Currency monthly 6th jan'17

SEBI Certified – Research Analyst www.choiceindia.com
Currency Monthly
6th January 2017

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website
Currency Monthly6th January 2017
Outlook
Indian Rupee: Indian Rupee is estimated to depreciate for the month of January on account of stronger dollar
index after US Federal Reserve hinted towards a gradual hike in interest rates for 2017. Further, there have been
some serious foreign outflows from emerging markets which have kept pressure on the currency. On the domestic
front, Modi government’s demonetization move in order to remove corruption and terrorism has caused some
inconvenience to the general public now but still the situation is to wait and watch.
Moreover, downside in the currency will be witnessed due to postponing of GST tax which was supposed to be
launched from 1st Apr’17. Additionally, investors will be cautious ahead of the Budget announcement on 1st Feb’17.
However, sharp downside in the currency will be cushioned as a result of central bank intervention at the higher
levels along with estimates of favorable industrial production and inflation data. For the month of January, Indian
Rupee is expected in the range of 67.0-69.0.
Dollar Index: The US Dollar Index is expected to be on a positive side in an upcoming month on estimates of hike
in interest rates by the Federal Reserve for the year for 2017. Further, optimistic moves and announcement by the
new elected US President Donald Trump will lead to upside in the currency.
Moreover, robust manufacturing and non-manufacturing data has pushed retail sales up, employment data like
ADP and Non-Farm employment has been favorable along with upside in the economic growth of the country
which has led to a positive movement in the currency. For the next month, Dollar Index will be in the range of
99.50-106.
Euro: The Euro is forecasted to recover from its low in the coming month due to optimistic manufacturing and
non-manufacturing data from two major countries like Germany and France after a surge in new order intakes,
which companies generally linked to a combination of better marketing initiatives and strong demand from foreign
markets.
Additionally, the rise in region’s inflation coupled with an unemployment rate of the Euro region falling to seven
year low at 10 percent will lead to upside movement in the currency. However, sharp upside in the currency will be
capped as For the month of January, Euro is expected in the range of 1.010 to 1.0870.
Sterling Pound: The Sterling Pound is anticipated to be on a negative note in next month due to lack of clarity
over when the Brexit will take place and its impact on the economy. Further, strength in the dollar index post the
hike in interest rates will keep the pressure on the currency. However, sharp downside in the currency will be
cushioned as a result of manufacturing, service and construction PMI data because all have surged by more than
the expectations. The unemployment rate has plunged which will prevent sharp negative movement in the
currency. In the coming month, the Cable is estimated in the range of 1.2070 to 1.2770.
Japanese Yen: The Japanese Yen is expected to be on negative side for the month of January due to rise in risk
appetite in global market sentiments which will lead to a decline in demand for the low yielding currency. While on
the other hand, inflation rate, which is currently at -0.4 percent, still lingers below the 2 percent targeted levels.
The reason behind the same could be attributed to anemic demand from global and domestic to some extent will
keep the pressure on the currency. For the month of January, Japanese Yen is expected in the range of 109.50 to
121.70.

News and Developments
US Federal Reserve hikes the interest rates
by 25 bps in Dec’16 meeting
The US Federal Reserve on 14th December’16 finally
increased the target range for the federal funds rate
by 25 basis points to 0.50-0.75 percent; twice since
the 2008 financial crisis. Since this move was already
priced in by the markets, it was the underlying
statements by Janet Yellen, the US Fed Chairwoman
that caused ripples across world markets. She
indicated the possibility of more rate hikes in the
future.
Three rate hikes are predicted for 2017 from two.
This infused optimism in the markets, in turn,
boosting the demand for the American currency. US
Dollar index hit its highest level in nearly 14 years at
102.35 and is currently trading at 102.56 levels while
writing. Yellen insisted that American economy was
doing pretty well currently, however, clouds of
uncertainty looms owing to Trump’s new
administration.
European Central Bank kept the rates
unchanged
The European Central Bank in the monetary policy
meeting dated 8th December’16 announced a
continuation of the bank's generous asset-buying
program to the end of 2017, but reduce the amount
of its monthly purchases.
The key interest rate was kept unchanged at “0
percent” and is expected to remain at lower levels
for an extended period of time. The monthly asset
purchases which were at €80 billion has now been
reduced to €60 billion that is intended to run till the
end of December’16 instead of March’16, until the
ECB achieves the 2 percent inflation target.
The ECB President, however, kept the doors open to
change in size and duration of the programme if
need be, firmly shooting down any talk of tapering in
the €1.7 trillion asset-buying program.
BoE also maintains status quo in its
meeting held in Dec’16
The Bank of England’s Monetary Policy
Committee, on 15th December’16, voted
unanimously to maintain Bank Rate at 0.25
percent. The central bank has also confirmed to
continue the program of buying £60 billion of
government bonds to take the total stock of these
purchases to £435 billion.
The committee has predicted a "slightly lower
path" for inflation rate in the future, although it
still expects inflation to overshoot the 2 percent
target in 2017; all thanks to rising crude oil prices
and the recent surge in Sterling Pound.
The Bank of England governor Mark Carney
expects the unemployment rate to rise to around
5.5 percent by the middle of 2018 from the
current rate of 4.8 percent (Nov’16). Moreover,
the risk of Brexit negotiations has already harmed
Britain’s business activities and is expected to
strain more in turn affecting companies’
profitability.
Due to this, companies will be forced to cut their
cost by lowering the employees’ income thereby
hurting their spending pattern. It is a known truth
that for any economy to perform consumer
spending is a must, hence there is a high
possibility that the Britain’s growth rate, in future,
will suffer too.

The above chart shows that Indian Rupee appreciated
in the month of December around 0.7 percent and
currency had depreciated by more than 2 percent in
November and October, while appreciation was seen
by 0.38 percent and 0.53 percent in August and
September respectively.
The currency appreciated and touched a high of
67.325 after Reserve Bank of India (RBI) surprised the
markets and kept key rates unchanged. Further,
optimistic economic data from the country led to
upside movement in the currency.
The central bank in its fifth Bi-Monthly Monetary
Policy review kept its benchmark repo rate unchanged
at 6.25 percent. Other important rates were also kept
at the same levels like the Reverse Repo Rate at 5.75
percent and both marginal standing facility and bank
rate stood unadjusted at 6.75 percent.
Additionally, selling of dollars by exporters at higher
levels, a decline in CPI and WPI inflation of the
economy along with rise in the industrial activity led to
positive movement in the currency.
However, huge outflows of foreign funds from India
affected the Indian Rupee. So far this fiscal year,
foreign institutional investors bought $1.69 billion in
equity, while they sold $5.72 billion in debt since
Trump’s selection and Indian Rupee demonetization.
Indian Rupee touched a low of 68.51 and high of
67.325 in the month of December. While in the month
of November, it touched an all time low of 68.8625.
RBI kept key rates unchanged in its fifth Bi-
Monthly Monetary Policy
The Reserve Bank of India in its fifth Bi-Monthly
Monetary Policy review kept its benchmark repo rate
unchanged at 6.25 percent. Other important rates
were also kept at the same levels like the Reverse
Repo Rate at 5.75 percent and both marginal standing
facility and bank rate stood unadjusted at 6.75
percent. Markets were expecting a rate cut of 25 basis
points as India’s inflation rate eased more than the
expected levels for the third consecutive month in
October’16. However, the central bank decided to wait
and watch for sometime then take the action.
The six-member monetary policy committee was of the
opinion that the recent Rupee Demonetization would
temporary push down inflation but there is a high
possibility of rising in future, all thanks to the
implementation of 7th pay commission and GST bill.
Moreover, the recent agreement by the OPEC
members to cut output production by 1.2 billion
barrels per-day may firm up crude oil prices in the
coming months. This will further intensify problems for
India’s inflation rate since it is one of the prime
importers of crude oil.
The Reserve Bank of India is thinking of ways to curb
the excess liquidity. It has asked schedule banks to
maintain 100 percent Cash Reserve Ratio for the
deposits received between 16th Sep’16 to 11th Nov’16.
However, banks hate CRR as their money is kept idle.
Hence, the Reserve bank of India has come up with
Market Stabilization Scheme (MSS) where banks can
suck excess liquidity from the system with an
opportunity of earning money on that.
According to the RBI governor, global growth is
improving as industrial activities resume in advanced
economies. Donald Trump’s victory in the US
Presidency Elections along with the higher prospect of
a rate hike in the US has led to huge volatility in
international financial markets. Investors are fleeing to
US markets to take the advantage of higher interest
rates which is affecting emerging market economies.
Moreover, political instability in the Euro area will add
to the woes. However, he feels that things will slowly
improvise as world trade is showing sign of
stabilization.
67.45
66.65
67.97
66.91
67.18
66.37
66.86
66.44
67.95
68.75
67.36
68.24
68.10
66.3
66.8
67.3
67.8
68.3
68.8
Indian Rupee (USD/INR)

The above chart shows that Euro remained under
pressure for third consecutive month in December
after declining in last month and dropped by more
than 3 percent in the month of November. The
currency depreciated on account of strength in the
dollar index.
Euro declined after European Central Bank’s vice-
president warned that under Trump’s rule, Euro-
zone economy could be exposed to rising
protectionism and political risk, suggested that the
bank is ready to agree to a fresh round of
controversial bond purchases to bolster the
economic recovery.
The currency touched a high of 1.0874 and low of
1.0352 in the month of December. Moreover, the
Italians have voted for ‘no change’ in the
constitutional referendum which led to the
resignation of Italian Prime Minister Matteo Renzi
as promised. ECB President had stated that the
committee was in a position to address bond
scarcity and has flexible programs to maintain
monetary accommodation which kept the currency
in negative territory.
However, sharp downside in the currency was
prevented due to optimistic manufacturing,
economic sentiments and business climate data
from the region.
The US Dollar Index surged around 0.7 percent in
December as shown in the above chart. The
currency rose to a high of 103.65 and low of 99.43
in the last month.
The currency rose due to hike in interest rates by
the Federal Reserve in Dec’16 meeting. Further,
promises made by the newly elected US President
led to upside movement in the DX.
The US newly elected President Mr. Donald Trump
has promised to increase government spending, cut
taxes and ease the financial regulations. This factor
led to expectations that his policies could see a
recovery in the global economy which is little bit
fragile at this movement. Even the US Federal
Reserve Chairwoman in her recent speech stated
that economy will see a gradual hike in interest
rates for the year of 2017.
Additionally, host of economic data sets from the
country, led to positive movement in the currency.
Right from the labor market sector; like ADP, NFP
and unemployment rate came on a good note.
Also, GDP and consumer confidence data along
with manufacturing, retails sales and housing data
showed signs that consumers are confident about
the economy and leading to more spending.
Moreover, the surge in consumer sentiment kept
currency in the positive territory.
95.46
93.61
96.54
97.20
95.06
94.16
96.11
98.70
97.40
101.21
100.09
103.02
102.21
93.5
95.5
97.5
99.5
101.5
103.5
105.5
US Dollar Index (DX)
1.115
1.140
1.103 1.100
1.122
1.135
1.115
1.121
1.088
1.114
1.063
1.077
1.038
1.052
1.03
1.05
1.07
1.09
1.11
1.13
Euro

The Japanese Yen depreciated by more than 2
percent in December after declining by more
than 9 percent in Nov’16 and around 3.5
percent in the month of Oct’16 respectively.
The currency depreciated on account of rise in
risk appetite in global market sentiments which
led to a decline in demand for the low yielding
currency.
The currency declined as economic growth of
the country plunged marginally in Q3 of 2016
giving the hopes to shift country into an
inflationary stage from deflation.
From the domestic front, the Bank of Japan
(BoJ) kept the key rates unchanged in its Dec’16
meeting which led to a negative movement in
the currency. Japan’s inflation rate failing to hit
its target levels of 2 percent.
cushioned due to positive manufacturing and
non-manufacturing data from the country.
The Sterling Pound came under pressure and
depreciated by more than 1 percent in the
month of December. The currency fell on
account of a stronger dollar. Further,
uncertainty on when Brexit will be completed
and economy’s impact on the same led to
worries over the investors which kept
currency in negative territory. Moreover, drop
in manufacturing and retail sales data led to a
negative movement in Cable.
prevented after the new Chancellor pledged
to increase spending on the UK's
infrastructure and research and development
programs. This statement saw an additional
spending on high-value investments,
specifically in infrastructure and innovation.
Additionally, construction and services data
turned out to be on favorable side which
cushioned sharp downside movement in the
currency.
In addition to that, unemployment scenario
was stable and claimant count change data
declined in Nov’16 which restricted further
plunge in Sterling Pound.
1.442
1.488
1.323
1.293
1.336
1.292
1.344
1.262
1.212
1.260 1.273
1.228
1.18
1.23
1.28
1.33
1.38
1.43
1.48
Sterling Pound
109.54
106.53
102.22
100.77
106.89
100.31
103.92 103.95
103.3
114.46
117.91
116.5
99
101
103
105
107
109
111
113
115
117
Japanese Yen

SEBI Certified – Research Analyst www.choiceindia.com
Contact Us
Disclaimer
This is solely for information of clients of Choice Broking and does not construe to be an investment advice. It is also not intended as an offer or solicitation for the purchase and sale of any financial
instruments. Any action taken by you on the basis of the information contained herein is your responsibility alone and Choice Broking its subsidiaries or its employees or associates will not be liable in
any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained in this recommendation, but
Choice Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this recommendation or any action taken on basis of this information. Technical analysis studies market psychology, price patterns and volume levels. It is used to forecast
future price and market movements. Technical analysis is complementary to fundamental analysis and news sources. The recommendations issued herewith might be contrary to recommendations
issued by Choice Broking in the company research undertaken as the recommendations stated in this report is derived purely from technical analysis. Choice Broking has based this document on
information obtained from sources it believes to be reliable but which it has not independently verified; Choice Broking makes no guarantee, representation or warranty and accepts no responsibility
or liability as to its accuracy or completeness. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without
notice. The information and any disclosures provided herein are in summary form and have been prepared for informational purposes. The recommendations and suggested price levels are intended
purely for trading purposes. The recommendations are valid for the day of the report however trading trends and volumes might vary substantially on an intraday basis and the recommendations may
be subject to change. The information and any disclosures provided herein may be considered confidential. Any use, distribution, modification, copying, forwarding or disclosure by any person is
strictly prohibited. The information and any disclosures provided herein do not constitute a solicitation or offer to purchase or sell any security or other financial product or instrument. The current
performance may be unaudited. Past performance does not guarantee future returns. There can be no assurance that investments will achieve any targeted rates of return, and there is no guarantee
against the loss of your entire investment.
POTENTIAL CONFLICT OF INTEREST DISCLOSURE (as on date of report) Disclosure of interest statement – • Analyst interest of the stock /Instrument(s): - No. • Firm interest of the stock /
Instrument (s): - No.
SEBI Certified – Research Analyst www.choiceindia.comSEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website
www.choiceindia.comcustomercare@choiceindia.com
www.choicebroking.in
Anish Vyas
Digitally signed by Anish Vyas
DN: cn=Anish Vyas, o=Choice Merchandise
Broking Pvt. Ltd, ou=Sr. Research Associate,
email=anish.vyas@choiceindia.com, c=IN
Date: 2017.01.06 12:36:55 +05'30'

Currency monthly 6th jan'17

Recommended

Recommended

More Related Content

What's hot

What's hot (17)

Similar to Currency monthly 6th jan'17

Similar to Currency monthly 6th jan'17 (20)

Recently uploaded

Recently uploaded (20)

Currency monthly 6th jan'17