Bias: Bullish, as the HKD is currently above the 90-day average and within the upper half of the 3-month range.
Key drivers:
- Rate gap: The significant interest rate differential between Hong Kong's near-zero rates and higher U.S. rates continues to impact the HKD positively, encouraging capital inflows.
- Risk/commodities: Oil prices have been volatile but generally below average, which could pressure the INR given India's oil dependence and trade deficit.
- Trade deficit: India's trade deficit remains substantial, notably affecting the INR's stability as foreign outflows create additional downward pressure.
Range: The HKD/INR pair is likely to hold within its recent stable range, with potential to drift towards the upper end.
What could change it:
- Upside risk: A resolution in trade tensions between India and the U.S. could boost foreign investments and support the INR.
- Downside risk: Continued capital outflows from India, exacerbated by weak trade data, may further weaken the INR against the HKD.
