Qi Gao, FX Strategist at Scotiabank tells CNBC-TV18 the strengthening of US dollar versus emerging market currencies is due to Trump's pro-growth stance. Trump's promise to accelerate fiscal spending on infrastructure has raised inflation expectations which means possibility of rate hikes, Gao says.

The US dollar has been gaining strength since conclusion of the elections and this is exerting pressure on emerging market currencies.



Qi Gao, FX Strategist at Scotiabank tells CNBC-TV18 this is due to Trump's pro-growth stance. Trump has promised to accelerate fiscal spending on infrastructure which has raised inflation expectations and this means possibility of rate hikes, Gao says.



Gao expects Asian currencies to remain under some strain ahead of the Federal Open Market Committee (FOMC) meeting in December. Dollar Index, he feels, will face some resistance around the USD 100-level.



However, he expects the Indian rupee to outperform regional currencies because of its strong fundamentals.



Below is the verbatim transcript of Qi Gao's interview with Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.



Anuj: What is happening globally, we have seen a huge strength in dollar index and strength in dollar versus most emerging market currencies? Is this the real effect of Trump win now playing out?



A: Yes, we think recent dollar strength after US election is likely because Trump has promised to accelerate fiscal spending on infrastructure, which has raised inflation expectations. So, we see US treasury curve deepened and the breakeven rates surged in US. So, all this impose downward pressure on emerging nation currencies because market may worry about more frequent rate hike to curb inflation. So, that is why we see what happened yesterday, and this morning as we can see, the Indonesian and Korean currencies are dropped at large.



Latha: Do you think there is more of this trade to play? We have already seen US yields at 2.3 percent, where does that go and therefore how much more can EM currencies sell-off?



A: I think at current stage, we may see dollar remain supported because this is due to the surge in inflation expectation. However, the trend may slow a bit and this morning there will be a pause as Bank of Indonesia has stepped in to curb market movement. So, we may see Asian currencies too depreciate a bit and we see emerging nation currency to remain weak until December FOMC meeting.



Sonia: What is your expectation, the dollar index is now almost touching that 100 mark, how much higher do you think it could head in the very near-term and what is your forecast on the rupee?



A: I think for the dollar index, it is slightly below 99. It may continue head for 100 level but I think 100 level could be a strong resistance for dollar index. Regarding Indian rupee, first of all Indian rupee may outperform regional currencies because of strong fundamentals and low foreign ownership of local finance assets. It is different from Indonesia and Malaysia, as these two countries has a very high foreign ownership of local government bonds.



In the near term 67 could be a good resistance level for dollar Indian rupee, but as we know, Indian rupee will continue to trade with broader market movement but maybe at a slower pace.