Leaning towards but not diving into the near-term softer USD camp: Foreign Exchange - Global

Research evidence excerpt

Leaning towards but not diving into the near-term softer USD camp: Foreign Exchange - Global

orts as longer-term drivers for

RMB outperformance.

Long EUR/INR: We maintain the conviction level on our longEUR/INR position at 3/5,

targeting a move to 113 (~4% gains) by end-September. Over the past week, INR has

been the top underperformer in AeJ, lending some credence to our out-of-consensus view,

which is as follows: 1) our view is that the RBI will likely be cautious about utilizing

the FCNR(B)-related inflows it accrues in its spot FX reserves to support INR. These

foreign currency inflows from FCNR(B) will sit in the RBI’s spot FX reserves, while its

forward book will register a corresponding increase in short position. With its net short

forward book already at an all-time-high of -USD106.6bn as of end-May 2026, the RBI will

attempt to minimise the impact of maturing short forwards on its headline FX reserves.

Notably, Bloomberg reported that (10 July) the RBI’s internal meetings have discussed

how to reduce its large net short forward position without destabilising the currency

market; 2) local media also reported that FCNR(B) deposit collection (Mint, 16 July)

has been slower than the RBI expected so far. Issues included time needed to set up

the FCNR(B) products, and higher USD borrowing costs have caused the banks to

reconsider the amount of leverage they can offer to NRIs. Nonetheless, industry sources

said that interest in the deposit scheme remains strong (EconomicsTimes, 10 July), and

we note that in the previous instance of the FCNR(B) deposit scheme in 2013, most of the

inflows were recorded in the latterpartoftheswapwindowperiod; 3) Continued US-

India trade differences. With the impending expiry of Trump’s Section 122 tariffs on 24