USD/INR: Modest weakness ahead to be contained in recent boundaries – CIBC

Analysts at CIBC forecast USD/INR will trade at 72.3 during the first quarter of next year and at 71.3 on the third. 

Key Quotes: 

“Despite an environment of softer growth, higher inflation and lower domestic interest rates, USD/INR has been locked into a relatively tight and stable range over the last three months, of 70.50-72.50. That holds the currency in good stead for the near-term outlook. While we expect some modest weakness in the INR into year-end, we look for the pair to be contained within those recent boundaries.”

“The re-election of the Modi government this year saw investor confidence in the potential of the economy and in the administration’s attempt at reform to become somewhat stilted. Nevertheless, we’re optimistic about economic potential, despite the difficulty of tapping into the economy’s resources and the number of unsuccessful attempts at reform thus far. We look for INR to remain a buy-weakness story, rather than chasing the market higher.”

“Of its regional Asian peers, INR was an underperformer throughout 2019, but we expect the currency to recover ground in 2020. While a stabilization in bond yields should help to counter risks, 7-yr yields of 6.5% are still sitting near its lowest point in five years. In entering markets, investors are looking for higher yields and a softer INR.”