Weekly FX outlook

Major Developments

The BoE kept its benchmark interest rate unchanged at 0.10% while slowing the pace of bond-buying on growing hopes for recovery.

US non-farm payrolls disappointed estimates, with the 266,000 jobs added in April significantly missing the estimates of a 978,000 gain.

India's foreign exchange reserves surged by $3.91 billion to reach $588.02 billion in the week ended on 30^th April 2021.

USDINR Weekly performance & Outlook

The USDINR pair saw a gap up opening at 74.26 levels, gradually rupee strengthened to close the week at 73.52 levels. April GST collection came in at a record Rs 1.41 lakh crores, the seventh consecutive print of over 1 lakh crores. The BJP showed weaker than expected performance in the state elections, particularly in Bengal. The rupee rose sharply against the US dollar because optimism over a strong economic recovery across the globe, as suggested by key data points released, dampened demand for the safe-haven greenback. Gains in domestic equities also supported the Indian unit.

The RBI announced a slew of measures to support the economy through the second wave. It announced measures to incentivize bank lending for COVID-related purposes. It also announced liquidity measures for Small Finance Banks and introduced resolution framework 2.0 for stressed assets. The RBI also announced the purchase of Rs 35,000 crores of securities under GSAP on 20th May. A slew of liquidity measures announced by the RBI helped to keep the sentiment positive.

US Treasury secretary Yellen quickly clarified her comments about interest rate hikes being needed to prevent the economy from overheating. The reflation theme continued to dominate globally. Commodity prices continued to soar. The ISM prices paid the data point confirmed the price pressures businesses are facing.

The cut-off for the 14-day variable rate reverse repo auction came in at 3.46% while the bid received were on average came to be 1.60 times the notified amount of the auction. The overnight money market rate rose to 3.27% from 3.22% recorded in the previous day. A Rs 32,000-crores bond auction conducted by the RBI was fully sold even as the markets keenly awaited the second tranche of the GSAP purchase. The 10-year G-Sec benchmark closed the day at 6.0156%.

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