USD/INR is edging back up towards a fresh test of the 80.00 level. The pair was last at 79.85. The 1 month NDF is already above this level, last 80.07, but this is still below highs from August (80.35/45). INR outperformance continues on a cross basis though. The J.P. Morgan INR NEER is back to highs from late 2020, see the chart below.
- Indian equity outperformance is helping. Local equities are down today but only modestly (-0.25%) and are trending better compared to the rest of the region.
- This is improving the net equity flow backdrop, leaving India comfortably the best performer in the region (+$641.2mn so far this month).
- A Reuters article earlier also noted the central bank won't hike rates too aggressive for fear of hurting the growth backdrop too much.
- Such rhetoric can weigh on INR, particularly given the current Fed backdrop, but given the authorities desire to manage the pace of depreciation, rupee outperformance may persist.
- Also note, CNH/INR has broken down to fresh YTD lows (last at 11.32).
Fig 1: J.P. Morgan INR NEER At Fresh Multi-Year Highs
Source: J.P. Morgan/MNI - Market News/Bloomberg