See rupee above 53.70/$; Bernanke's testimony eyed: HSBC

The recent fall in the rupee does not make it worse than its better performing Asian peers, says Pradeep Khanna, MD & Head of FX Trading at HSBC India.

The rupee was trading close to 55 levels despite gains in the domestic sharemarket. The rupee is trading at 54.99/55.00 versus its close of 54.88/89. The rupee fell to as low as 55.07 in opening trade, its lowest since March 4. Domestic shares are trading up 0.8 percent tracking firm Asian indices. Traders say good dollar buying is likely at 54.95 levels, while 55.15 is expected to cap the upside. "If 55.15 is broken convincingly, we could see it move upto 55.40-50 levels but until then it is safe to play the 54.50 to 55.15 range," said a senior dealer with a foreign bank told Reuters. Khanna says the currency markets will be all ears towards Fed Chairman Ben Bernanke’s testimony.  Despite expectations that Bernanke will continue to make the case for stimulating the economy through its bond-buying programme at his testimony, most respondents in a CNBC survey expect the US dollar to remain strong and press oil prices towards the lower end of their trading range. According to CNBC, capital markets will scrutinize Bernanke's testimony on Wednesday before the Senate Economic Committee for any clues on the timing of the gradual withdrawal of bond purchases. On balance, those looking for signals of a 'Fed exit' may be disappointed. According to Khanna the quantitative easing is likely to sustain at least until the end of the year. "We do not see the rupee going below 53.70 in the near-term," he told CNBC-TV18 in an interview. Below is the edited transcript of Pradeep Khanna's interview with CNBC-TV18 Q: What is it that’s causing this much pressure on the currency? Is it Asian currency problem or is the rupee getting hit harder than the rest? A: I would not say that the rupee is being hit harder than the rest. We had another very strong move on the dollar globally against all currencies including the majors on Friday evening New York session. In fact I would think that most of the Asian currencies are trading slightly stronger from where they closed in the New York session. It was basically on account of some comments attributed to Japan which seem to indicate that they are quite happy with the level of the yen now and probably don’t want to see it much weaker. Q: The dollar index is trading above 84. Do you expect this strength to last for a few more weeks putting more pressure on the rupee? A: People are biased to look for a strong dollar this year. One has seen this kind of action repeatedly as and when we have had a slightly sustained sell of strong data out of the US. It is only from time to time when market gets a little one sided or stretched and you then have a couple of softer data points that you see a pull back. This time around, even with a couple of softer data points late last week, we have had comments attributed to admittedly non-voting members on the FOMC all talking about scaling back the quantitative easing (QE). It is going to be a lot of interest in watching Bernanke’s statement to Congress later this year. Q: What kind of a range do you see from now? Is it still a 53-55 kind of a working range for the rupee-dollar or do you think it’s settling a little lower? A: I would look for something more like about a 53.70 to about 55.50 kind of a range for the rupee. Couple of thoughts apart from the global strength of the dollar but the trade data we saw for April which came in at USD 18 billion admittedly perhaps some one off demand from gold over there pushing it a bit to the higher side. The USD 15 billion monthly trade deficit is in line with roughly USD 75 billion yearly current account deficit number, if one looks at that, then one basically is seeing that we need about USD 250 million of capital inflows per day to meet that deficit. We are getting good capital flows. We will basically keep the currency in a steady range, but I won’t look for too much strength down below 53.70. Q: What kind of medium term directions do you see for the rupee though because on that trajectory, the rupee has been fairly week over the past couple of years in terms of how our currency has moved? A: If one looks at the last 15-18 months, I would think that the rupee has been fairly steady. We had some very decent swings both sides last year, but if one looks at calendar 2012, we started the year at about 54 and we ended the year at about maybe 54.80. So it is less than two percent away from where we started. If one looks at calendar year 2013 till date, we basically started the year before 54.80 and we aren’t too far from that. The rupee actually has been quite steady in the last 12-15 months and for the immediate future we are kind of thinking that it is going to continue along those lines. Q: What’s the view at HSBC in terms of where the dollar could head to? A: I am not absolutely up to date where the official view is on the dollar versus each of these currencies. But by and large there is from a view that QE would stay till at least the end of the year and into next year. There is growing concern or at least watchfulness that if that should not turn out to be the case then one could see a lot more dollar strength than what one has seen till now. Till now, it has been primarily led by the yen, but there will be a lot of interest in seeing Bernanke’s statement later this week.