FX Weekly
Group Economics Macro & Financial Markets Research
18 February 2016
Oil recovery supports sentiment Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
• Oil price recovery supports investor sentiment… • …resulting in a lower yen, euro and Swiss franc… • …and a higher dollar and currencies of oil exporting countries • Central bank reflation efforts to eventually support growth and sentiment Oil price recovery supports investor sentiment… This week there has been a positive spill-over effect from oil prices to other financial markets. The 15-20% rally in oil prices (since 11 February) has resulted in an overall improvement in sentiment in financial markets. As a result, currencies that performed well in a risk-off environment, such as Swiss franc, Japanese yen and the euro suffered. Moreover, currencies of oil-exporting currencies recovered substantially. The Russian ruble and the Mexican peso have both rallied by more than 5% since last Thursday. The surprise 50bp rate hike by Banxico accelerated the recovery of the peso.
Oil price and Oil currencies Oil price
USD/Oil FX index (inverse scale)
70
400
60
500
50 600 40 700
30 20 Jan 15
800 Apr 15
Jul 15
Brent oil price (lhs)
Oct 15
Jan 16
Oil FX index (rhs)
Source: Bloomberg, ABN AMRO Group Economics
Our energy analyst expects that oil prices are currently in the process of bottoming out. This process is often volatile in terms of price action on an intraday level. The crucial level to watch are the previous peaks in oil prices around 35-36 USD per barrel. If we break through this level, currencies of oil exporting countries are likely to advance sharply.
Insights.abnamro.nl/en
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FX Weekly - Oil recovery supports sentiment - 18 February 2016
‌so do central banks’ reflation efforts Other crucial dynamics to watch are action and comments from central banks. Overnight, FOMC official James Bullard signalled that rates hikes are unlikely this year. Comments ECB President from Draghi at the start of this week were pointing into the direction of a step-up of monetary policy easing. In the near-term, officials from the Norges Bank (today), the Riksbank (23 February) and the Swiss National Bank (23 February) are on the wires. We expect them to sound dovish with regard to monetary policy. The Norges Bank and the Swiss National Bank will both decide on monetary policy on 17 March, one week after the ECB meeting. Reflation efforts from central banks this year will support growth and calm sentiment in our view. However, sharp directional moves will become less likely. In the coming months we expect the euro to move lower towards 1.05 versus the US dollar because of improvement in investor sentiment and the effects of ECB easing on EUR/USD will outweigh the effect of the Fed putting rate hikes on ice.
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FX Weekly - Oil recovery supports sentiment - 18 February 2016
ABN AMRO major currency forecasts Changes in red/bold
EUR/USD USD/JPY EUR/JPY GBP/USD EUR/GBP USD/CHF EUR/CHF AUD/USD NZD/USD USD/CAD EUR/SEK EUR/NOK EUR/DKK
18-Feb 1.1096 113.90 126.40 1.4383 0.7725 0.9938 1.1037 0.7168 0.6636 1.3676 9.4139 9.5231 7.4636
Q1 2016 1.10 116 128 1.45 0.76 1.00 1.10 0.70 0.65 1.40 9.50 9.60 7.46
Q2 2016 1.05 117 123 1.36 0.77 1.05 1.10 0.68 0.63 1.40 9.50 9.20 7.46
Q3 2016 1.05 118 124 1.35 0.78 1.05 1.10 0.66 0.62 1.38 9.50 9.00 7.46
Q4 2016 1.05 120 126 1.38 0.76 1.05 1.10 0.65 0.61 1.36 9.50 9.00 7.46
Q1 2017 1.05 122 128 1.40 0.75 1.06 1.11 0.63 0.60 1.38 9.25 8.75 7.46
Q2 2017 1.05 124 130 1.42 0.74 1.07 1.12 0.62 0.58 1.40 9.00 8.50 7.46
Q3 2017 1.05 122 128 1.44 0.73 1.08 1.13 0.64 0.60 1.42 8.75 8.25 7.46
Q4 2017 1.05 120 126 1.46 0.72 1.09 1.14 0.65 0.62 1.44 8.50 8.00 7.46
Q2 2016 6.55 6.58 69 1,230 1.42 36.00 33.80 13,700 72 2.85 15.80 4.30 27.00 310 4.00 18.50 700
Q3 2016 6.60 6.63 69 1,250 1.44 36.50 34.20 14,000 70 2.80 15.60 4.30 27.00 310 4.00 18.25 700
Q4 2016 6.70 6.73 70 1,260 1.46 37.00 34.50 14,300 68 2.75 15.40 4.25 27.00 305 4.00 18.00 700
Q1 2017 6.75 6.78 70 1,260 1.48 37.50 34.70 14,500 66 2.75 15.40 4.20 26.50 300 3.95 17.75 685
Q2 2017 6.80 6.83 70 1,270 1.50 38.00 35.00 14,700 64 2.75 15.20 4.15 26.25 300 3.90 17.50 680
Q3 2017 6.80 6.80 70 1,270 1.50 38.00 35.00 14,700 62 2.75 15.20 4.15 26.00 295 3.85 17.25 675
Q4 2017 6.80 6.80 70 1,270 1.50 38.00 35.00 14,700 60 2.75 15.00 4.10 25.50 290 3.80 17.00 670
Source: ABN AMRO Group Economics
ABN AMRO EM currency forecasts Changes in red/bold
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 EUR/HUF USD/BRL USD/MXN USD/CLP
18-Feb 6.52 6.52 68.4675 1,227 1.40 35.57 33.23 13,503 75 2.96 15.40 4.38 27.02 309 4.02 18.15 702
Source: ABN AMRO Group Economics
Q1 2016 6.50 6.50 68 1,200 1.40 35.50 33.40 13,400 74 2.90 15.80 4.35 27.00 310 4.00 18.75 700
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FX Weekly - Oil recovery supports sentiment - 18 February 2016
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