Bias: Bearish-to-range-bound, as the INR is below the 90-day average and in the lower half of the 3-month range.
Key drivers:
- Rate gap: The Reserve Bank of India is under pressure due to trade deficits and capital outflows, while the Hong Kong Monetary Authority faces challenges in maintaining the currency peg against the USD.
- Risk/commodities: Ongoing volatility in oil prices has added pressure on the Indian economy, impacting the INR negatively as oil is a significant import.
- One macro factor: The trade negotiations with the U.S. are critical, as unresolved tariffs have significantly influenced the INR's stability.
Range: The INR/HKD currency pair is likely to drift within the recent 3-month range due to external pressures, potentially testing the lower limits.
What could change it:
- Upside risk: Positive developments in U.S.-India trade negotiations could boost the INR.
- Downside risk: Further capital outflows from India could exacerbate INR weaknesses.