Bias: Bearish-to-range-bound, as the current INR/AUD rate is below the 90-day average and in the lower half of the 3-month range.
Key drivers:
- Rate gap: The Reserve Bank of Australia's potential rate hikes may favor the AUD, while the Reserve Bank of India's interventions have been necessary to support the INR amid market pressures.
- Risk/commodities: China's disappointing inflation figures have dampened demand for Australian exports, which could negatively affect the AUD.
- Trade deficit: India's significant trade deficit continues to exert downward pressure on the rupee, driven by reduced export demand and capital outflows.
Range: The INR/AUD is likely to drift within the recent 3-month range, lacking strong upward momentum.
What could change it:
- Upside risk: Progress in U.S.-India trade negotiations could strengthen the INR.
- Downside risk: Weaker commodity prices or further capital outflows could press the INR lower against the AUD.