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's ongoing interventions and rate decisions contrast with the Bank of Canada's recent rate cut, putting pressure on the INR.
• Risk/commodities: Oil prices have recently trended above average, which may support the CAD and add pressure to the INR.
• Trade deficit: India’s rising trade deficit and capital outflows have created significant challenges for the INR in maintaining its value.
Range: The INR/CAD is likely to hold within its recent range with potential for slight fluctuations unless major economic data prompts a breakout.
What could change it:
• Upside risk: A significant reduction in India's trade deficit could improve the INR's position against CAD.
• Downside risk: Continued increases in Canadian unemployment rates may further weaken the CAD and complicate INR performance.
