INR/CNY Outlook:
The INR/CNY rate is likely to decrease, as it is currently below its recent average and trading near recent lows. Increased geopolitical tensions are weighing on the rupee, causing pressure in the market.
Key drivers:
• Rate gap: The Reserve Bank of India's shift towards a flexible exchange rate contrasts with the People's Bank of China's focus on yuan stability, influencing both currencies.
• Risk/commodities: Recent volatility in oil prices supports the rupee, but ongoing concerns over trade deficits limit its strength against a generally stable yuan.
• One macro factor: Escalating tensions between India and Pakistan have led to heightened market risk aversion, increasing demand for safer currencies like the US Dollar.
Range:
Movement is expected to drift within the recent 3-month range rather than test extremes, as both currencies stabilize.
What could change it:
• Upside risk: A breakthrough in US-India trade negotiations could strengthen the INR significantly.
• Downside risk: Further deterioration in geopolitical tensions may lead to deeper declines in the INR against the CNY.
