Moneycontrol
Last Updated : Jan 17, 2018 02:49 PM IST | Source: CNBC-TV18

Dollar will continue to weaken over next two quarters: Credit Suisse

Dollar weakness continues with the dollar now falling to a three-year low against its peers. In an interview with CNBC-TV18, Ray Farris of Credit Suisse spoke about the same.

CNBC TV18 @moneycontrolcom

Dollar weakness continues with the dollar now falling to a three-year low against its peers. In an interview with CNBC-TV18, Ray Farris of Credit Suisse spoke about the same.

We think the dollar will probably continue to weaken over the next quarter or two, he said.

According to him, the central banks outside the US are probably going to turn more hawkish.

We have forecast for the rupee this year of about 64 per dollar for this quarter and for 63.50 per dollar at the year-end, he added.

Trade deficit and crude prices are main drag on the rupee, said Farris.

Trade deficit should deteriorate on trend due to high oil prices and growth in India is beginning to recover, he further mentioned.

Below is the verbatim transcript of the interview.

Latha: How are you reading the dollar? We saw a little bit of strength come by and then it receded again. Your trajectory of the dollar index now?

A: We think the dollar will probably continue to weaken over the next quarter or two. The key driver of that is really in the Group of Ten (G-10) space that central banks outside of the United States are probably turn more hawkish. Yes, Fed is hiking, but the real innovation is going to be markets looking for the European Central Bank (ECB) to change policy later this year because of the strength of that economy. Equally important, because global growth is doing so well and industrial momentum is rising, risk appetite is very strong, equities generally speaking are doing very well, the Standard and Poor (S&P) is up almost 4 percent this year and with that, money is flowing out of the dollar into risky assets, especially in emerging markets.

Sonia: I wanted your thoughts on the rupee because we have seen a big move there on the back of the trade deficit worsening. What is your own prognosis?

A: We have forecast for the rupee this year of about 64 per dollar for this quarter and 63.50 per dollar at year end. Historically, the rupee benefits from very positive current account balance seasonality in the first quarter of the year. It then reverses in the second quarter of the year. So, the main drag just recently has been this rise in oil prices and as you pointed out, the trade deficit data that came out for December, we really look at yesterday's price action as more stock oriented. We tend to think the currency will do okay over this quarter, but then worry a bit about it going into the second quarter.

Latha: More generally, yesterday's risk-off, we saw it in equities and metals and cryptocurrencies. Is it just the global risk rally taking a pause or is there a worry?

A: I think the way to think about it is that in any trend bull market, there are going to be corrections from time to time. There has been no particularly bad news except for bitcoin where some governments have been pushing back against the development of cryptocurrencies, Korea, most recently.

Latha: Coming back to the rupee, I take your point that yesterday's reaction was to the trade deficit numbers, but do you see the trade deficit improving at all or will this continue to be a bother and keep the rupee sliding?

A: The trade deficit is going to probably deteriorate on trend for two reasons. Oil prices have risen and that is going to hurt it and growth in India is beginning to recover, albeit slowly, and that will also increase import demand, ex oil. However, there is a seasonal component. That means the first quarter will probably look a little bit better than most other quarters of the year. Then the second quarter will look a lot worse. So on trend, deterioration, but a pause in that because of seasonality in the first quarter. Lots of focus now on the oil price, with risk that if oil breaks much higher, markets will ignore that first quarter seasonality and just think about the trend.

Sonia: So are you expecting to see a further downtrend as far as the dollar index is concerned? You mentioned that briefly, but I am just wondering what you levels are for the first half of the calendar year.

A: The dollar probably continues to weaken. The key metric is really in the G-10 space euro dollar where we tend to think that euro dollar can work its way up to about 1.25 per dollar. That should take most of the emerging market currencies stronger against the dollar.

Latha: What about the rupee itself? What are your levels for say, the first half of calendar 2018?

A: I think it is going to be a bouncy ride. As I said earlier, we have got a forecast of 64 per dollar for the first quarter or the first three months of the year really and a forecast of 63.50 per dollar for the end of the year.
First Published on Jan 17, 2018 09:16 am

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