The dollar index will continue to ride higher because of the strong economic data in the US and equities have followed suit on the fact that the Fed will not pull out stimulus in the near-term, says Nick Parsons of the National Australian Bank in an interview on CNBC-TV18.
Parsons adds that the rupee has matched the dollar's rise to currently trade at 54.26 as compared to 55 on January 1 2013.
"In the absence of unexpected negative triggers that usually send the markets tumbling, investors are slowly starting to enter the market and invest in a bit of risk," he says.
With tail-risks gone and a reassuring financial outlook, the euro looks to be contained at 1.28-to-1.31 levels for the next couple of weeks. "This is also indicates that investors are impatient, frustrated and disappointed that the economic outlook has not really caught up with the level of valuations. So, the euro seems to be stuck around current levels for a while."
Below is the verbatim transcript of Nick Parsons's interview on CNBC-TV18.
Q: Will now the dollar index continue to ride higher because of the strong economic data in the US and equities that will draw comfort from it? Can you have rally in both the dollar index and equities as well?
A: Yes. You are absolutely right on that. Last three years have been a complete inverse correlation between stocks and the US dollar. Over that long period, each time when the stocks go up the dollar comes down as investors seek excess or more attractive returns elsewhere in the world. So, there has been a complete inverse correlation. For most part of this year, the dollar can go up even as stocks can go up.
All previous ways of trading risk-on, risk-off is finished as far as currency markets are concerned. Investors are looking around the world and saying what they prefer to the US dollar because currencies are always a relative story. You can't like one currency without disliking or liking something more because currencies are always a relative story. So, stocks and dollar are going up at the same time.
Q: When you look with an India perspective, foreigners will loose money here because of the weakness in the rupee. In that case, do you think the emerging markets will under-perform and the developed, particularly the US will outperform?
A: On the rupee, we are at 54.26 now and on January 1 we were trading 55. Even though the US dollar has been strong through this year, the rupee has kept with that pretty well. Not only has the rupee eked-out some very slight gains, but if you are an investor you are paid to play that one as well. I heard your conversation about what may or may not happen to official rates, but for investors who will pick up the deposit rates that they have right now, currency that has kept pace with the US dollar. That is still paying you more than 5 percent and is not something right now that you want to be short off and that is pretty good.
Q: What will you watch out for in Europe itself, there is a meeting in Brussels to give money to Cyprus? Italy has been a forgotten problem, bond markets have lapped up the bonds offered to them. What will you be looking for and are there any red flags?
A: Today, the minefields seem pretty clear. I don't want to sound too complacent about that because you could always put your foot in the wrong place and find something blowing up underneath it, but for today there is not much data.
We have European Central Bank's (ECBs) latest monthly report, bits and pieces of US data, Cyprus rumbles on, Italy rumbles on, but there is nothing that is going to make investors be particularly wary. We are always vulnerable to unexpected news. Right now investors are looking for minefields. May be we can just step out into that risk field a little bit this morning.
Q: What is the euro indicating in terms of a trajectory? Is 1.31 and 1.32 looking toppish? What is the range for March-April?
A: The post payroll low was 1.2955 on Friday. We just traded through it very slightly yesterday. It seems to us that the December low of 1.2870 through to something like 1.30-1.40 is probably going to hold it for the immediate future.
We get no more gross domestic product (GDP) readings, all the major data for the month is behind us. Somewhere 1.28 to 1.31 is going to contain the euro for the next couple of weeks. Right now tail-risks have gone, investors are somewhat reassured by the financial outlook, but they are still impatient, frustrated and disappointed that the economic outlook has not caught up with the level of valuations. So, the euro seems to be stuck around current levels for a while.