See dollar index at 98; 62.82/$ critical for rupee: Axis Bk

Ashok Gautam, Senior Vice President & Head, Global Markets, Treasury, Axis Bank firmly believes 62.82 to the dollar is an critical level on the  rupee and if that is taken out then there is room for it to move towards 63.50/USD. According to him whatever the level of the rupee movement, RBI has promised to intervene on both sides is assuring.However, rupee falling to the levels or 62.60 from the opening levels of 62.61 to the dollar is not a sign of break down because over the last six months or so it has been trading in the range of 61.50-62.50/USD.He also thinks that the stronger than expected US economic data in the could have led the market to think the Federal Reserve would now start hiking rates sooner than later, which too could have spooked the currencies markets around the globe.He expects the dollar index to move up to 98 and keep moving upwards.

Below is the transcript of Ashok Gautam’s interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.Anuj: So far the rupee was quite resilient but today it has been quite a bit of breakdown in the currency. Do you think the fear of rate hike in the US and less incremental money flows into India those are genuine and that is leading to the kind of pressure that we have seen in today’s trade? A: I do not entirely agree with that word breakdown which you have used. In fact still at this point of time rupee has been trading at the level which was a range for last two months or so 61.50-62.50 to the dollar and somewhere around that.

Today’s move where it opened with a gap was triggered by the non-farm payrolls (NFP) data which came in US and which actually unexpectedly came out very well. So certainly the next question is where the Fed now starts looking too and how patiently they will be looking at keeping that word there for some more time. We have to then see what happens on March 17 th when Federal Open Market Committee (FOMC) starts and what words came out of the briefing of those meetings. However, now the markets seems to be saying that from September the possibility of rate hike starting in June could be their and that is what has actually spooked market globally. So currency I would say is a resultant of what has happened outside but still at these levels we have been checking up in the dealing room. I have not seen much dollar demand at these levels. That is why if you see though there was a move which it was taking it beyond 62.67 or 68 to the dollar but rupee came off and it is settling at these levels quite comfortably. However, we still believe that going forward if a firm timeline comes for the US fed rates to up and they are nearer to June rather than to September then certainly along with pressure on other emerging market currencies we would certainly be having pressure on the rupee too. That has also been mentioned by Reserve Bank of India (RBI) in various commentaries which has come out of Central Office.

Even in the March 4, policy announcement there is a paragraph which is specifically devoted to the rupee movement. Where RBI is very clearly saying that rupee has been outperforming the other emerging market peers. So if it is weakening in tending with the emerging markets peers it is okay.RBI had also mentioned that they are a little bit worried that they will not like to strengthen too much. However, we have seen RBI on both sides of the market and that is what they have stated so whatever movements happen in the rupee would be orderly. I would still maintain that yes if there is weakness it will be tested at each level. We will have to see how it actually translates into demand for the dollar going forward.Sonia: What is your range for the rupee is from now until the March 17 th when the next FOMC policy is? Also if you track the dollar index which is gone to that 11-12 year high of 97 plus. What could the next trajectory be for the dollar index? A: Dollar index actually what we believe should be going about 98, and it has actually broken a level where we believe that it will be moving up and up only. So that is quite evident from the technical charts.