Fx flash a week after trump 16 november 2016

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

2

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.

Find out more about Group Economics at: https://insights.abnamro.nl/en/

DISCLAIMER ABN AMRO Bank Gustav Mahlerlaan 10 (visiting address) P.O. Box 283 1000 EA Amsterdam The Netherlands This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics. The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer.

No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in th e document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof.

Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. Š Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").

3

FX Flash - A week after Trump - 16 November 2016