Global developments

2022 seems to be kicking off with global risk sentiment holding up despite a flare-up in COVID cases across the globe. Though US nominal yields have risen at the shorter end, real rates continue to remain deeply in negative territory. This is weighing on the dollar which has weakened across the board except against JPY which is more sensitive to US nominal yields. JPY was the worst-performing G10 currency in 2021. Euro is trading close to the upper end of its recent 1.1260-1.1360 trading range. Sterling has retraced to 1.35 from around 1.1340 levels in the Asia session. Commodity currencies, the Canadian Dollar in particular are exhibiting strength. CAD was the only G10 currency that appreciated against the Dollar in 2021.

Domestic developments

Core sector output grew 3.1% in November, a sign that domestic growth is under pressure. However, GST collections for December came in at 129000crs, just a tad below collections in November. Given the robust direct and indirect tax collections, the April-November fiscal deficit was just 46% of that budgeted for the entire fiscal. FX Reserves held steady at USD 635bn as of the week ended 24th December.

Equities

The Nifty gained 0.9% on Friday to close at 17354. US equities ended modestly in the red on Friday. Asian equities too are trading mixed.

Bonds and Rates

The auction of the benchmark and the Floating Rate bond was canceled on Friday. The yield on the benchmark dropped 4bps from day highs to end at 6.45%. The 14d VRRR saw a poor uptake as banking system liquidity is still low on account of higher government cash balances with the RBI.

USD/INR

The Rupee had strengthened to 74.10 against the dollar on month-end exporter selling and cash Dollar selling by foreign banks on Friday. USD/INR however saw aggressive short-covering towards the end of the session as a result of which the pair closed at 74.34. 73.90-74.10 zone is a strong technical support.

Strategy: Exporters are advised to cover on upticks towards 75.50 levels. Importers are advised to cover on dips towards 74.30 level. The 3M range for USDINR is 73.80 – 76.00 and the 6M range is 73.50 – 76.50.

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