CAD/INR Outlook:
The CAD/INR is likely to increase as it trades above its recent average and is close to recent highs, driven by strong oil prices supporting the Canadian dollar.
Key drivers:
• Rate gap: The Bank of Canada is likely to maintain a supportive stance as oil prices rise, while the Reserve Bank of India continues to focus on managing inflation.
• Risk/commodities: Oil prices are at multi-week highs, positively affecting the CAD due to its status as a major oil exporter.
• One macro factor: India's ongoing trade deficit is increasing demand for U.S. dollars, which is weighing on the INR's performance.
Range:
Movement is expected to test the recent highs, with potential fluctuations within the established range.
What could change it:
• Upside risk: A sudden shock in oil prices could further strengthen the CAD.
• Downside risk: Any significant increase in U.S. interest rates could lead to further capital outflows from India, negatively affecting the INR.