In an interview to CNBC-TV18, Chin Loo, senior currency strategist at BNP Paribas looks at the global currency space and gives her outlook on where she sees the rupee, euro and dollar in the near-term.
Below is an edited transcript of her interview. Watch the accompanying video for more. Q: We are seeing some strength for the dollar. How are you looking at the dollar index? Do you see more strength? Will it be only as long as the geopolitical concerns remain?A: While the dollar has been holding up against the dollar index. It is largely because of the problems in Europe right now in terms of where Greece heads on the exchange of debt and where the PSI stands. Therefore, the US dollar is finding some support. The dollar index is stable. It has held its ground quite well. I think the broader drive for the dollar will depend to a large degree on European developments. If things turn out better then clearly the dollar may continue to its down trend which it started the year with. Q: Where do you see the dollar index by the March quarter? What kind of losses?
A: That depends on your take on the European developments. On that front, we do think in terms of the Greece PSI that it will still be a factor that could trigger the CDS in Greece and that could be a source for dollar volatility. If that happens, then the US dollar could find support above the 78 level.
We are likely to see more of a range bound trading environment in the dollar index, then a breakdown lower. Into the March quarter, we do think that the euro-dollar will struggle to make gains above 1.33. That will lead into a range bound environment in the dollar index. Q: What is your stand on the euro ahead and the current strength or resilience that it has shown at this 1.32 mark? How bearish or how positive would you be in it?
A: There are a few steps to follow through in terms of the Greece exchange of bonds. There are several timelines one of which is tomorrow where they will make publicly the exchange of bonds offer to the public. That will then lead into the extent to which private sectors will come on board on this bond exchange and if the commitment from private sector falls then the Collective Action Clauses or the CACs could kick in that would force investors come on board on the Greek bond exchange.
There are various timelines from tomorrow all the way to mid-March when the offer closes to private sectors and the markets get to see better how they response is. That could create volatility in the euro-dollar. You are right to say that beyond Greece, the markets are looking at a contagion risk and Portugal in this respect is being focused on.
So if the contagion to Portugal extends then clearly the euro-dollar could see more volatility. For the time being, we need to watch for this exchange of bonds in Greece, what sort of percentage of private sectors come on board with this exchange and that will set the tone for the euro-dollar in the coming weeks. Q: What
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