See rupee hovering around 54/$ for next few weeks: HSBC

The Federal Reserve is likely to unveil an additional bond buying programme, which may set up the prospect of a round of dollar weakness propelling emerging market currencies.

HSBC’s Paul Mackel spoke to CNBC-TV18 regarding the impact of the Federal Bank's move on several currencies worldwide. He sees downside risks to dollar going forward and is still biased on the euro. "I still see downside risk to the dollar. Although many people are factoring in a more dovish tone by the Federal Reserve last night," he adds.  Mackel further said that he expects euro to continue rising from current levels. "We are still biased for the upside. The long-term view that euro-dollar would end the lower 1.30s, we are not far from there. On the downside, euro-dollar is going to be supported at around 1.29,” he added. Meanwhile, he expects the rupee to hover around 54/USD for next few weeks. Below is an edited transcript of Paul Mackel's interview on CNBC-TV18. Q: What is your reading of the euro-dollar? Do you think we are going to see the dollar weaken now that 85 billion will start getting into the system every month? A: I still see downside risk to the dollar. Although many people are factoring in a more dovish tone by the Federal Reserve last night, I still think that the transmission effect can still lead to a weaker dollar whether it is at the end of this year or into the early part of next year. Q: What is the range for the euro-dollar for the next few weeks? A: Atleast for the next few weeks, we are still biased for the upside. The long-term view that euro-dollar would end the lower 1.30s, we are not far off from there. Until the end of the year, we are looking at 1.32. On the downside, euro-dollar is probably going to be supported at around 1.29. So 1.29 to 1.32 is the expected range for euro-dollar in the coming weeks.

Also Read: Rupee has intraday resistance at 55: Mangal Keshav

Q There are some optimistic comments indicating that the euro could rise almost to levels of around 1.34, but do you see the euro against the dollar being sustainable at these levels of around 1.29-1.32, and those levels of 1.20 which we have seen earlier in the year are completely out of question now? A: We are still biased towards the idea that the euro gets stronger. A lot of political noise has damaged the euro this year. We believed that this currency will get stronger and are still biased towards the idea that into next year, the euro can continue to rise versus the dollar. So, we are still biased towards euro-dollar peeping up to 1.35 and even higher than that into the latter part of 2013. On the political side, things seems to be coming down, we have some positive news overnight with regards to ECB supervision power for the banking sector. So all these factors are helping to reduce tail-risk within the eurozone and that will support the currency. _PAGEBREAK_

Q: What do you think of the Asian currencies as a whole because the Korean won is sitting at a 15-month high, the yen is at a 9-month low, the rupee is pretty much stagnant between 54-55 odd mark in the past couple of trading sessions, are you recommending any sort of investor calls as well? A: With regards to Japanese yen, everyone is getting excited as we go for the election. Then not long afterwards the Bank of Japan (BoJ) will soon be easing policy very aggressively and this is putting some dollar pressure on the Japanese yen versus not only the dollar but other Asian currencies as well. The expected policy loosening from the BoJ may come but just not in big size. So we are setting up for some disappointment, which the yen can recover.

We are constructive on most of the other Asian currencies. The Korean won is trading pretty strong, but overall it is going to remain strong as we go into the presidential election next week. For something like dollar-rupee, I am surprised that the exchange rate isn’t lower. If the external environment is looking a little bit brighter, that was the high carry that the rupee offers and investors would be taking a closer look, but it is a slow battle for the rupee right now.

Q: So do you expect rupee to break from 54 to 53.50? A: Rupee is likely to hover at around 54 over the next couple of weeks. There is a technical level around 53.85, which is the 200-day moving average. We have to see how the exchange rate trades around there. If it happens to break below, it may trade down to 53. It has been pretty frustrating exchange rate for people to trade the short side from. Q: By March 31 or Q1 of 2013, will rupee get weaker or stronger? What is the broad direction? A: We have a slight bias, a little bit stronger but it is going to be difficult. There are still a lot of doubts on the reform side of things although there, we have been on the optimistic side of things with regards to the reform process that would be more positive in nature for the currency. We are still dealing with the balance of payments constraints which may limit the recovery for the rupee. Q: How will the mindset and the bets change if the fiscal cliff gets resolved? If we reach some conclusion in the early part of January, does the dollar get weaker? A: If the fiscal cliff gets resolved, the view that the market has at the moment, we are going to muddle through, there will be some sort of agreement between the republicans and the democrats. The big surprise from markets would be if there is some sort of major disappointment and you could not get a resolution. If that happened, it would be a very nasty adjustment for Asian currencies altogether versus the dollar. The dollar would end up probably turning quite a bit stronger under a risk-off environment.