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INDIA: Rupee Seen Outperforming Peers Amid Broader Asia FX Weakness

INDIA
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USD/INR has stabilised alongside its Asian peers as a weaker greenback and lower US yields following yesterday’s data provides some relief to the region. Bloomberg’s Asia dollar index has been trending lower for much of the year, falling to its lowest level since 2022 earlier in the week.

  • The prevailing view remains that USD/INR is biased lower over the medium-term, with INR backed to outperform other regional currencies. Most analysts cite both the impact of RBI intervention (containing USD/INR rallies) and carry trade dynamics through the rest of 2024.
  • Market moves in local bonds have been contained ahead of Prime Minister Narendra Modi’s first federal budget, which is likely to be announced at some point in July and will lay out the Prime Minister’s policy priorities under the new coalition government. Analysts note that while yields across the curve initially slipped following index inclusion, profit-taking is likely now at play.

Figure 1: Bloomberg Asia dollar index (Source: MNI/BBG)

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USD/INR has stabilised alongside its Asian peers as a weaker greenback and lower US yields following yesterday’s data provides some relief to the region. Bloomberg’s Asia dollar index has been trending lower for much of the year, falling to its lowest level since 2022 earlier in the week.

  • The prevailing view remains that USD/INR is biased lower over the medium-term, with INR backed to outperform other regional currencies. Most analysts cite both the impact of RBI intervention (containing USD/INR rallies) and carry trade dynamics through the rest of 2024.
  • Market moves in local bonds have been contained ahead of Prime Minister Narendra Modi’s first federal budget, which is likely to be announced at some point in July and will lay out the Prime Minister’s policy priorities under the new coalition government. Analysts note that while yields across the curve initially slipped following index inclusion, profit-taking is likely now at play.

Figure 1: Bloomberg Asia dollar index (Source: MNI/BBG)