The Indian rupee should fare relatively better against its Asian peers in the backdrop of a positive balance-of-payment situation, according to Adarsh Sinha of Bank of America Corp.
"We are forecasting a BOP surplus for the current fiscal, which should be good for the rupee," Sinha, co-head of Asia FX and rates strategy at Bank of America Corp., told BQ Prime's Niraj Shah.
The rupee levels could reach the Rs 82-84 levels if the U.S. dollar strengthens further, he said.
The Reserve Bank of India has built up the forex to a reasonably adequate level, and that could also aid in the positive development of the BOP account, Sinha said.
According to him, while this is not the right time to be long on the Asian currencies, India is a bit of an exception as exports are driven by the service sector and the export exposure to China is a lot more limited. The resilience in India’s exports is being driven by the service sector, but the rest of Asia is more dependent on China, he said.
U.S. Economy Remains Resilient
A lot of investors and analysts are surprised by the resilience of the U.S. economy, he said. The service sector is driving the economy from a hard landing to a soft landing, Sinha said.
"As long as the service sector remains resilient, yields will remain elevated and the dollar will remain strong." The slowdown in the service sector is more likely to happen in 2024, he said.
There are upside risks to the core CPI, Sinha said. He expects that the Federal Reserve will pause the rate hike in September and will assess whether or not to hike rates in the November-December meeting. "Even if we see some deceleration in core CPI over the coming months, rate cuts are unlikely in the first half of 2024."
China Slowdown Affecting Dollar Movement
About 30-40% of the dollar strengthening since the beginning of 2022 is because of the economic slowdown in China, Sinha said. "We cannot have a sustainable dollar downtrend without China recovery, and there will be no China recovery without central bank balance sheet expansion."
The growth forecast for China is around 5.1% and the incentive to meet the growth would be high, as they have missed their targets for a couple of years, Sinha said.
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