Rupee forecast by HSBC: 66/$ this year-end, 67/$ next year

Nowithstanding the rupee's relative outperformance, the slide will conitnue a bit more in tandom with its emerging market peers, says Ju Wang of HSBC. She forecasts year end target for rupee at 66 per dollar and can go all the way down to 67 per dollar next year.On Friday, the Indian currency hit a fresh two-year low of 65.73 per dollar, down 19 paise compared to previous day's closing value of 65.54 per dollar.Currencies in emerging market started correcting after China devalued its currency yuan unleasing some sort of currency war. Below is the transcript of Ju Wang’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: It is an across the board collapse in currencies that we are seeing in emerging markets. What is the sense that you are getting? Is there a currency war brewing because of what happened with China?

A: Yes, the China’s foreign exchange fixing reform just sends significant amount of repercussions to the emerging market. We do not think China has joined the currency per se, but the fact that it is now allowing the market force to play a bigger role in deciding the currency’s move definitely has removed hindrances to the currency for the Asian foreign exchange stabilities including emerging markets stabilities. So, that is why markets react very negatively towards emerging markets in general now.

Latha: You have a view on the rupee itself? We have seen it fall, but it is still a relative outperformer compared to other emerging market currencies. What is the trajectory?

A: Of course, we have to acknowledge where no currency is completely invincible towards this destructive dollar strength. But we still hold the view that the rupee is going to be an outperformer among the emerging market currencies and main arguments that are supporting rupee now including a stronger growth potentials, significant improvement in terms of trade, relatively limited foreign positioning in the local bond market and the fact that currency has already adjusted in previous years. So, valuation-wise also suggests the rupee probably will sell-off a little bit les from here. Our year-end forecast for rupee is 66 per dollar and next year is 67 per dollar.