The global forex market is in a roller-coaster ride. The Japanese yen has been strengthening against the US dollar. In a bid to strengthen its currency, China raised the yuan reference rate on Friday. Speaking to Bloomberg TV India , Paul Mackel, Head - Asian Currency Research, HSBC Holdings, says the dollar-rupee (USD/INR) is going to be fairly stable.

What are you making of the currency moves right now, specifically yen and yuan?

Obviously, this policy is the aftermath of the BoJ decision, which has been benefitting the Japanese yen. Market participants are chasing and going to chase that move. I think, the market in general is saying, “Is it the beginning of the more meaningful downward move for the US dollar in Asia?” I think we need to be more cautious because there is this risk that if the yen moves very quickly, it can actually start to trigger a broader risk or concern. You have seen that in terms of China price action today. Initially, as the yen began to strengthen very quickly, other Asian currencies strengthened with it. But, they have given up their ground as the markets are beginning to get just a little bit nervous of each other’s move.

What are the risks of a very strong and fast-appreciating yen to other currencies? 2008 reminded us that the repercussions of carry trade fast-moving money, in the end, could be quite dangerous. Are we going to see some of that risks once again?

I don’t think so. I think the conditions back then were clearly very different than they are today in terms of financial market stress. But, that said, there is still some unease out there about why this move is happening and what it means for other Asian currencies. Like I said, there was a lot of follow-through among other Asian currencies to follow the yen. I think, if the market reassess and becomes a little cautious, because typically when the yen strengthens very quickly, that’s usually more associated with the broad risk-off move in the financial markets. And I think that’s what’s making some people nervous at the moment.

The rupee appears to have gone into some sort of ‘a happy zone’, if I may say that. Do you think it’s going to be largely range-bound year given the inflows or the outflows or any big triggers at this point?

It’s somewhat of a side show as compared with to other Asian currencies right now. I think that the yen will have more impact on other North Asian currencies — North Korea, Taiwan and China. The dollar-rupee (USD/INR) is going to be fairly stable. I also think that in the course of this year, taking a long-time view, I believe the directional bias of the exchange rate is that it will move higher towards ₹69 to a dollar.

How is the dollar index looking like? People don’t anticipate any quick Fed rate hikes. The dollar index is at back at 93. Do you think there can be any more pressure given the fact that the hikes may be slow and few?

Well indeed, the dollar does look very soggy. I think BoJ really kick-started the down move. The way Fed was talking earlier this week and ECB also seems to be changing its approach in terms of trying to use more of credit stimulus approach rather than trying to push down the pressure on its currency to kick start the economy.

These factors are coming through and putting pressure on the dollar index. We are still committed to the idea that the Fed is going to raise interest rates at the June meeting. That is probably something that financial markets will have to factor in at some point. If the data starts to improve in the US, we can see strengthening of the dollar against other currencies.

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