USD/LKR Outlook:
The USD/LKR is likely to move sideways as it trades near its recent average and mid-range. The current environment lacks clear drivers pushing the rate significantly in either direction.
Key drivers:
- Rate gap: The Federal Reserve's higher interest rates continue to attract foreign capital, supporting the USD against the LKR.
- Risk/commodities: Recent oil price volatility may affect inflation expectations and overall economic conditions, indirectly influencing the local currency's performance.
- One macro factor: Increased private credit in Sri Lanka is raising domestic prices and boosting demand for foreign currency, contributing to pressure on the LKR.
Range:
Expect the USD/LKR to hold within its recent range, which has traded between stable levels.
What could change it:
- Upside risk: Any unexpected shift toward stronger US job growth could bolster demand for the USD.
- Downside risk: Further depreciation of the LKR due to increased dollar purchases by the Central Bank could push the rate higher.
