Rupee won't go beyond 57/$ next week: Barclays Cap

In the current environment where dollar is gaining strength against most currencies, rupee's downward journey  will continue for some more time . Speaking about the Indian currency, Nick Verdi of Barclays Capital told CNBC-TV18 that despite the weakness, it is unlikely to breach 57 level next week. He sees the INR moving up to the 54 region in a quarter’s time.

Verdi told CNBC-TV18 that once US yields move lower, rupee will gain some strength. Currently the rupee is at 56.61. Also read: Indian rupee may trade in 56.70-57.10 range: Karvy Below is the verbatim transcript of his interview to CNBC-TV18 Q: First a word on rupee and where do you see it headed? A: I think dollar-rupee in the near term will be moving higher. The rupee like its high yielding peers globally is under pressure and is reflective of a stronger dollar that we are currently in. While we ultimately look for dollar yield to move a bit lower, I think the way that the market is positioned is it is one of the higher yields. The rupee will come under further pressure. However, beyond that we could see some appreciation. Q: Next to the South African rand, the rupee has been the worst performer. Is this the rise in US yields to logically have affected all currencies or many currencies at least in the emerging market basket? The rupee, like the rand has gotten singled out, maybe less than the rand. Therefore, what would you pick out as reasons why the rupee is being singled out? A: Comparing to most currencies the dollar is rising. I think perhaps those currencies with the weakest narratives do tend to get hit first particularly when its positioning is fairly long. That was the case with the rupee. So just like the rand, India’s off noted issues those of having dual deficit put together with significant positioning means that it has faced the brunt of the sell off. You can look wider than EM, you look at other high yielding currencies globally and particularly in G10. If you look at the Aussie and Kiwi currencies where investors have been attracted to carry are being hit as well. For India specifically, one only needs to look at the 10 year yield which has moved down by around 200 basis points over the past month. To see why there is less of a carry play than in the past strictly in this period of a stronger dollar and high yields in the US. Q: Do you think given the pressure on the rupee, if there were further rate cuts in June - that could perhaps push the rupee even lower? Should we therefore dilute expectations of a rate cut from the RBI in June? A: It depends, which is a fairly evasive answer. However, the circumstances in which you see lower yields in India which is important because I think if it is in an environment in which the global economy is strengthening and high US yields would be a good thing. What we have seen when volatility in financial markets has been relatively low, when inflation falls in India and rate cuts ensues that is actually positive for the rupee. So, the key ingredient for a rate cut in India to be positive for the currency, includes lower volatility globally. But, also a sense that US yields are rising for good reason rather than bad. Q: What’s your new range for the rupee? Do you see it breaching 57? What is the new range? A: It certainly could. Given, we are moving to period of higher volatility, the range has to be wider. We are still looking for a move down to the 54 region in a quarter’s time. That’s why I am more uncomfortable with that view than I was a couple of weeks ago. In the near term, dollar-rupee moves a little higher particularly in the stronger dollar environment. However, once things calm out a little bit, I think with the US data this week will give us more idea where the US economy is heading. That will actually be considered with US yields moving lower. Q: But little is what? Little is 58, 57.50? A: On the upside I think we could get to, but we should stay inside 57. Also, I don’t think we will move beyond 57 in the next week. However, once US yields move lower which we think they will do once we get through non-farm payrolls this week, then I think a little bit of pressure will be taken out of the rupee. Then, dollar rupee can move lower. So I would be looking to sell on rallies here.