INR/AED Outlook:
The INR/AED rate is currently below its recent average and near recent lows. This trend is primarily influenced by ongoing geopolitical tensions and a persisting trade deficit in India.
Key drivers:
• Rate gap: The Reserve Bank of India has adopted a flexible exchange rate policy, allowing some depreciation of the INR compared to the stable UAE Dirham.
• Risk/commodities: Geopolitical tensions between India and Pakistan have increased market risk aversion, boosting demand for safer assets like the US Dollar, which is putting additional pressure on the INR.
• One macro factor: India's persistent trade deficit and foreign portfolio investor outflows are impacting the INR's performance, as investors turn to developed markets for better returns.
Range:
Expect the INR/AED to drift within its recent 3-month range, holding close to the current level.
What could change it:
• Upside risk: A resolution in geopolitical tensions could improve demand for the INR and bolster its exchange rate.
• Downside risk: Continued capital outflows and further deterioration in trade performance may drive the INR lower against the AED.
