Chin Loo, Senior Currency Strategist at BNP Paribas, feels the capitulation trade, where we saw the dollar surge against the rupee towards the Rs 50 per dollar level, could be over. “Right now, it will be a consolidation play.” She expects the dollar-rupee to trade rangebound. “Initially, there could be some sell-off towards the Rs 46-47 per dollar level. But thereafter, we would probably see some ranged trading between Rs 46 per dollar and Rs 48 per dollar.”

Here is a verbatim transcript of the exclusive interview with Chin Loo on CNBC-TV18. Also watch the accompanying video.

Q: Has enough been done, and from now on would you see a slow but steady recovering of the markets’ nerve at least?

A: I think there has been certainly quite a lot of action done by the G-20 governments as it stands. We have just had an announcement as well by the Fed that they will indeed make available dollar funding for whatever amount. So, they are very bold moves indeed.

So, we are seeing reactions from the forex (FX) markets, as we speak where the dollar is giving back some ground quite quickly, and the yen as well is covering its gains against the dollar. Against Asian currencies the dollar as well is losing ground.

So, I think we might well probably see more unwinding, as far as the risk aversion trades is seen, where the dollar has rallied against Asian currencies. I think this will continue to be unwound into this week.

Q: As risk averse trades take effect and get unwound, what is your call on the dollar-yen currently?

A: The dollar-yen is certainly rebounding quite quickly. We have seen a breach above 100 and even 101. I think we are on board and seeing a bigger move towards 103. However, it is not going to be a one-way up because the markets have been shocked by the severity of the crisis. So, there could be some yen shorts still out there.

I do think the 103-105 level will offer quite a bit of resistance. The dollar could bounce around there. But a quick recovery towards 103 could be seen.

Q: What about a currency like the rupee? We have seen it being under the onslaught of money being pulled out of India from the equity markets like it is in the rest of the emerging markets. How do you see the rupee’s fortunes panning out for the next three months and then the next year?

A: Three months is quite a difficult call in these sorts of markets because it is certainly very fluid. I think the concerted efforts over the weekend could lay a groundwork for the dollar funding rate to be come back down, and then perhaps a normalisation in the interbank lending, which will be quite key towards further stabilisation in other markets, particularly the stock markets and the FX market.

Having said that, the capitulation trade where we saw the dollar surge against the rupee towards the 50 level could be over. Right now, it will be a consolidation play.

So, I do reckon that the dollar-rupee could be finding a bit of rangebound trading. Initially I think there could be some sell-off towards the 46-47 level. But I think thereafter we would probably see some ranged trading between 46 and 48. I think in the broader scheme of things, whether the dollar finds its floor against the dollar-rupee, would as well be dependent on when the markets’ confidence returns.

At this stage, it is a bit early to say, but hopefully if the dollar funding markets come back into normalisation, then we could see the dollar find a peak against the rupee and perhaps with the fundamental factors that favour Asian currencies over the last several years could see the rupee regain its ground.