Currency Bets Tricky, But Any Correction, In USD Unlikely To Be Meaningful: Emkay

Currency bets have always been tricky, but any correction in the USD is unlikely to be meaningful, Emkay Global has said in a report.

"QT impact is yet to play out on financial conditions. A stronger USD would imply higher global inflation exported by the US, lower global trade, cry for reverse FX wars, and pressure on equities & EM assets," the brokerage has said.

"With the INR being a near-outlier in the Asia FX fall, the FX intervention strategy for the RBI will need to be revisited. The emerging bilateral imbalances (sharply appreciating) against the CNY should not become too accentuated. We believe RBI will eventually let the exchange rate adjust to new realities, albeit in an orderly manner, letting it act as an automatic macro stabilizer to the policy reaction function. We see the INR hitting a low of 82 against the USD, before reverting to the sub-79 range," Emkay further added in its report.

The Dollar Smile to be biased towards right...

According to Emkay Global, currency bets have always been complex. "Undoubtedly, some previous big run-ups in the USD, including those in the mid-1980s and the early 2000s, were eventually trailed by sharp declines. But, at least for now, it appears we are tentatively transitioning, from a regime of global growth slowdown accompanied by a possible US recession to a case of soft US exceptionalism ('soft', as we are unlikely to see US growth upgrades, but 'exceptionalism' nonetheless, by virtue of the pronounced weakness elsewhere - a recipe that typically delivers USD strength)," the brokerage has said.