FX Weekly
Group Economics Macro & Financial Markets Research
14 April 2016
Commodity currencies rally Recovery in commodity prices supported currencies of commodity Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
exporters Brexit and Greece uncertainty weighs on GBP and EUR Encouraging signs USD/JPY bottoming out above 108 Singapore dollar plunged after MAS shift to neutral S$NEER policy Recovery in commodity prices supported currencies of commodity exporters Currencies of commodity exporters rallied as underlying commodity prices recovered. The Brazilian real was the star performer due to market speculation that an impeachment of President Rousseff will lead to a new government that would support the economy. This is despite intervention from the central bank to slow gains in the real. The Russian ruble, Canadian dollar and Norwegian Krona also gained as crude oil prices broke above the 200 day moving average, ahead of oil producers meeting on 17 April. We expect both OPEC and non-OPEC producers to freeze production at January levels. For more details, please refer to our note ‘It’s likely to freeze in Doha’ published on 13 April 2016. An improvement in China’s trade data in March also supported sentiment in both the Australian and New Zealand dollars. Brexit and Greece uncertainty weighs on GBP and EUR Sterling (GBP) gained earlier in the week after core inflation in the UK was stronger than expected. However profit taking followed as Brexit risk once again came to the fore. This is reflected by strong demand to hedge potential weakness in the GBP in the three month tenor in the options market. We expect the GBP to weaken towards 1.35 versus the dollar ahead of the UK referendum on 23 June. Gains in the euro seem to be hitting a brick wall around 1.14 as worries surrounding Greece increase. Indeed Greece’s 10 year yield premium over Bunds have widened by about 60bp since the beginning of April. Ahead of next week’s ECB monetary policy meeting, we expect the euro to weaken before finding some support at around 1.1150. Encouraging signs USD/JPY basing above 108 In the past week, there has been some encouraging signs that the downtrend in USD/JPY is changing. Since 7 April, prices have formed a double bottom around 107.67 on the hourly chart, with prices closing above 109. The recovery in USD/JPY is attributed to several factors. First, bearish sentiment in USD/JPY was near extreme levels. As a result, Finance Minister Aso said that they will take action if
Insights.abnamro.nl/en
2
FX Weekly - Commodity currencies rally - 14 April 2016
there were aggressive moves in the currency market. That triggered some short covering in USD/JPY. In addition, risk sentiment in financial markets improved after China’s trade data in March was better than expected. Hence safe haven flows into the yen abated. Firmer yields in the US also supported the USD. Last but not least, higher oil prices are likely to reduce Japan’s current account surplus and increase inflation expectations in Japan. Nevertheless, ahead of the BoJ’s scheduled monetary policy meeting on 28 April, we expect further gains in USD/JPY to be capped towards 111. SGD plunged after MAS shifted the rate of appreciation of S$NEER to neutral In line with our view, the Monetary Authority of Singapore (MAS) decided to set the rate of appreciation of the S$NEER policy band at zero percent on 14 April 2016. As the decision was against market consensus, the Singapore dollar (SGD) plunged from 1.35 to above 1.3650 against the US dollar. The Singapore economy is projected to expand at a more modest pace in 2016 than forecast in the last monetary policy meeting in October 2015. Core inflation is also now likely to rise more gradually and come in within the lower half of the 0.5-1.5% forecast range. We expect the SGD to decline to around 1.40 against the USD by the end of this year as yields in the US firm and the Chinese yuan declines. ABN AMRO major currency forecasts
EUR/USD USD/JPY EUR/JPY GBP/USD EUR/GBP USD/CHF EUR/CHF AUD/USD EUR/AUD NZD/USD EUR/NZD USD/CAD EUR/CAD EUR/SEK EUR/NOK USD/SEK USD/NOK EUR/DKK
14-Apr 1.1259 109.46 123.24 1.4129 0.7968 0.9674 1.0891 0.7647 1.4722 0.6833 1.6477 1.2880 1.4501 9.1929 9.3146 8.1654 8.2733 7.4426
Q2 2016 1.15 113 130 1.40 0.82 0.96 1.10 0.76 1.51 0.68 1.69 1.30 1.50 9.25 9.25 8.04 8.04 7.46
Q3 2016 1.15 114 131 1.42 0.81 0.96 1.10 0.76 1.51 0.68 1.69 1.28 1.47 9.25 9.00 8.04 7.83 7.46
Q4 2016 1.15 115 132 1.47 0.78 0.96 1.10 0.76 1.51 0.68 1.69 1.26 1.45 9.25 8.75 8.04 7.61 7.46
Q1 2017 1.15 114 131 1.49 0.77 0.96 1.10 0.77 1.49 0.69 1.67 1.25 1.44 9.25 8.50 8.04 7.39 7.46
Q4 2017 1.15 108 124 1.55 0.74 0.99 1.14 0.80 1.44 0.72 1.60 1.20 1.38 8.75 8.25 7.61 7.17 7.46
Source: ABN AMRO Group Economics
ABN AMRO major currency forecasts
USD/CNY (onshore) USD/CNH (offshore) USD/INR USD/KRW USD/SGD USD/THB USD/TWD USD/IDR USD/RUB USD/TRY USD/ZAR EUR/PLN EUR/CZK USD/BRL USD/MXN USD/CLP
14-Apr Q2 2016 6.49 6.55 6.50 6.55 66.6 67 1,157 1,165 1.37 1.36 35.18 35.00 32.40 32.50 13,208 13,200 66 66 2.86 2.85 14.65 15.00 4.29 4.30 27.50 27.00 3.50 3.60 17.52 17.25 671 670
Source: ABN AMRO Group Economics
Q3 2016 6.60 6.60 67 1,165 1.38 35.00 32.80 13,400 64 2.80 14.75 4.30 27.00 3.55 17.00 660
Q4 2016 6.70 6.70 67 1,165 1.40 35.00 33.00 13,500 60 2.75 14.50 4.25 27.00 3.50 16.75 650
Q1 2017 6.75 6.75 67 1,150 1.38 34.80 32.80 13,400 59 2.75 14.25 4.20 26.50 3.45 16.50 640
Q4 2017 6.80 6.80 65 1,120 1.35 34.00 32.00 13,000 55 2.75 13.50 4.10 25.50 3.30 15.25 600
3
FX Weekly - Commodity currencies rally - 14 April 2016
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 the 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 窶田onsidering 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. ﾂｩ Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").