The Bank of America is ‘quite bullish’ on the Indian rupee. The bank has reportedly seen ‘significant room’ for appreciation, according to its foreign exchange and rates strategist Rohit Garg. He told CNBC’s “Street Signs” that they’re targeting 74 levels (against the dollar) for the Indian rupee.
There has been a significant impact on the emerging market currencies due to the recent risk-on momentum in the markets. The most affected currencies are those that are commodity-driven.
By description, risk-on momentum is an environment where investors put their money into various higher-risk instruments. In most cases, emerging market currencies are more volatile. Hence, they are categorized as higher risk investments.
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In recent months, the Indian rupee has weakened considerably against the US dollar. Moreover, the country’s slowing economy received a significant beating from the current coronavirus pandemic after the government imposed a nation-wide lockdown that was extended on multiple occasions.
Looking at the year-to-date data, the rupee has lost ground by 5.15% against the dollar, according to Refinitiv Eikon data. By the end of the June 3 morning session in the Singapore forex market, it was recorded at 75.028 per dollar.
Turning to China, Garg believes that the Chinese Yuan will hold below the 7.2 level against the dollar. He explained:
“Our assumption right now is that the U.S.-China trade deal still holds up.”
On June 3 during the Singapore morning session, the offshore yuan was exchanging at 7.1013 against the US dollar. On the other hand, the onshore yuan that is fully controlled by the Chinese government was trading at 7.1079 per dollar.
Trade and geopolitical tensions
Garg said that if the US-China trade agreement comes under threats, the yuan may surge towards 7.4 against the dollar. That will depend on the actions initiated by the two major economies as rhetoric escalates.
Tensions between Washington and Beijing have reemerged recently due to many issues. One of the critical issues for the reemerging anxiety is China’s approval of a controversial national security law for Hong Kong, threatening the city’s autonomous status.
In 2019, China and the US were embroiled in a trade war that forced both sides to impose tariffs worth hundreds of billions of dollars on each other. But for now, Garg believes that the Chinese Yuan will not weaken beyond 7.2 against the dollar.