Bias: Bearish-to-range-bound, as the INR sits below the 90-day average and in the lower half of the 3-month range.
Key drivers:
• Rate gap: The Reserve Bank of India has kept interest rates stable, while the Federal Reserve may introduce rate cuts, widening the yield differential in favor of the USD.
• Risk/commodities: Oil prices have recently been volatile, affecting the Indian economy and thereby placing added pressure on the rupee.
• Trade deficit: A significant trade deficit and ongoing U.S. tariffs on Indian exports are likely to weaken the rupee further.
Range: The INR is expected to test the lower bounds of its recent 3-month range due to current pressures but may hold within that range.
What could change it:
• Upside risk: Positive developments in trade negotiations with the U.S. could strengthen the INR.
• Downside risk: Continued capital outflows could further destabilize the rupee's value.
