Indian Rupee: Rupee vulnerability and rate path – MUFG

FXStreet Insights Team FXStreet

MUFG’s Michael Wan expects the Indian Rupee (INR) to remain weak, projecting USD/INR could move towards 98.00 and even 100.00 if the Iran conflict persists. MUFG’s baseline sees USD/INR trading between 95.00 and 96.00, with INR underperformance driven by weak capital inflows, a wider current account deficit, higher Oil prices and potential energy supply disruptions.

Rupee seen underperforming on multiple risks

"We continue to view the Indian Rupee as vulnerable across a range of scenarios on the Strait of Hormuz, with USD/INR likely moving towards 98.00 levels and even 100.00 is in sight if the conflict prolongs or escalates."

"Our expectation assumes a de-escalation and over here our baseline forecasts for USD/INR to trade between 95.00 to 96.00 implies INR weakening further against Asia and G10 FX including EUR, JPY and CNH."

"Overall, our forecast for INR underperformance is driven by a combination of weak capital inflows, a wider current account deficit with higher oil prices, and potential energy supply disruption from a prolonged conflict. Risks from a possible weak Southwest Monsoon and a "Super El-Nino", coupled with uncertainty around further increases in US yields also introduce meaningful left tail risks for INR."

"From a markets perspective we note that both the onshore INR OIS curve and FX forwards are already pricing in a fair amount of risk-premia. For instance, there is already more than 125bps of RBI rate hikes priced over the next 12 months, while 12-month USD/INR FX forwards are a touch below 100 at the time of writing. Nonetheless, until we get better clarity on oil prices and the Strait of Hormuz we think the current environment still favours buying on dips for USD/INR and paying on dips for INR rates in the near-term. Given current pricing we would recommend staying patient rather than chasing levels excessively."

"Overall, we think for these measures to have a durable impact on supporting INR they would need to improve the ease of doing business in India and ultimately improve long-term earnings prospects in India relative to other markets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD remains depressed 0.7000, awaits FOMC Minutes

AUD/USD struggles to capitalize on its recent recovery move and trades with a negative bias below 0.7000 in Wednesday's Asian session. Amid geopolitical uncertainty, the US Dollar attracts some dip-buyers after a fresh leg up in US bond yields, keeping the pair under pressure despite hawkish RBA expectations. All eyes now remain on the FOMC Minutes.

USD/JPY holds firm near 158.50 ahead of Fed Minutes

USD/JPY hangs close to a one-and-a-half-week high near 158.50 in the Asian session on Wednesday, with bulls now awaiting a move beyond the 200-day SMA hurdle before positioning for further gains ahead of the FOMC Minutes. Meanwhile, a fresh leg up in US bond yields revives US Dollar demand amid geopolitical uncertainties, boosting the pair amid dovish BoJ commentary.

Gold struggles below $4,150 as USD bulls look to FOMC Minutes for rate hike cues

Gold retains its intraday bearish bias through the early European session, eyeing a two-month low around the $4,100 neighborhood touched the previous day. The US Dollar catches fresh bids after Tuesday's corrective slide and is seen as a key factor weighing on the commodity as traders look to the FOMC meeting minutes for a fresh impetus.

Dogecoin extended correction and weakening momentum raise downside risks

Dogecoin extends its losses, trading around $0.090 down more than 5% so far this week. Bearish pressure is strengthening, with short positions reaching a one-month high and traders in overheated conditions. Meanwhile, weakening momentum indicators are also hinting at further losses in DOGE. Derivatives data shows cautious signals among traders.

Indian Rupee hits fresh four-month low, RBI hikes Repo Rate to 5.5%

The Indian Rupee weakens significantly against the US Dollar after a muted response, following the Reserve Bank of India’s monetary policy meeting on Wednesday. The USD/INR pair jumps to near 96.72, the highest level seen in four months. In the policy meeting, the RBI decide to hike its Repo Rate by 25 basis points to 5.5%, the first hike since February 2023.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.