Rupee to be preferred currency in 2015: Paul Mackel of HSBC

Below is the verbatim transcript of the interview:

Q: Before talking about Indian rupee, a word on yen which is now at multi year lows versus the dollar and there is fresh impetus from Bank of Japan. How are you reading that?

A: It was a very sudden move by the Bank of Japan easing policy today. Practically, any economist on the street was anticipating it and it’s a very bold move. Obviously, they are concerned about some of the deflationary forces that are in front of them and the Bank of Japan was quite quick to talk about what that source was and they are very much been focused on softness in the oil prices but for now you can see the price action, the Japanese yen has weaken sharply. You have seen some Asian currencies hold up okay but it does bring a new dynamic to the new currency war.

Q: Last time around, the salvo from the various Fed Governors came when the dollar index was above 86-86.5 thereabouts. The dollar index has once again climbed to 86 and it will climb further now with this tumble in the yen to six year lows. How would the Fed react? They have got such strong GDP numbers. Does this change the Fed’s language and grammar?

A: I do not think it does. The Fed was very confident in its message this week perhaps inflation – there are measures of inflation still fairly stable and growth is okay. The risk of course at some point in the future that the dollar rally gets too extreme and in which case the Fed and also the US treasuries starts to get a bit upset with other nations effectively devaluing their currencies but I do not think we are at that juncture just yet.

Q: What about the yen or the Nikkei. Is this move solid enough to unleash another positive run for the Nikkei, something like first gush of Abenomics?

A: We have seen the price action so far and it is very powerful. The way yen weakness has unfolded and its knock-on implications into domestic equity markets. This time the Yen weakness is going to continue perhaps it will lead to further enthusiasm for that local equity market. I have to be cautious in terms of – it’s my view and not because of currency analyst but the best way to look at it right now is that the dollar is in pole position, doing very well against a lot of currencies.

Q: What about Indian currency. We have seen quite a bit of resilience for the Indian rupee and it’s been in a bit of a range between 60-62/USD. Going forward what is the range for the Indian currency over the next 6-12 months?

A: We are seeing that over the next 6-12 months still the rupee versus the USD will be relatively stable, in fact when you look at our forecast until the end of next year, we are only anticipating dollar rupee to be at 62.5/USD but that said we think the Indian rupee will be a big out performer compared to many other global currencies and a lot of has to come down to positive policies that we are seeing from the new government but also from the central bank as well. The Indian rupee is still going to be one of preferred currencies come 2015.

Q: What is the target on the Yen? Are we looking at 115 before the year is out?

A: It is very difficult to know because there is a substantial amount of noise and people were not expecting the move today. From our view right now at least going into next year, we think that dollar yen will remain relatively supported up around 112.