Rupee will be under pressure against dollar, but will appreciate versus other Asian currencies, says JPMorgan

The US dollar will continue to strengthen in the near future, said Luis Oganes, the Global Head of Currencies, Emerging Markets and Commodities Research at JPMorgan. Oganes said this prediction is grounded in the fiscal pressures faced by the United States and a slowdown in the European economy. Such conditions tend to bolster the US dollar, making it challenging for emerging market (EM) currencies to appreciate against it.

“We are expecting that the dollar will probably continue to appreciate. It is very difficult for EM currencies to appreciate against the dollar when the dollar is appreciating against other currencies,” Oganes told CNBC-TV18.

On the Indian rupee, Oganes noted that while the INR may face pressure in relation to the US dollar, it could appreciate in comparison to other Asian currencies. JPMorgan's forecast suggests that the rupee is likely to remain around the 93-mark in the short term.

“For the time being, we do have a forecast of the rupee staying around 93. When you compare the rupee with other currencies in the region, my guess is that it is going to appreciate,” he added.

Speaking on the energy sector, Oganes emphasised that when JPMorgan examines the intricate supply and demand factors influencing the oil market, they encounter difficulties in envisioning crude oil reaching the widely speculated levels of $100 or even $120 per barrel.

Oganes explained that many investors have been betting on such high prices, but the comprehensive analysis conducted by JPMorgan does not support these expectations. Instead, he pointed out that while price momentum might temporarily drive crude oil higher, the fundamentals of the market suggest a range in the 90s.

“When we look at the math of supply/demand in a very detailed way, we have a hard time getting to $100 per barrel, $120 per barrel, which is what many investors seem to be betting on. We are not overly concerned that oil is going to continue on an upward trajectory. Our forecast for the end of the year is crude would be in the middle 80s, so going below 90s,” he said.

JPMorgan's year-end forecast for crude oil places it in the mid-80s, a level below the anticipated 90s range. This forecast is significant not only for investors but also for countries heavily reliant on oil imports.

One of the countries that stand to benefit from the projection of lower crude oil prices is India. As one of the world's largest importers of crude oil, India's economy is particularly sensitive to fluctuations in oil prices. The prospect of crude oil remaining in the mid-80s rather than climbing into the 90s or beyond is indeed good news for India's economic stability.

Luis Oganes also addressed the monetary policies in Asia, particularly focusing on India. He pointed out that there is limited room for further rate cuts in the region.

Oganes also addressed the situation in Latin America, where some countries are grappling with very high real interest rates. He suggested that these nations might have an opportunity to reduce rates in the future.

“Only the emerging market central banks that hiked a lot where nominal and real rates are very high – we are talking about mostly in Latin America and maybe some countries in Central and Eastern Europe where you see policy rates in real terms of 4-5-6-7 percent, which is too high for any economy, maybe they have room to cut. Asia, which didn’t hike as much including India – the room for cuts in the near term, we don’t see that. This region is going to be more hostage to whatever happens with the US Fed,” he said.

During the interview, Oganes also highlighted the persistent challenge of inflation. While inflation has shown some signs of moderation, it remains below target levels in many economies. This scenario raises concerns for central banks, as they strive to strike a delicate balance between supporting economic growth and preventing runaway inflation.

Shifting gears to the United States, Jahangir Aziz, the Global Head of EM Economics at JPMorgan, shared an optimistic perspective. Aziz expressed confidence that the US economy is not on the verge of a recession anytime in the foreseeable future.