USD/INR Outlook:
Slightly positive, but likely to move sideways as the rate is above its recent average but lacks a clear driver.
Key drivers:
- Rate gap: The Federal Reserve has maintained interest rates steady, while the Reserve Bank of India is dealing with a wider current account deficit, leading to diverging monetary policies.
- Risk/commodities: Volatile oil prices are a concern for India, impacting the rupee as the country relies heavily on crude oil imports.
- One macro factor: India's manufacturing export growth is slowing down, further pressuring the INR amid global demand challenges.
Range:
Expect the USD/INR to hold within its recent 3-month trading range.
What could change it:
- Upside risk: A significant improvement in U.S. labor market data could boost the dollar further.
- Downside risk: Increased foreign portfolio investment outflows from India, driven by global market conditions, may weigh on the rupee.