Bias: The outlook is bullish-to-range-bound, as the AED is currently above the 90-day average and in the upper half of the 3-month range.
Key drivers:
- Rate gap: The UAE Dirham's stable peg to the US Dollar, compared to the Reserve Bank of India's challenges, supports the AED’s strength against the INR.
- Risk/commodities: Oil prices have remained volatile but have shown an upward trend recently, benefiting the AED, which is closely tied to oil revenues.
- Trade deficit: India’s significant trade deficit and capital outflows have put pressure on the INR, contributing to its weakness against the AED.
Range: The AED/INR is likely to drift within the recent 3-month range, maintaining stability but facing potential peaks near recent highs.
What could change it:
- Upside risk: Improved trade relations between India and the US could bolster investor confidence and support a stronger INR.
- Downside risk: Continued capital outflows from Indian markets or worsening trade deficits could further weaken the INR against the AED.
