INR/USD Outlook:
The INR/USD rate is slightly weaker but likely to move sideways as it trades near 14-day lows and is just below the 90-day average. Current pressures are also tied to geopolitical tensions and fluctuating oil prices.
Key drivers:
• Rate gap: The Reserve Bank of India's recent flexible exchange rate policy contrasts with the Federal Reserve's interest rate adjustments, impacting capital flows.
• Risk/commodities: Volatile crude oil prices have influenced India's trade balance, which in turn affects demand for USD and impacts the INR.
• One macro factor: Ongoing geopolitical tensions, particularly between India and Pakistan, are creating instability and adding pressure to the INR.
Range:
The INR/USD is expected to hold within its recent 3-month range, though it may test the lower end as pressures persist.
What could change it:
• Upside risk: A significant improvement in trade balances or a resolution of geopolitical conflicts could strengthen the INR.
• Downside risk: Further geopolitical tensions or sustained increases in oil prices could lead to a depreciation of the INR.
