The Canadian dollar initially rallied against the Indian rupee on Friday, but has slowed down, as the stretched pair drifts.
CAD/INR
The Canadian dollar initially rallied against the Indian rupee during the early part of the trading session here on Friday but gave back some of the gains near the 69.50 level to end the week a little bit hesitant. It's been grinding higher for a couple of weeks now, right along with Canadian interest rates and the broad Canadian dollar strength overall.
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This is an interesting pair to watch at the moment, mainly due to the fact that the crude oil market is up better than 6% on the week, and of course, that has a major influence on the Canadian dollar against certain currencies, India definitely being one of them, because India has the added problem right now of most of its oil coming from the Persian Gulf area, and of course, all of the problems that come with the Strait of Hormuz currently continue to be a major issue.
Donald Trump paused his 50% tariff on Canada by 3 days as the United States and Canada are supposedly getting fairly close to some type of deal, and that has helped the Canadian dollar as well.
Crude Oil Pressures and RBI Dynamics
The rupee is struggling in general as the risk-off behavior around the world continues. And of course, there is a structural overhang as the RBI has shut its deposit FX swap facility a month early after roughly $57 billion worth of inflows. The window normally closes August 31st. Dealers expect a pre-deadline pickup in demand as clients rush placements.
Offsetting it is the hawkish August minutes coming out of India towards a 6% neutral rate with a move likely in December, and 1-year forward implied yields up to 8 basis points higher to 2.9%.
The Governor of the RBI has called the net short forward book very manageable and flagging at least $80 billion worth of FX borrowing inflows.
That being said, the biggest concern that we have is some type of oil shock well beyond anything else. Short-term pullbacks should find support, especially near the 69 rupee level. The 70 rupee level above is an area that will cause headline resistance.
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