Rupee to gradually hit 65/$ by year-end: HSBC

Dominic Bunning, HSBC expects the Indian currency to gradually slide towards 65/USD again by this year-end. In the short-term, the rupee may settle around 62/USD mark, but won't gain to 60/USD. He told CNBC-TV18 that the dollar could strengthen in the medium-term if the Fed starts its tapeing in September.

Also read: Current account gap to narrow, but capital flows key: CLSA Below is the verbatim transcript of his interview on CNBC-TV18 Q: An emerging market (EM) currency question, we have seen a synchronized recovery in rand, real, rupee, several of the current account deficit (CAD) currencies. Is it good to go for more or will you see profit taking today? A: It is quite difficult in terms of a short-term trend because we are being turned around in emerging markets in general by quite a lot of external factors. Earlier this morning headlines hitting the wires from President Obama with regards to Syria, there is clearly a lot of uncertainty with what happens there. Positioning wise the market is probably sitting a little bit long dollar versus the EM currencies that have expressed the biggest fall over the last few weeks so there may be room for little bit more squeeze. However, our view over the medium term is that this kind of positive environment won't necessary last, but as we are moving to seeing some tapering by the Fed, which could come in September, just next week then we should start to see the dollar strengthen further. Q: Because of the caution that you just alluded to do you think the rupee could head back to those levels that we have seen that 68/USD level that we saw at the end of August or have we put a floor around there? A: We have recently slightly shifted our forecast for the dollar/INR. We do think that we can head little higher in dollar and the rupee can weaken again a little bit more towards end of the year back up to 65/USD levels by the end of this year. I don't think we are necessarily looking for a huge reversal back up to those levels, maybe not towards the all time weak levels that we saw previously. So we are likely to get a little bit more of a continuation of this more positive sentiment over the next week may be. But after that we would be looking for the currency probably to start a gradual decline again versus the dollar. Q: How much more of a recovery can you see in these currencies particularly the rupee, how much more to go? A: It is difficult to put a level. Looking at the charts of the dollar/INR, I would say that somewhere around the 62/USD area was a clean break higher earlier in the year. So if we go back through the 63/USD level, then 62/USD would be a clear target the market would be looking to achieve However, I don't think we will be going back towards the 60/USD level any time soon. I think the market is quite cautious on emering market currencies; it is just that we are getting a bit of a position reverse. We have had slightly more positive data in the region including in India over the last few weeks but I don't think that is necessarily going to last over the medium term. Q: You said when the tapering tune plays again, you are going to see dollar strengthening – how far does it go, does it go to 66/USD or does it go beyond 66/USD? A: We are looking for the dollar/INR to move around the 65/USD level by the end of this year. So, again I wouldn’t say an aggressive weakness for the rupee but more of a gradual slide can be already positioned relatively long dollars across the market. Into next year, we think the currency would probably more gradually depreciate. But I don’t think we will get those necessarily rapid spikes that we have seen so far in the last few months.