to buying of forward dollars by the Central Bank, by way of buying spot dollars and swapping for specific forward maturities using the medium of Public Sector Banks. Forward premia for dollars across maturities traded higher on demand from importers and tracking a weaker rupee exchange rate. In the coming weeks, the premia is expected to ease as RBI is unlikely to hike rates and was dovish in its policy. The 1-year forward dollar premium ended the week at 8.5% per annum, and we expect the firm trend to continue in the coming week.


After formation of a stable and majority Government at the Centre, the investors are now waiting for the new Government to announce the budget and reforms. During May 2014 till date, the BSE sensex recorded a whopping gain of over 8%, while the rupee gained by about 2%. Rupee’s rise was limited as RBI had resorted to buying of dollars from the market to restore export competitiveness. After registering a low of 59.21 on Wednesday, the rupee is currently trading in the vicinity of 59.

The huge dollar demand from oil refiners seen during the week has triggered a moderate weakness in the rupee exchange rate. Subdued overseas flows in the local market also weighed on the rupee. The dollar index traded higher on strong economic data from the US. Dollar’s strength against the major currencies also weakened rupee. Importers who remained on the sidelines also rushed to hedge their near-term payables to take advantage of a favorable exchange rate.

Key factors to watch out in the short-term would be--- Government’s measures to control inflation, upcoming Union Budget and RBI’s stance in the June monetary policy. RBI vide their circular dated 27-5-2014 permitted the importers to hedge upto 50%, based on the permissible limit against probable exposures. As most of the import payments are backed by LCs/collection documents/bills/trade credits etc, the impact on the currency on account of this measure will be limited.

We expect the rupee to trade in the range between 58 to 60 with a neutral bias. In the current circumstances, it will be very difficult for the rupee to breach the immediate resistance at 58.30 and strong resistance at 58.00. The first phase of the rupee strength is almost over with the currency having recorded a high of 58.33 on 23-5-2014 which was a eleven month high. Based on the path to be laid by the Government to initiate new reform measures, the second phase of the rupee strength can be seen with the strong resistance pegged at 58.00.

Though the overall trend points out to a stable currency scenario in the near-term (upto 3 months timeframe from now) it is quite possible to see intermittent weakness in the home currency within the suggested 58 to 60 range. Exporters are well advised to sell their medium-term receivables targeting a spot exchange rate of 59.20 or lower added with the benefit of higher forward dollar premium prevailing in the market to achieve export realization.

Forwards fluctuated in a 30-40 bppa range across the maturities in relation to the two-way movements in the spot exchange rate. Forward dollar premium also rose after the US Treasury yields fell sharply on safe heaven appeal after weak German data and amid slowing growth in China. The prevailing interest rate differential between the USD and INR in farther maturities clearly reflects the forward differential in those maturities. The 1-year forward dollar premium ended the week a lot firmer at 8.15% per annum.


Buoyed by the formation of a stable and majority Government at the Centre on 26th May 2014, the rupee opened the week a lot firmer at 58.55 and registered a 11-month high of 58.33 on Friday, raising hopes of further appreciation in the exchange rate well below 58.00. In view of the currency environment remaining adverse to the exporters, they were seen selling dollars across the maturities. The dollar demand on spot basis from oil refiners and corporates along with intervention from RBI had helped to neutralize the dollar supplies in the market thus keeping the rupee in a stable range against the dollar. During this month till date, the portfolio inflow was robust at more than USD 4.2 billion which supported the rupee.

In the minutes of the April 29-30 FOMC meeting, FED has reiterated that it would maintain interest rates near zero level for a considerable time after the asset purchase programme is concluded. The Fed is currently purchasing USD 45 billion in Treasury and mortgage debt a month to spur recovery, suppressing long-term interest rates, weakening the dollar while boosting stock prices on hopes investing and hiring will follow suit. The rupee exchange rate was well supported as FOMC minutes cleared speculation of any hike in the interest rates.

Awaiting further gains, the importers preferred to wait on the sidelines.   Atbest, the hedging approach of the importers is limited to covering of near-term payables. In their effort to restore export competitiveness and enabling accretion to forex reserves, the Central Bank resorted to buying of dollars on a continuous basis through the medium of PSU Banks. Maintaining a stable to weaker exchange rate is imperative for the Central Bank to foster a double-digit export growth which is the need of the hour to contain the current account deficit within 3% of GDP in the current financial year.

The “fragile five” – Brazil, India, Indonesia, Turkey, and South Africa – the countries that were most vulnerable last year, are looking stronger this year. Since their January opening, the Turkish lira has climbed 2.5%, the Brazilian real 7%, and the Indonesian rupiah and Indian rupee over 5% each. South African Rand was almost flat, after recovering from 4% depreciation since April 14. Over the last 2 months, emerging markets have delivered a handsome rally, with the MSCI emerging market index recording a 7% return in US dollar terms, compared with just 1% for the developed markets.

Among the “fragile five”, Brazil has already reduced the swaps programme it had put in place to prop up the real; Turkey has hinted it could possibly reverse January’s emergency rate hikes and India’s central bank has been quietly intervening to limit the rupee’s rise to protect export competitiveness. The rupee has surged 15% since hitting a record low of 68.85 in August 2013, far outperforming other emerging market currencies such as the Brazilian real and Indonesian rupiah. The RBI is also wary of a sharp appreciation in the rupee, which might render the exchange rate less competitive for exporters. India’s forex reserves cover about 8-month of imports and now has the higher foreign exchange reserve cover among the group of countries Brazil, Indonesia, South Africa and Turkey.

 At the start of the week, the exporter-selling eased the forward dollar premia across the maturities. On Tuesday the 1-year forward dollar premium plunged to a low of 7.50% per annum. The forward dollar premia rose gradually after RBI was seen buyingdollars in forward market. The 1-year forward dollar premium was quoted at 8.05% at close of the week.


Dollar-selling by exporters amid weakness in the greenback against major currencies had influenced the rupee to trade near the 60 level all through this week. Rupee is also well supported by globally weak dollar on waning expectations of no immediate rate hike by the US Federal Reserve. The exit poll results are being announced on 13th May 2014. The market is optimistic about formation of a stable Government at the Centre introducing reforms to drive growth and investment.

On Thursday, the rupee breached the strong resistance at 60 and tested a 4-week high of 59.92 before ending the day at above 60.00. The Public Sector Banks presumably on behalf of RBI, were active in buying dollars near the above resistance to drive the rupee back above the 60-mark. The intervention from the Central Bank was aimed to curb the rupee’s sharp rise to maintain export competitiveness. After the exit poll results are out, it is quite possible that the market may try to break the 60 level decisively and test the next resistance at 59.60 or thereabout.

From the risk management perspective, we strongly advise the exporters to sell their medium-term receivables at the current spot and forward levels. The prevailing forward dollar premia for medium-term maturities (beyond 3-months tenor) clearly overstates the expected level of rupee depreciation over the corresponding period as per the market’s currency forecast and hence the recommendation. Importers are advised to hedge their near-term payables upto 3-month maturities at the current exchange rate. From the middle of May till the end of September 2014, we expect the rupee to trade in the range between 59 to 62 with a firm bias in the immediate term.

Against retirement/payment of import bills for purchase of raw materials and consumables, the importers can choose the best option of availing short-term trade credit facilities from offshore Banks against the letter of undertaking to be issued by the local Bank. The import financing cost on a fully hedged basis will work to around 10% per annum against the rupee funding cost of over 12% per annum. Subject to availability of credit limits with Banks, the importers can derive the cost benefit of over 2% per annum for the permitted tenor of the buyer’s credit facilities extended by the Banks. The short-term trade credit transaction volumes are expected to pick-up in the current encouraging scenario of stability in the exchange rate.

The reasonable stability in the exchange rate and its possible appreciation in the near-term have influenced a downtrend in the forward market. The comfortable liquidity situation as a result of term repo issuances by RBI also guided an easy trend in the swap market. There was keen receiving interest in the market across the maturities on exporter-selling. The 1-year forward dollar premium however ended the week a touch firmer at 8.07% per annum. 






Euro fell to almost one year low against US Dollar in recent sessions, presently trading at 1.3015. The recent EU summit and ECB meeting hasn’t concluded any major solution for the present crisis and added some negative impact on the markets as investors disappointed.


Additionally, FITCH placed six eurozone countries on downgrade watch on 9th Dec and concluded that eurozone crisis is "technically and politically beyond reach".


The systemic nature of the Eurozone crisis is having adverse effect on global economic and financial stability. Especially some Euro countries may face near-term risks that are beginning to dominate the sovereign-specific risk fundamentals.


In the absence of a 'comprehensive solution', the crisis will persist and likely to drag the global economic growth in near future.






The EURUSD currently trading at 1.3020 levels after recovering from low of 1.2943 on 14th Dec 2011.

In the weekly chart the EURUSD currency pair is in larger triangle pattern with a down trend continuation.

Upside Euro facing resistance at 1.3050 levels, which is 61.8% Fib Retracement level, move above this level could trigger the pair to 1.3400 levels again.

Euro is testing the strong support of 1.29 levels, last time the pair made low of 1.1874 in Jun 2010 and the pair below 1.29 levels leads to chances of sharp selling to 1.20 levels.

Expected range in short term: 1.26 to 1.35


EURUSD: weekly chart



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European Sovereign Debt Crisis




USD/INR Volality on 20-3-12


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Our comments on Monetary Policy review on 17.9.2012


OUTLOOK ON EURO on 24.8.12


RBI Monetary Policy 30th Oct 2012 



















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