INR/CAD Outlook: Slightly weaker, but likely to move sideways as the rate is currently below its recent average and close to recent lows.
Key drivers:
• Rate gap: The Reserve Bank of India has been actively stabilizing the rupee amidst outflows, while the Bank of Canada remains steady, signaling confidence in current economic conditions.
• Risk/commodities: Rising oil prices have supported the Canadian dollar, reinforcing its position as a commodity-linked currency as it trades at near 90-day highs.
• One macro factor: India's trade deficit has widened significantly due to increased gold imports and decreasing exports to the U.S., creating downward pressure on the rupee.
Range: The INR/CAD rate is expected to hold within its recent volatility range, as additional pressure on the rupee may prevent significant movement either way.
What could change it:
• Upside risk: A reduction in tariffs from the U.S. could improve demand for Indian exports, aiding the rupee.
• Downside risk: Continued foreign portfolio investment outflows could exacerbate selling pressure on the INR.