INR/CNY Outlook: Slightly weaker, but likely to move sideways as the rate is below its recent average and lacks a clear driver.
Key drivers:
• Rate gap: The Reserve Bank of India has been active in supporting the rupee, but the People's Bank of China is implementing measures to stimulate the economy and manage the yuan's appreciation.
• Risk/commodities: Recent trends in oil prices could impact both currencies; rising oil prices may pressure the INR due to increased import costs, impacting trade balance.
• One macro factor: A widening trade deficit for India has increased pressure on the INR, driven by higher gold imports and reduced exports amid US tariffs.
Range: The INR/CNY is likely to drift within the recent range, with potential for slight fluctuations but not expected to test extremes.
What could change it:
• Upside risk: A significant reduction in US tariffs could improve India's trade outlook, strengthening the INR.
• Downside risk: Continued foreign portfolio investment outflows could exert further pressure on the INR, weakening it against the CNY.
