Bias toward $ strength; see Re at 67/$ in near term: HSBC

There is a lot of uncertainty right now, but the dollar is certainly gaining strength, says Paul Mackel, managing director - head of Asian currency research at HSBC. He has a bias towards dollar strength, even going ahead.

He says though the dollar-rupee is high, volatility is low. However, in the near-term, he sees the rupee toughing the 67 per dollar mark.Arvind Subramaniam of DBS Bank, says the rupee can see levels of 66.85-66.90 against the dollar by the year-end as the global markets tend to be extremely illiquid around that time. Below is the verbatim transcript of Paul Mackel's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Do you look at the rupee closely, are you getting a sense it is headed for more weakness?A: As you pointed out, dollar strength has been pretty resilient against a number of Asian currencies. That bias is probably going to continue into the end of this year. There is a lot of uncertainty on the horizon right now particularly next week which regards to the European Central Bank (ECB) decision also what kind of payrolls and then they are also going into the Federal Reserve meeting. So I am still biased towards dollar strength over the next few weeks.Sonia: Your view on the rupee there because it is at 66.70 per dollar currently, in the very near-term what would the rupee trajectory look like?A: I think in the very near-term it is approaching quite a significant level of around the 67 per dollar area. That will probably continue to push a little bit higher in the very near-term. The dollar strength is so strong right now on the short-term basis. So yes, testing the 67 per dollar area makes sense and that still consistent with the yearend view for dollar/rupee.Latha: Will the markets start factoring in a more certainty about the Fed rate hike in the first two weeks of December and therefore should be seen roiling in emerging market currency?A: So far if emerging market currencies in general have been taking this rising probability of the Fed raising interest rates. Yes, dollar rupee is higher but the volatility in for a many Asian currencies including the Indian rupee is still relatively well. I think we need to get through next week's event risk and after that the Fed will start to gain more attention than perhaps it has done so for recent weeks but there could be a bit of volatility around that eventual outcome but as I said I still think that there is a bit more weakness for the rupee to come.Latha: Would next Friday be crucially very important? Will the markets believe that the non-farm payroll numbers would be the final data point that the Fed would look at for its December 2016 decision?A: They would be consistent with the language very much. I am looking at some of the other event risks what is going to happen with the ECB, I also think that the OPEC decision too needs to be closely watched. I think that there is somewhat off the radar screen for people because it is unclear whether there could be supply change and that is not something we are expecting but if it happens, that would be quite disruptive to a lot of emerging market currencies including the Indian rupee. So I am more focused on the payrolls numbers, I am more focused on some of these other events.