SEBI Certified – Research Analyst www.choiceindia.com

Currency Monthly

7th March 2017

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website

Currency Monthly7th March 2017

OutlookIndian Rupee: Indian Rupee is estimated to appreciate for the month of March on account of strong economicfundamentals despite demonetization which clearly shows that India is well equipped to face the uncertain globalroad ahead. Further, the return of foreign funds inflows will lead to upside movement pressure in the currency. Onthe domestic front, industrial production, WPI and CPI all expected to come on a favorable side which will keep thecurrency in a positive territory.

Moreover, an upside in the currency will be witnessed due to estimates of the launching of GST tax from 1st Jul’17.However, sharp upside in the currency will be capped if any decision or statement by the central bank will takeplace in respect to cut its interest rates. For the month of March, Indian Rupee is expected in the range of 65.90-67.70.

Dollar Index: The US Dollar Index is expected to be on a positive side in an upcoming month on estimates of hikein interest rates by the Federal Reserve in its meeting on March 2017. Further, optimistic moves andannouncement by the new elected US President Donald Trump will lead to upside in the currency.

Moreover, robust manufacturing and non-manufacturing data have pushed retail sales up along with upside in theeconomic growth of the country which has led to a positive movement in the currency. For the next month, DollarIndex will be in the range of 99.30-105.

Euro: The Euro is forecasted to be under pressure in the coming month due to cautious stance maintained by thetraders and investors ahead of the key elections in Netherlands. Further, a stronger dollar will keep pressure on thecurrency. Additionally, opinion polls have long predicted that the anti-Islam, anti-EU Geert Wilders’ populist Partyfor Freedom (PVV) could emerge as the country’s largest party which will led to a negative movement in thecurrency.

Moreover, if any extra stimulus measures or announcement of the same by the European Central Bank (ECB) willkeep the currency in negative territory. For the month of March, Euro is expected in the range of 1.030 to 1.090.

Sterling Pound: The Sterling Pound is anticipated to be on a negative note in next month as first phase of theBrexit saga will come to an end in coming days, with the UK Parliament set to give final approval to the Article 50legislation that will trigger formal Brexit negotiations with the EU. This could cause huge outflows of funds from theUK markets. Furthermore, increased possibility of a Mar’17 US rate hike, spurred by hawkish comments from theUS Fed Chair and other policymakers will add to the woes.

However, the sharp downside in the currency will be cushioned as a result of manufacturing, service andconstruction PMI data because all have surged by more than the expectations. In the coming month, the Cable isestimated in the range of 1.180 to 1.280.

Japanese Yen: The Japanese Yen is expected to be on positive side for the month of March due to rise in riskaversion in global market sentiments which will lead to an increase in demand for the low yielding currency. Whileon 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 willkeep the pressure on the currency. For the month of March, Japanese Yen is expected in the range of 110 to 117.

News and Developments

India’s GDP grew at 7.0% in Q3FY17Indian GDP (at 2011-12 prices) expanded by 7.0% inQ3FY17, higher than market expectation of 6.4%.Though the economic activities slowed downcompared to previous quarter growth at 7.4%,Q3FY17 GDP number surprised the policymakers andis showing the minimal impact of note ban.Furthermore, CSO has also revised the FY16 GDPgrowth at 7.9% from 7.6% estimated earlier.

Gross value added (GVA), which is adjusted forsubsidies and taxes to arrive at GDP, grew by 6.6% inQ3FY17 (6.7% in Q2FY17) despite the unfavorablebusiness environment during the quarter owing tothe demonetization.

The private final consumption expenditure (PFCE),which contributes around 55% of the GDP, rose by10.1% in Q3FY17 from 5.1% in Q2FY17 driven byhigher spending on the back of improved sentimentfollowing the implementation of the seventh paycommission, higher crop production and increasingdisposal income.

Government final consumption expenditure (GFCE),expanded by 19.9% (3.7% in Q3FY16 and 15.2% inQ2FY17 due to the higher outlay for the salary andpension hike due to the implementation of 7th paycommission.

Investment scenario during Q3FY17 revived after thethree consecutive quarter of contraction as the grossfixed capital formation (GFCF), which is used as anindication of investment demand in the economygrew by 3.5% in Q3FY17 v/s (-)5.3% in Q2FY17 and3.2% in Q3FY16.

Improvement in capital goods sector was attributedto the government spending, while the investmentactivity in the private sector continued to remainsluggish.

BoE also maintains status quo in itsmeeting held in Feb’17The Bank of England’s Monetary Policy Committeevoted unanimously to maintain Bank Rate at 0.25percent. It left its plans for government andcorporate bond purchases which amounted to£435 billion unchanged. The BoE governor MarkCarney, in his speech, appeared in no rush to raiseinterest rates, warning of "twists and turns" on theroad out of the European Union.

The Monetary Policy Committee have increasedBritain’s economic growth forecast in 2017 to 2percent and expects growth of 1.6 percent in 2018and 1.7 percent in 2019. The upgrade in theforecast was mainly due to the fiscal stimulusannounced in the Chancellor’s Autumn Statementalong with strong global activities and equityprices and more supportive credit conditions,particularly for households.

The House of Commons has finally approved thefirst stage of Article 50 bill which will empowerPrime Minister Theresa May to start pulling Britainout of the European Union. The bill is yet to beapproved by the House of Lords and Parliament.However, the investors have given a cold shoulderto this development since they feel that approvalin one house doesn’t give an absolute assurancethat there won’t be a change of heart from otherMPs later.

US Fed keep the rates unchanged, hintstowards hike in future meetingsThe US Federal Reserve, in its first meeting sincePresident Donald Trump took office, remainedpositive on the economy and unanimously keptthe benchmark interest rates unchanged in arange of 0.50-0.75 percent.

However, they failed to provide any hint on theirfuture course of actions with respect to interestrates.

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website

Currency Monthly7th March 2017

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website

Currency Monthly7th March 2017

The above chart shows that Indian Rupeeappreciated in the month of February by morethan 1.7 percent and currency had appreciated inJanuary and December last year afterdepreciating sharply in November 2016.

The currency appreciated and touched a high of66.6475 after Reserve Bank of India (RBI)surprised the markets and kept key ratesunchanged. Further, optimistic economic datafrom the country led to upside movement in thecurrency. The central bank in its sixth Bi-MonthlyMonetary Policy review kept its benchmark reporate unchanged at 6.25 percent. Other importantrates were also kept at the same levels like theReverse Repo Rate at 5.75 percent and bothmarginal standing facility and bank rate stoodunadjusted at 6.75 percent.

Additionally, selling of dollars by exporters athigher levels, a decline in CPI and WPI inflation ofthe economy along with rise in the industrialactivity led to a positive movement in thecurrency. Further, inflow of foreign funds in Indiasince February which led to sharp appreciation inthe Indian Rupee. The currency touched a low of67.6825 and high of 66.6475 in the month ofFebruary.

The committee referred to gradual adjustments inmonetary policy, with the economy expanding at amoderate pace. Job gains remained solid and theunemployment rate has stayed near its recent low.They continue to see inflation rising to 2 percentover the medium term.

The only eye-opening statement was on the near-term risks to the economic outlook which thecommittee expects to be roughly balancedconsidering the recent Trump polices that hasshocked countries abroad.

RBI kept key rates unchanged in its sixthBi-Monthly Monetary Policy

The Reserve Bank of India in its sixth Bi-MonthlyMonetary Policy review kept its benchmark reporate unchanged at 6.25 percent. Other importantrates were also kept at the same levels; ReverseRepo Rate at 5.75 percent, marginal standingfacility and bank rate at 6.75 percent.

The RBI governor expects the inflation rate tolinger in the range of 4 to 4.5 percent in the firsthalf of the financial year and thereon to movetowards 5 percent with risks evenly balancedaround this projected path.

According to the RBI governor, there is uncertaintysurrounding the direction of US macro-economicpolicies with potential global spill over. He expectsimprovement in emerging market economy’sgrowth rate owing to easing recessionarypressures in Russia/Brazil and stabilized Chinesepolicy stimulus.

Global inflation rate is expected to surge higher onthe back of rising energy prices and demand.

However, global trade remains subdued due to anincreasing tendency towards protectionist policiesand heightened political tensions.

Crude and base metal prices have also firmed upowing to OPEC’s agreement to curtail production,an expectation of fiscal stimulus in the US, stronginfrastructure spending in China and supplyreductions.

67.45

66.65

67.97

67.18

66.3766.44

67.95

68.75

67.36

68.24

67.41

66.71

66.3

66.8

67.3

67.8

68.3

68.8

Indian Rupee (USD/INR)

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website

Currency Monthly7th March 2017

The above chart shows that Euro remained underpressure for the month of February after gaining inJanuary and dropped by more than 0.5 percent inthe month of December. The currency depreciatedon account of strength in the dollar index.

The ECB policymaker kept the key interest rate andmonthly asset purchase program unchanged andexpects it to run until ECB achieves its 2 percentinflation target. To German FM’s comment on ECB’seasy money harming savers, Draghi comforted themedia by saying that all member nations need to bepatient as the bloc was slowly regaining itseconomic health.

Not only this, the World Bank reduced the growthforecast for Euro area to 1.5 percent from theprevious forecast of 1.6 percent. Despite thefractional reduction in growth, economic indicatorsof the Euro area points towards a gradual recoveryof the economy after enduring years of stagnantgrowth in the wake of the 2008 financial crisis andthe subsequent Greek debt crisis.

The currency touched a high of 1.0829 and low of1.0494 in the month of February. However, thesharp downside in the currency was prevented dueto optimistic manufacturing, economic sentimentsand business climate data from the region.

The US Dollar Index surged by more than 1.5percent in February as shown in the above chart.The currency rose to a high of 101.76 and low of99.23 in the last month. The currency rose due toestimates of hike in interest rates by the FederalReserve in Mar’17 meeting. Further, expectationsof more reforms to be taken by the newly electedUS President led to upside movement in the DX.

After taking oath as the new US President, Donaldtrump signed an order banning people from sevenpredominantly Muslim countries and Syrianrefugees from entering the US.

However, he has given leeway to the Christianrefugees’ which has resulted into strong protest atthe US airports. He also felt that strength in theAmerican currency was hurting America’s tradeswhich capped gains in the US Dollar.

Additionally, host of economic data sets from thecountry, led to positive movement in the currency.Right from the labor market sector; like ADP, NFPand unemployment rate came on a good note.Also, GDP and consumer confidence data alongwith manufacturing, retails sales and housing datashowed signs that consumers are confident aboutthe economy and leading to more spending.Moreover, the surge in consumer sentiment keptcurrency in the positive territory.

95.46

93.61

97.20

97.40

101.21

100.09

103.02

99.51

102.20

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

1.135

1.115

1.088

1.114

1.077

1.038

1.052

1.078

1.051

1.03

1.05

1.07

1.09

1.11

1.13

Euro

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website

Currency Monthly7th March 2017

The Japanese Yen appreciated around 1 percent inFebruary after gaining by more than 3 percent inJan’17 and declining around 2.2 percent in themonth of Dec’16 respectively.

The currency depreciated on account of rise in riskaversion in global market sentiments which led toan increase in demand for the low yieldingcurrency.

On the domestic front, in Jan’17 BOJ MonetaryPolicy kept the key interest rates unchanged andintervened to buy 10-year JGB Bank of Japan tokeep yields below 0.11 percent. BOJ GovernorKuroda on behalf of BOJ commented on Japan’sinflation rate failing to hit its target levels of 2percent.

He also mentioned that the US economy was thelargest one in the world and had a large influenceover other economies. Hence if Trump comes outwith some ruinous policies it will affect the entireworld. He, however, is positive that the newpolicies will be good for Japan.

However, sharp upside in the currency was cappeddue to negative manufacturing and non-manufacturing data from the country.

The Sterling Pound came under pressure anddepreciated by more than 1 percent in the monthof February. The currency fell on account of astronger dollar.

Further, after comment from Britain’s PM onsacrificing Europe’s single market access forcurbing immigration problem, Pound sufferedhuge losses.

However, the sharp losses were capped after theSupreme court passed a rule on UK lawmakersgetting the opportunity to vote on the final dealfor an exit from the trading bloc which gave someeasing to concerns over uncertainty ahead.

Moreover, the sharp downside in the currencywas prevented due to robust economic data fromthe country.

Additionally, construction and services dataturned out to be on a favorable side whichcushioned sharp downside movement in thecurrency.

In addition to that, unemployment scenario wasstable and claimant count change data declined inFeb’17 which restricted further plunge in theSterling Pound.

1.442

1.488

1.293

1.344

1.212

1.273

1.228

1.253

1.232

1.18

1.23

1.28

1.33

1.38

1.43

1.48

Sterling Pound

109.54

106.53

106.89

100.31

103.92

103.3

117.91

112.07

99

101

103

105

107

109

111

113

115

117

Japanese Yen

SEBI Certified – Research Analyst www.choiceindia.com

Contact Us

DisclaimerThis 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

Currency Monthly7th March 2017

www.choicebroking.incustomercare@choiceindia.com

www.choicebroking.in