See dollar trading weak in H1 2010: BNP Paribas

Q: Where according to your calculations is the dollar headed? Do you think that after that bout of weakening that started in the last 24-hours, we are going to see more serious weakening or will it go the other way?

A: I think as a theme of the dollar being used as funding currency that certainly has been reinforced by the Fed's comments overnight where there was no material change in Fed's stance of maintaining accommodation and that it does not see any strong inflation threat  that would force its hands sooner. So I think by that markets do think the Fed will maintain its current monetary policy accommodation for quite a while and that should help in terms of using the dollar as a funding currency.

However that theme has been around for a while already. So the market players as we know are already maintaining short dollar positions. So I think heading into year-end and the fact that there are no new factors in terms of the rate front - I don't think dollar will collapse from the theme that's been ongoing. In fact the dollar could gain intermittent strength if there were to be some liquidation of short dollar positions.

Q: While the Fed's statuesque policy is well known by the markets - the Reserve Bank of Australia (RBA) has already tightened twice. There are talks about how the Reserve Bank of India (RBI) will be tightening relatively soon while that wave starts now, in terms of Asian markets starting to tighten, do you sense that will cause additional shorting pressure on the dollar?

A: I think that will be one of the pressure points for the US dollar because the US dollar has been fairly weak against the Australian Dollar where RBA has tightened twice as you said and in Asia as well we are looking towards central bank including India, China, Korea to start to tighten as soon as perhaps the end of the year for Korea and China.

So I think those things will continue and the widening interest rate differentials will continue to exert some downside pressure on dollar, Asians [currencies] and therefore I think the theme of Asian currencies continuing to outperform US dollar will continue into 2010.

Q: Leave us with your range for the dollar euro for instance up until December 31 - what kind of range it will take and will the bias be towards the stronger dollar or weaker?

A: I think the euro has found good support at the lower side of 1.45. So we haven't seen any attempts below that level for the last several months. So I think that has mapped good support for the euro. At this juncture I don't think the euro could advance too much above 1.50 because as I said into the year-end we do not expect aggressive risk taking to reappear.

But in terms positioning, we clearly should get to see the dollar remain weak as a theme into at least first half of 2010 and therefore we would still be buyers of euro on dips.