Bias: bearish-to-range-bound, as the INR is currently below the 90-day average and in the lower half of its 3-month range.
Key drivers:
- Rate gap: The Reserve Bank of India appears constrained to support the rupee, while the UAE Dirham's peg to the US Dollar provides it stability.
- Risk/commodities: Oil prices remain volatile, impacting India's trade balance negatively and increasing pressure on the rupee.
- One macro factor: A significant trade deficit and capital outflows have weighed on the rupee's value, with trade negotiations adding to uncertainty.
Range: Expect the INR/AED pair to drift within its recent range, as overall negative factors limit significant movement.
What could change it:
- Upside risk: Improvement in trade negotiations with the U.S. could boost investor confidence and strengthen the rupee.
- Downside risk: Continued capital outflows could exacerbate the rupee's decline, pushing it further below current levels.
