Not bullish on rupee; see range bound trade: Moses Harding

The Indian currency reversed its early morning gains by mid afternoon when it depreciated by 30 paise to 59.96 per dollar. This weakness, according to Moses Harding, is due to the currency's fundamental weakness. He expects the rupee to be trading between 59 and 61 against the dollar for now.

What led to the rupee's marginal strength today was Fed chairman Ben Bernanke's dovish statement regarding the monetary stimulus. However, Harding says the quantitative easing (QE) unwinding will take place sooner or later and hence he is not bullish on the currency, yet. Meanwhile, Harding expects the RBI to ease rates by 75 basis points (bps) in the next one to three months if Brent and US bonds yields trend up. Below is the edited transcript of Harding's interview to CNBC-TV18. Q: What has caused this reversal? We are out of step with the other emerging market rivals, who is doing all the dollar buying? A: Yesterday’s comfort from Fed on the quantitative easing (QE) is not reversal intent. The basic fundamental weakness continues to remain in focus. It is going to be difficult to fund the current account deficit (CAD). The Brent is inching up and the ten-year US yields will probably also find support around 2-2.50 before inching to more than 3. Therefore, the fundamentals remain the same. Only that the inevitable is getting delayed because quantitative easing (QE) unwinding will happen. So, that has been in place. We have not gone into bullish scenario on the rupee. Q: The longer term worries both on currency and on liquidity remain but who is doing the buying today. Is it largely oil companies and would you also get a sense that every time the dollar became cheaper than 60/USD you are going to see this pent-up demand coming? A: What Reserve Bank of India has done to cut the bunched up demand from the market, especially from the oil marketing companies, now goes into State Bank of India (SBI). The instruction to SBI probably maybe to absorb the demand from its own supply and get into a market without sourcing excessive volatility so that administration is on but that is not going to get the positive supply in. Q: Who is buying today from 59.30 to 59.85/USD that 50 paise move today has been caused by whom you think? A: I am not aware of who is buying today. Q: What do you think will be the trading now that a lot of people were laying store by that 59.60-59.70/USD mark. Now that has been emphatically crossed. Where is the next support coming for the rupee? A: Now the trading range is seen to be at 59-61/USD. Reserve Bank of India (RBI) would like to keep it steady around 60/USD and in my view RBI will now focus on rupee and inflation and leave the growth support for the Prime Minister and the finance minister. The RBI action will revolve to be rupee supportive and that is why I am looking at 75 bps rate hike sometime in the next one-three months if Brent crude trends up and US yields trend up.