USD/INR: A slow rupee appreciation path to ensue in the near-term – ANZ

The INR has traded flat month-to-date but economists are optimistic in the near-term as external balances and portfolio flows are strong for the rupee and a decline in active COVID-19 cases bodes well for economic recovery. Regarding the US election, a ‘blue wave’ will support the rupee in the near-term but a Trump win could see USD rebound strongly. 

Key quotes

“The external position is getting stronger: exports marked a positive return for the first time in seven months in September, shrinking the trade deficit which bodes well for the overall current account in Q3. Portfolio flows have been solid in the run-up to the US elections.”

“Recent data are pointing to a flattening in India’s active COVID-19 cases, which is positive for the near-term growth recovery. High-frequency indictors are trending up, but case counts remain high and a sustained decline would be essential for activity to resume to pre-pandemic levels. Overall, we believe the growth trough is past and bodes well for the currency outlook.” 

“Together, domestic and external forces give the INR a strong bias in the near-term. The INR, like the IDR, could stand to benefit if a ‘Blue Wave’ becomes a certainty post 3 November. A near-term risk would be a win for Trump which could see the USD rebound amidst market volatility.”