Re may depreciate to 66/USD in near-mid-term: HSBC’s Mackel

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Paul Mackel, Managing Director & Head-Asian Currency Research, HSBC sees the rupee staying under pressure, depreciating gradually in the days to come. He puts a target of 66/USD for the rupee in the near-to-mid term. Below is the transcript of Paul Mackel’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: How should an Indian equity investor understand this sudden surge in bond yields that we have been seeing for 10-12 weeks now? ADVERTISING A: It’s in terms of what can actually happen when the Federal Reserve eventually decides to taper monetary policy. However, if the offset is going to be happening that is stepping away from quantitative easing (QE) such as the Fed is expected to do, but the knock on implications for me is what makes me a bit concerned about certain currencies like the Indian rupee or other currencies in Asia as well. Latha: Can you elaborate on that. What would your worries be about the Indian currency? Do you expect an outflow of funds, how bad can it get for the currency and why would it be worse for India? A: It is not necessary that the Indian rupee is going to be more vulnerable than other currencies – that is not the case. It is a different story from what witnessed back in 2013 but if this type of bond volatility would pick up globally, as it happened more recently, typically that will see more of a safe haven for currency across the board; the US dollar would be doing well, the Japanese yen and peripheral currencies are smaller currencies like the Indian rupee would be under pressure to depreciate, so this is how I am thinking about the story going forward.  Sonia: You had earlier mentioned that you have a target of 66/USD by the end of this year. Do you hold on to that rupee target and what could the near term target be? A: Yes, very much. We do think that dollar rupee should be slowly trending higher up to 66/USD. As I said this is not a high volatility currency story as it use to be but in terms of near term, say over the next few weeks we are looking at 65/USD. Latha: Yesterday Christine Lagarde made a strong pitch to the US Fed to postpone the rate hike. Did that have a sentimental impact on yields yesterday and will that also be taken on board. What is your own timing of the Fed hike? A: Our current timing is still committed to September scenario and I do think Lagarde’s comments are interesting because the data coming from the US over last couple of quarters is been very soft, much softer than expected. However, going back to one of the earlier comments about could India use a weaker currency to help refrate? Yes, it’s a similar story for many economies right now. A lot of the central banks are running out of policy ammunition, so they are looking for the currencies to do some of the heavier lifting. Latha: How would you approach the non-farm payroll numbers? What are you going with in terms of expectation and should we be prepared for much more volatility on June 8? A: We are looking for an increase of 230,000 jobs in the numbers today, which is much inline with our consensus. It feels like many people are a bit fatigue that lot of the indicators that shape the expectations going payroll pretty much suggesting around that type of medium number and it makes sense for now but I do think that the trend will start to establish itself going into next week that is currency market will be looking at whether the core bond curves keeps deepening. If it does then that’s going to be leading to a lot of volatility in the currency market and I would expect that the dollar rupee would be under pressure to appreciate.





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