MONTHLY REPORT. USDINR Gone By. 2 nd March 2015

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Gyles Nicholas Booth
5 years ago
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1 USDINR Gone By 2 nd March 2015 Rupee opened the month at levels and initially remained on weaker note owing to negative sentiments in Global equities. According to the latest data, US GDP faltered to 2.6% in the fourth quarter as compared to 5% in the previous quarter. Further, profit booking in local equities and caution before outcome of the RBI monetary policy kept the currency unit on a bearish note. Though RBI kept the repo rate unchanged in the monetary policy, it cut SLR rate by 50 bps in the monetary policy. However, Dollar selling from some exporters limited further decline in the local unit and it reversed back to levels. Global equities too recovered on optimism that Greece could resolve its debt crisis and subsequently Rupee appreciated to levels. Further, poor reading of US ADP employment data provided support to the currency unit. China's decision to cut reserve requirement ratio by 50 bps and corporates inflows kept the Rupee on a bullish note. But gains were short lived and the local unit came under pressure on account of heavy Dollar buying by the central bank. Moreover, persistent weakness in local equities kept the Rupee's gains under check. Rupee re tested levels and declined to levels on account of negative sentiments in Asian equities due to strong reading of US Non Farm Payrolls data. According to the latest data, US employers added 257,000 jobs in January from expectations of 234,000 jobs and previous reading of 252,000. The important part of the data was that the US government revised December figure to 329,000 from previously estimated of 252,000 jobs. Further, reductions in FIIs inflows in both equity and debt markets created negativity in the market. Moreover, Dollar strength against major currencies pressurized the Rupee to fall to levels. But opportunistic Dollar selling from some exporters limited further losses in the currency unit. Also better than expected India's CPI and IIP data along with sustained recovery in local equities pushed the currency unit towards levels. Further, strong reading of India trade deficit and WPI data dragged the Rupee to levels. The FOMC minutes indicated that raising interest rates soon could adversely impact US economic growth. This along with extension of bailout to Greece by EU provided support to the global financial markets. Rupee strengthened to levels after FOMC chairwoman suggested that the Federal Reserve could keep interest rate low for some more time. Also stop loss Dollar selling from exporters and foreign banks on break of levels pushed the local unit to 61.72

2 levels despite disappointing Railway budget. But global Dollar strength against major currencies kept the Rupee's gains under check and it reversed back to levels. On the last trading session, local equities recovered on expectations of big bang reforms in Union Budget which supported the currency unit and it ended the month at levels. USDINR Outlook Rupee may open flat around levels with the General Budget failing to ruffle any major feathers with the financial markets. Reduction in Corporate Tax and allowance of foreign investments in alternative funds are welcome reforms along with the GAAR being deferred. However, there could be a sense of dissatisfaction due to high expectations from this Government's maiden full budget. Further, Indian economic data releases such as Balance of Payments and Current Account balance are due in the coming week. Markets are expecting a Current Account surplus, aided by the sharp fall in Crude prices, which could provide support to the local unit. A convincing break of levels could take it towards levels. Further, this week will also witness the European Central Bank's monetary policy, highlighted by the start of the Quantitative Easing program. Expectations of inflows from the Eurozone into emerging markets shall keep the Rupee on a strong note. However, economic data from the US have been generally positive with robust GDP figures giving the Dollar a boost. If Manufacturing and Industrial data from the US come in strong, the Dollar could reinforce its positive momentum, taking it above levels against the Rupee. Skepticism regarding Greek stability despite the 4 month extension shall keep global equities on a cautious note and provide strength to the Dollar. Further, the RBI has been a buyer of Dollars in order to ensure global price competitiveness, raking up approximately $12 billion in the last 4 weeks, and is expected to maintain this stance. This shall keep the Indian currency weak and can take it towards levels. Further, Global Dollar strength against major currencies shall keep the currency unit on a bearish note and could drag it towards levels. Stop loss buying by importers on break of levels shall create negativity in the markets and the local unit may move towards levels. But, failure to break resistance of levels could see Dollar selling from exporters and corporates. After presentation of the Budget, immediate focus of the markets shall be on how India's economic

3 data pan out. If headline inflation both at retail and wholesale levels remain near comfort zone of the RBI then expectations of rate cut may rise. Further, if Trade Deficit and IIP growth show further signs of improvement then Rupee could appreciate towards levels. EEFC conversion by corporates and exporters to pay March 15 advance taxes could add to Rupee's gains. Global financial markets shall see how Federal Reserve's monetary policy pans out which is due on March If the Federal Reserve continues to indicate to keep interest rate unchanged for some more months then the currency unit could rise to levels. Further, if US economic data such as retail sales, consumer confidence and most importantly CPI data remain subdued then Rupee may appreciate to levels. Further, quarter end and year end Dollar selling from exporters could take Rupee towards levels. Key Economic Events In February RBI kept Repo rate unchanged at 7.75% and cut SLR by 50 bps to 21.5%. India's Q3 GDP y/y expanded at 7.50% vs prior of 5.30%. India's Jan Exports came in at USD bln vs USD bln prior. India's Jan Imports came in at USD bln vs USD bln prior. India's Dec Industrial Output stood at 1.70% against the previous of 3.80%. India's Jan WPI Inflation came in at 0.39% against the previous of 0.11%. India's Jan Fuel Inflation stood at 10.69% vs 7.82% prior. India's Jan Food Inflation printed a reading of 8.00% vs 5.20% prior. India's Jan Manufacturing Inflation printed at 1.05% vs 1.57% prior. India's Jan Trade Deficit Data printed a reading of USD 8.32 bln vs USD 9.43 bln. India's Jan CPI Inflation came in at 5.11% against the previous of 5.00%.

4 USDINR Technical Take Chart 1: USDINR Weekly Chart The USDINR pair has been holding the trendline support since end of 2012 and has been gradually trading higher. Hence, the pair is once again expected to take support at levels and move higher towards (technical gap) and levels. Only a break and close above levels shall push the pair to and levels. On the flipside, any break and close below shall open up the gateway for a swift move to and levels. Next key support lies at levels. Technical indicators are mixed. Key Supports Key Resistances S 1 S 2 S 3 S 4 S R1 R2 R3 R4 R

5 Strategy Exporters: Exporters are advised to cover short term receivables on spike towards levels and medium to long term receivables on spike towards levels. Importers: Importers are advised to cover short term( 1 month) payables on dips towards levels.

6 Markets Round up

7 Graph'o'nomics Indian WPI Trend Indian CPI Trend Indian IIP Trend

8 Graph'o'nomics Indian Forex Reserves Trend FII Trend in Indian Markets US Bond Yields v/s Indian Bond Yields

9 Graph'o'nomics Emerging Market Currencies Russian Ruble Brazilian Real South African Rand

10 Indonesian Rupiah Korean Won Risk Disclosure: Any information presented by Greenback Forex Services Pvt. Ltd should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared by Greenback Forex Services Pvt. Ltd.

MONTHLY REPORT. USDINR Gone By. 31 st March 2017

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