USD/INR: Risks of crossing above 80.000 remain – MUFG

Analysts at MUFG Bank forecast the USD/INR pair will trade at 80.50 by the end of the third quarter, at 81.000 by the end of the year and at 80.50 by the first quarter of next year. 

Key Quotes:

“The Indian rupee extended its losses against the US dollar in August, weighed down by US dollar strength as EUR/USD fell below parity as well as a surge in oil buying by local oil importers when oil prices dipped. USD/INR remained largely below the 80.000 mark in August, in part due to suspected RBI intervention as reported by newswires and a strong resurgence of net inflows into both Indian equities and bonds.”

“Renewed optimism in Indian risk assets may reflect market expectations of a slower pace of rate hikes by the RBI, further deceleration in India’s headline CPI, and the potential inclusion of Indian government bonds into the JPM GBI-EM Index for the first time. If this trend persists, net inflows into Indian equities could help dampen downward pressure on the rupee stemming from extended US dollar strength and India’s widening trade deficits.”

“India’s high reliance on China for imported raw and intermediate materials used as manufacturing inputs is also likely to keep India’s non-energy trade deficit elevated.”