Bareksa.com - The burden of appreciation will increasingly be shouldered by the U.S. dollar, argues HSBC FX strategist Dominic Bunning, though two currencies in Asia stand apart as winners. Jon Gordon reports.

(SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING:

"Alright Dominic, so the euro and the yen seemingly racing to the bottom here. Are the currency wars back on?"

(SOUNDBITE) (English) FX STRATEGIST, HSBC, DOMINIC BUNNING, SAYING:

"I think it's an interesting point. If you look at what central banks have done over the last few years, it's been clear they've been following an excessive monetary policy looseness. Whether that's a pure drive towards weaken the currencies or not is a slightly different matter, but it's certainly clear that a by-product of that easing is that currencies will weaken. And for us, what that means is that the U.S. dollar is increasingly going to have to bear the burden of appreciation because most other central banks are more tilted towards easing than they are."

(SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING:

"The Fed official from Boston Rosengren saying U.S. dollar's rise is natural given the relative strength of the U.S. economy. Is it that simple?"

(SOUNDBITE) (English) FX STRATEGIST, HSBC, DOMINIC BUNNING, SAYING:

"I think to some degree it is a story about how the U.S. economy is continuing to recover; the jobs numbers, for example, were relatively resilient. You know, the unemployment rate's come down, underemployment's come down. Yes, wage growth isn't racing ahead but it's solid enough. So I think the story there when you compare it to the likes of Japan and Europe and certain other emerging markets, for example, it's pretty clear that the U.S. story is on a better track. And that should continue to support the dollar."

(SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING:

"Alright, so here in Asia, Dominic, you know we've got some economies with robust external balances, what does this mean for Asian FX going forward?"

(SOUNDBITE) (English) FX STRATEGIST, HSBC, DOMINIC BUNNING, SAYING:

"Well I think increasingly - you'd mentioned the currency wars - whether it's explicit or implicit, I do think increasingly FX policy is going to play a role for Asian currencies. It's not as simple as purely looking at fundamentals. Korean won, for example, has great fundamentals but is increasingly linked to the BOJ with regards will the BOK follow them in some respects and try and weaken the won. So for us, we'd be looking a bit more at FX policy as to which currencies to like in Asia, and to that degree, the renminbi still stands out for us. Policy wants to see a relatively resilient renminbi. And also the Indian rupee where I think you'll see a little bit more currency stability than you have in the past."

(SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING:

"So fragile no more for the Indian rupee?"

(SOUNDBITE) (English) FX STRATEGIST, HSBC, DOMINIC BUNNING, SAYING:

"No, I think it's certainly moved away from being in that 'fragile five' group if you compare it to back in 2013 especially. You've got a narrower current account deficit, you've got lower inflation, you've got much stronger FX reserves. So I think the story there is certainly turning for the better. And if we see more reforms rolled out by the government in the coming months, then I think that story can only get better, really."

(SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING:

"Alright Dominic, let's leave with your one thought; if you had to make one bet for year end, what would be your pair of choice?"

(SOUNDBITE) (English) FX STRATEGIST, HSBC, DOMINIC BUNNING, SAYING:

"Well we still think that actually dollar/renminbi will trade slightly to the downside. It's our one position where we've had on for awhile in terms of short dollar/CNH trade in the longer end of the curve. We think that will be supported by policy, it will be supported by slightly tighter liquidity going into year end with the Hong Kong and Shanghai Stock Connect story coming through, and you've still got very strong trade surplus coming through over the course of the end of the year. So the renminbi will probably be the best performer in Asia into the end of the year in our view."

(SOUNDBITE) (English) REUTERS REPORTER, JON GORDON, SAYING:

"So perhaps easing ahead for China but not certainly on the currency front, Dominic."

(SOUNDBITE) (English) FX STRATEGIST, HSBC, DOMINIC BUNNING, SAYING:

"No, not for now." (Source: Reuters)