Psychological level for rupee at 64/$: HSBC

Dominic Bunning, Associate - FX Strategy, HSBC pegs near-term target for rupee at 64/USD, which he says is a psychological level that will offer resistance on the way up.

He expects dollar to strengthen going forward against emerging market (EM) currencies.

"We still think that the dollar will continue to broadly strengthen over the current months versus the majority of emerging market currencies  and it will be very difficult still for the likes of the Indian rupee to post any meaningful gains," says Bunning in an interview to CNBC-TV18.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: How are you looking at the rupee in particular and emerging market currencies in general? We did see a little bit of dollar strength and trimming of emerging market currencies. What is the view on the rupee itself over the next month or so?

A: As you rightly just pointed out there is a little bit of dollar weakness just in the last session or so and that is really a reflection of the market and its view on Janet Yellen and her testimony later on today, which basically the markets are reading as something slightly dovish. We are seeing a bit of a build up of long dollar positions as of late October and the idea that maybe Yellen is going to be a bit more dovish is pushing them to maybe square off some of those positions; sell a few of those dollar positions they had on and that is benefiting EM currencies pretty much across the board.

My own perspective is that we should not get too carried away with the idea that Yellen is a dove. I think she will be pragmatic in her policy goals, and on how they are going to achieve that.

We still think that the dollar will continue to broadly strengthen over the current months versus the majority of EM and it will be very difficult still for the likes of the Indian rupee to post any meaningful gains. Domestically too, we have not necessarily really seen the developments we would like to see on the data perspective and maybe from a policy perspective as well.

Q: So you would rather go short on the rupee. Do you have any level that you are looking at?

A: I think in terms of the near-term target 64 is going to be a psychological area for the time being. We saw the recent peak in dollar-rupee just below that level, so that will likely offer some resistance on the way up.

I do think that we will be looking at more dollar strength kind of story over the next few months. In the next weekend a significant change in policy and if we see a number of reforms coming through that will help to curb some of the rupee's vulnerabilities namely high inflation and the wide Current Account Deficit (CAD).