In an interview with CNBC-TV18 Olivier Desbarres, Director, Asia FX Strategy of Credit Suisse and Jamal Mecklai, CEO of Mecklai Financial Services gave their readings and outlook for the global curreny market.
Desbarres said, "We get renewed concerns about financing of peripheral countries so we do expect dips in euro-dollar. These opportunities add to euro longs rather than the beginning of a long term rebound in the US dollar," He says that the dollar weakness would not be linear and we are going to see periods of pullback. However, Jamal Mecklai does not feel the same. He says that dollar has gone too far, there will be one or two pullbacks but then there will be a reversal. "The dollar has to turn in my view and it will probably be linked to US growth and the ending of QE2," Mecklai added. Mecklai expects the rupee to start getting back onto an upward trajectory. Below is the verbatim transcript of their interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the acoompanying video. Q: What you would take away from the ECB action yesterday and what the euro-dollar should move at or move towards now? Desbarres: The ECB delivered 25 bps hike was that pretty much expected. The focus was very much on the language and our takeaway is that if anything, the ECB will slightly move hawkish than we had expected and will pave the way for further rate hikes this year. We were initially looking at three more hikes before the end of 2011. We think the risk if they do a little bit more and this divergence in policy between the ECB on the one hand and the Fed on the other, will be driving euro-dollar higher. We have just traded through our near-term forecast and it puts us in a reasonably good place for our medium-term forecast of 150 to be reached. What we are also seeing in emerging markets and particularly, Asia is continued buying of US dollars which ultimately have to be partly recycled. The euro is one of the beneficiary from this recycling of central bank intervention and that is another driver of euro-dollar upside. Q: In the near term do you see no reversal in the dollar index which has had a fairly weakish patch because that is very material to what commodities and many emerging markets do? Desbarres: Of course, and I do not think any one including ourselves are suggesting that dollar weakness would be linear. We are going to see periods of pullback. I can imagine a number of scenarios where euro-dollar has a correction to the downside. If, for example, we get renewed concerns about financing of peripheral countries so we do expect dips in euro-dollar. But, the way we tend to think about it is these opportunities add to euro longs rather than the beginning of a long term rebound in the US dollar. Certainly, on the note of peripheral stress and it is an issue that comes up time and time again. We have notice in recent weeks is that market perception of this stress in countries such as Portugal and Spain has abated partly because Spain agreed to access the European Financial Stability Facility (EFSF) and partly because yields spreads in countries such as Spain have been coming down. That gives an impression that the market is less concern than it was a month ago about these countries ability to finance themselves. Q: This last month has also seen a lot of strength for our own currency what do you think it is pushing to odds and will it likely breach that 44 mark? Mecklai: Frankly, my view had been for a long time that it has gone too far and that the global picture, the dollar would turn etc. I still have a sense of that because I feel commodities are too high but, I am beginning to believe that the India story is slowing coming back in spades and I use a lot of non market angles for this. This whole Anna Hazare thing, is very powerful for the medium and long term. We have been doing some work with some renewal energy companies I see so much of energy and enthusiasm there. Not that the market is seeing all of these things but, my view had been that the rupee would not break 44 in the near term. When I was squeezed I said okay maybe it will get to 43.50. I am beginning to believe that not in the short term but, we could be back to a trend of appreciating rupee which it has not been doing for sometime. It is bouncing around in relatively narrow let us say 44 to 45.50 range. I am beginning to believe that not in the short term but, we could be back to a trend of appreciating rupee which it has not been doing for sometime. It is bouncing around in relatively narrow let us say 44 to 45.50 range. Of course, everything is coloured by what will happen to the dollar. I cannot believe like the other gentlemen said nothing is linear. But, clearly they seem to believe that dollar index in the medium term continue going down. I do not share that view. It has gone too far, you will see one or two pullbacks but then you will see a reversal. Whether that will come with markets you never know will it be tomorrow, next week, six months down the road I do not know. But, I just feel like if you just look from a daily life stand point America is just too cheap today. So, the dollar has to turn in my view and I think it will probably be linked to US growth and the ending of QE2. Q: You keep an eye on the rupee as well, have you been surprised that the rupeeDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
