'Hedge euro receipts, sell dollar rupee'

ET Now caught up with Thio Chin Loo, senior currency analyst, BNP Paribas, to find out her views on euro valuation and the investing in gold as safe haven.

The Euro is under a fair bit of pressure and we have been highlighting that since quite a while now considering the entire European Union and European nations are facing a fair bit of pressure considering the kind of bailout package that they have got. In your opinion where do you see the slide going and do you expect it to come to a certain halt a consolidation any time soon?

The picture for the euro is still quite bearish because several situations — one is that even with the very large bailout that was announced by the EU commission, what is needed to be done in the way ahead will still be fairly negative for the euro. The reason being that even though the ECB has announced they want to take interventions while conducting bond sales, at the same time we do think that even with these interventions which should hopefully maintain a value of the euro, the adjustment process will mean that the Eurozone will need a cheaper euro to get through a period of this long deflation. Keeping that in mind, coupled with the fact that the US economy is making some headway in terms of its recovery, dynamics weigh heavily against the Euro.

What should Asian exporters do? Should they hedge the euro and at what level and should they hedge the dollar and at what level?

If you are coming from India and you have exposures in receipts in foreign currency, particularly the euro, we do definitely recommend you to hedge those receivables because euro INR is likely to continue to hit lower. Therefore, you should hedge any euro receipts right now. When dollar/rupee is concerned, there will be a trickier call because in a very short term if that were to be another bout of financial volatility, then the US dollar has seem to benefit. For the dollar/rupee could be fairly steady or at least keeping within sort of trading band. But overtime, we still think that in terms of the dynamics of Asia vis-à-vis the US, in Asia, for example, India has got very good balance sheet in terms of the growth and the rate tightening cycle and certainly still argue for rupee appreciation over long term. So, I think overtime I think the dollar rupee is still a sell but more clearly the Euro rupee is a sell.

With the kind of funds that have been flowing out of the equity markets right now, they are finding their place in gold as a safe haven. Dollar is also continuing to strengthen there but what's the take on gold in particular? Do you think there is more of an upside considering that this is one area where people actually use it as a hedge against this kind of a movement in the equity market?

Yes. We think gold has been a very good diversification asset as proven during times of volatility and given that there a lot of uncertainty still particularly with regard to inflation, it has continued to ease. It could be some sort of inflation down the line and gold being alternative asset to guard against inflation as well as in an environment where currencies are debasing, gold offers a very good alternative asset.