FX Flash
Group Economics
Macro & Financial Markets 50 Research 40 30 20 16 November 2016 10 0 -10 -20 -30 Jan-10 US dollar Jan-11 index hasJan-12 strengthened by more than 2% Jan-13 Jan-14 Jan-15 Jan-16
A week after Trump
Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
NZD underperforms and CAD ChangeAUD in full time jobs '000 3mth avg (rhs) Weaker Chinese yuan in daily fix, stable basket Change labor force '000versus 3mth avg (lhs) of currencies
US dollar index has strengthened by more than 2% Since the unexpected victory by Donald Trump last week, the US dollar index has rallied by more than 2% and is about 0.5% below the peak level last seen in December 2015. Given that technical indicators are implying that the US dollar index is overbought, we expect some consolidation/profit taking ahead of Fed Chair Yellen’s testimony to Joint Economic Committee (17 November) on how she views the economy given recent developments. In the past week, financial markets have fully priced in a Fed rate hike next month followed by two more rate hikes in 2017. We expect the euro and yen to find some support around 1.05 and 112 against the US dollar in the coming month or so. NZD underperforms AUD and CAD The New Zealand dollar (NZD) has declined more against the US dollar than the Australian dollar (AUD) and Canadian dollar (CAD) in the past week. This is due to the NZD’s higher sensitivity (beta) to yields in the US. Sentiment in the AUD has also been supported by higher iron ore prices which have surged by more than 6% (expectations of more infrastructure spending in the US) despite some profit taking in recent days. Market concerns that a repeal of NAFTA and new US tariffs on Canadian goods and services could impact the Canadian economy have weighed on the CAD. Estimates from the Export Development of Canada show that Canadian exports could decline by as much as CAD 32bn (6% of 2015 export value). However given that US President elect Trump supports the Keystone XL pipeline, Canadian oil exports to the US could increase by up to 830k barrels per day. This is positive for Canadian jobs and tax revenue. Weaker Chinese yuan daily fix, stable versus basket of currencies The Chinese yuan daily fix versus the US dollar has risen from 6.78 on 8 November to 6.8592 today, in line with US dollar strength. However against currencies of China’s main trading partners, the yuan has remained stable around 94 (CFETS
Insights.abnamro.nl/en
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FX Flash - A week after Trump - 16 November 2016
CNY TWI). The one month non-deliverable yuan forward is pricing in that the yuan is likely to depreciate to around 6.90 against the US dollar. Indeed there is clear upside risk to our year end USD/CNY forecast of 6.80. We are reviewing our 2017 forecasts.
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FX Flash - A week after Trump - 16 November 2016