Rupee likely to hit 54/$ next month: Barclays Capital

The Indian rupee slipped below the key psychological mark of 56 to the dollar on Thursday on the back of strength seen in US dollar.

In an interview to CNBC-TV18 Nick Verdi of Barclays Capital said the Indian currency is likely to see some more upside and may touch 54/USD in the next month. On the downside, for the rupee to hit 57 level, the dollar strength has to be pervasive, he says. Below is the edited transcript of Nick Verdi’s interview with CNBC-TV18 Q: Before we get to the Yen and what exactly is happening on the Japanese markets, just wanted a word on the rupee and where you see it depreciating from these current levels of around 55.9? A: The recent move in the dollar perhaps will not be sustained, so we think that we will see US treasuries rally. That should help some of the dollar bears out there. One of the currencies that has been hit by dollar strength has been the rupee as well as its other high-yielding peers. We can get down to around 54 region in the next month or so. In this current environment it is very difficult to play this dollar strength, but in the very near-term the rupee could weaken a little further. Q: How are you reading into the weakness that we have seen in the Japanese markets? What is going on over there with the Yen and all the talk about what the Bank of Japan (BOJ) could have done, but has not done in terms of looking at the way the yields have spiked etc. how are you reading into all of that? What would your view be now? A: The news out of Japan both in terms of stock market and the currency are being driven not by Japan specific events, but rather markets taking a glimpse into the future as to what the world would look like if we had high yields, a stronger dollar, but crucially again the backdrop of the US economy that is not improving. It seems as though the fixed income markets in the US were really taking their cues from anything coming from Fed communications, but if you look at Bernanke's statement I would say it is still pretty dovish. He is committed to keeping monetary policy very, very loose. But market’s dip and yields heading higher n the current juncture and with the global economy looking fairly soft, risk assets would respond fairly negatively and that is indeed what happened. _PAGEBREAK_ Q: Where could the dollar index go to now in your mind? A: The dollar can be a little higher in the near-term, but markets will conclude pretty quickly, particularly once we get the jobs report early next month and yields will not be moving higher anytime soon in the US. We could have gone over 2 percent mark fairly soon and that would herald a slightly weaker dollar. Q: You did mention 54 on the upside for the INR, but is there a base case scenario where it could possibly test 57 or make all-time lows? Is that something that Barclays is working with as an assumption? A: No, that would not be our base case assumption. We would have to see much more pervasive dollar strength here before that materializes. Q: What exactly is taking place in the Nikkei markets. In terms of the institutional desk and what exactly the trades are being initiated on the Yen can you just give us an update on what is exactly taking place? It seems to be quite unprecedented for such a developed market like the Nikkei to be going through so much in one particular trading session. A: What is unprecedented also for a developed market is to have experienced such a massive rally and that is what Japan is seeing, so this is on a back of a very sharp rally. The big driver is US yields. What it does tell us is that even for Japan or rather for global markets what is more important than the BOJ leaving monetary policy very accommodative is the Fed tapering off its purses. So all eyes are still on the Fed and that goes for Japanese markets as well.