INR/HKD Outlook:
Slightly weaker, but likely to move sideways, as the rate is below its recent average and mid-range with mixed signals.
Key drivers:
• Rate gap: The Reserve Bank of India’s current rate policy contrasts with the Hong Kong Monetary Authority, maintaining a stable peg to the US dollar.
• Risk/commodities: The Indian Rupee faces ongoing pressure from rising crude oil prices which impacts trade balances due to India's reliance on oil imports.
• One macro factor: The persistent current account deficit in India is significantly widening due to a heavy trade deficit, adding pressure on the INR.
Range:
Given recent movements, expect the INR/HKD to hold within its established range while testing the limits occasionally.
What could change it:
• Upside risk: A substantial increase in foreign portfolio investments could boost the INR.
• Downside risk: Further deterioration in manufacturing exports can lead to additional pressure on the INR.
