Bias: The AUD/INR remains bullish-to-range-bound, currently above the 90-day average and in the upper half of the 3-month range.
Key drivers:
- Rate gap: Expectations of potential rate hikes by the Reserve Bank of Australia could enhance the appeal of the AUD compared to the Reserve Bank of India's current stance.
- Risk/commodities: Softer Chinese inflation has raised concerns over demand for Australian exports, particularly impacting the AUD as a commodity currency reliant on strong global demand.
- Trade deficit: India's significant trade deficit and capital outflows are applying downward pressure on the INR, which may keep the currency weaker against the AUD.
Range: It is likely that AUD/INR will drift within its recent range without significant breakthroughs in the short term.
What could change it:
- Upside risk: An unexpected strengthening of economic data from Australia could boost the AUD further.
- Downside risk: Continued negative developments in trade negotiations affecting India could lead to further depreciation of the INR.