INR/AUD Outlook: Slightly weaker, but likely to move sideways as the rate is below its recent average and recent lows indicate some stability.
Key drivers:
• Rate gap: The Reserve Bank of India is focused on stabilizing the INR while the Reserve Bank of Australia faces pressure for potential rate hikes due to rising inflation, creating a widening gap.
• Risk/commodities: Declining commodity prices, particularly in key Australian exports like iron ore, have put pressure on the AUD, which could hinder its ability to recover against the INR.
• One macro factor: India's current account deficit has widened significantly, driven by high gold imports and a decline in exports, which continues to weaken the INR overall.
Range: The INR/AUD exchange rate is likely to hold within its recent 3-month range, lacking strong momentum for either direction.
What could change it:
• Upside risk: A significant improvement in trade relations between India and the United States could boost demand for the INR.
• Downside risk: If inflation in Australia accelerates further, leading to a more aggressive interest rate hike by the RBA, it could strengthen the AUD against the INR.
