FX Weekly
Group Economics Macro & Financial Markets Research
21 April 2016
Another boost from oil Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
Roy Teo
Higher oil prices supported related currencies… …and boosted investor sentiment Risk of near term rate cut in Australia and New Zealand has declined US dollar under pressure ahead of the FOMC meeting next week JPY has stabilised ahead of BoJ monetary policy meeting
Senior FX Strategist Tel: +65 6597 8616
Higher oil prices support related currencies…
roy.teo@sg.abnamro.com
Following the meeting between oil producing countries in Doha, oil prices initially dropped, but the impact was partly offset by a strike by oil and gas workers in Kuwait. This also weighed on currencies of oil producing countries. Since then, oil prices and these currencies have move higher. The Colombian peso, Russian ruble, Mexican peso, Canadian dollar and Norwegian krone have been among the best performing currencies this week versus the US dollar. We expect oil prices to reach 55 USD/bbl by the end of this year as we think that global oversupply of oil will likely decline during the course of this year. As a result, we continue to expect related currencies to do well. The move has come at a high pace and most of our Q3 forecasts for oil currencies have already been hit. USD/CAD has even approached our year-end target. However, the momentum is strong in commodities and therefore it is likely that the move will continue in the near-term. We have decided to lower the stop loss in EUR/NOK (on our high conviction EUR short versus NOK) from 10 to 9.4 to protect some of the profit in case sentiment becomes less supportive for oil currencies.
Brent oil price and FX of oil exporters Brent oil price
USD/Oil FX (inverse scale)
70
400
60
500
50
600 40 700
30 20 Jan 15
800
Apr 15
Jul 15
Oct 15
Brent oil price (lhs)
Jan 16
Apr 16
USD/Oil FX (rhs)
Source: CFTC, Bloomberg
Insights.abnamro.nl/en
FX Weekly - Another boost from oil - 21 April 2016
…and boosted investor sentiment Higher oil prices have also been supportive for overall sentiment on financial markets. What also helped is an easing of fears about China (state of the economy, currency regime). This has resulted in support for currencies that are more geared towards global growth, have other commodity exposure as well have a more attractive carry. In short, emerging market currencies and currencies of commodity exporters have done well versus the US dollar.
Performance commodity currencies year-to-date % with US dollar as basis
15
10 5 0
MXN
NZD
THB
IDR
PEN
AUD
CLP
ZAR
NOK
CAD
COP
MYR
BRL
-5 RUB
2
Source: CFTC, Bloomberg
Risk of near term rate cut in Australia and New Zealand has declined The Australian and New Zealand dollars’ upward bias has continued as the risk of a rate cut in the near future has faded. New Zealand’s first quarter inflation numbers were in line with the Reserve Bank of New Zealand’s forecast. Therefore, despite the strength in the NZD, the RBNZ is unlikely to cut interest rates next week after easing in March. Higher iron ore prices have given strong support to the AUD. In addition, comments from the Reserve Bank of Australia (RBA) signal that the hurdle for lowering monetary policy further has increased. This is despite the fact that an appreciating exchange rate could complicate the rebalancing of the economy. Australia’s first quarter inflation print on 27 April will be of importance ahead of RBA’s next monetary policy meeting on 3 May. US dollar under pressure ahead of FOMC meeting In the recent weeks, the US dollar has been on the back-foot as financial markets have priced out any probability that the Fed will raise interest rates next week. In addition, the probability of a 25bp rate hike in June has also declined to less than 20%. We expect no rate hikes for this year while financial markets still price in one hike. Some downward adjustment in these expectations should keep the US dollar under some pressure during the course of this year. The most recent data from CFTC also show that non-commercial net long positions in the US dollar have declined to the lowest level since June 2014. This mainly reflects the change of heart about the US dollar. Investors have become less positive on the US dollar and some – like us - even have called the end of the multi-year bull uptrend
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FX Weekly - Another boost from oil - 21 April 2016
Non-commercial net futures positions Number of contracts
80000
60000 40000 20000 0 -20000 Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Net USD speculative futures positions Source: CFTC, Bloomberg
JPY has stabilised ahead of BoJ monetary policy meeting The Japanese yen (JPY) moved higher to almost 110 against the US dollar as yields in the US firmed and rising expectations that the BoJ is likely to announce more monetary stimulus at the next monetary policy meeting decision on 28 April. In our view, the BoJ is unlikely to lower the policy rate further into negative territory. However, an expansion of their qualitative and quantitative easing program is more likely. As a result, inflation expectations in Japan are likely to rise and the yen to test immediate resistance of 111 next week. For more details, please refer to FX Watch – What is driving the JPY? published on 14 April.
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FX Weekly - Another boost from oil - 21 April 2016
ABN AMRO major currency forecasts Changes in bold/red
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
21-Apr 1.1306 109.78 124.12 1.4346 0.7872 0.9707 1.0975 0.7811 0.6959 1.2656 9.1592 9.1670 7.4417
Q2 2016 1.15 113 130 1.40 0.82 0.96 1.10 0.76 0.68 1.30 9.25 9.25 7.46
Q3 2016 1.15 114 131 1.42 0.81 0.96 1.10 0.76 0.68 1.28 9.25 9.00 7.46
Q4 2016 1.15 115 132 1.48 0.78 0.96 1.10 0.76 0.68 1.26 9.25 8.75 7.46
Q1 2017 1.15 114 131 1.50 0.77 0.97 1.11 0.77 0.69 1.25 9.25 8.50 7.46
Q2 2017 1.15 112 129 1.52 0.76 0.97 1.12 0.78 0.70 1.24 9.00 8.50 7.46
Q3 2017 1.15 110 127 1.54 0.75 0.98 1.13 0.79 0.71 1.23 9.00 8.25 7.46
Q4 2017 1.15 108 124 1.56 0.74 0.99 1.14 0.80 0.72 1.20 8.75 8.25 7.46
Q4 2016 6.70 6.70 67.0 1,165 1.40 35.00 33.00 13,500 60 2.75 14.50 4.25 27.00 305 3.50 16.75 650
Q1 2017 6.75 6.75 67.0 1,150 1.38 34.80 32.80 13,400 59 2.75 14.25 4.20 26.50 300 3.45 16.50 640
Q2 2017 6.80 6.80 66.0 1,140 1.36 34.60 32.50 13,300 58 2.75 14.00 4.15 26.25 300 3.40 15.75 630
Q3 2017 6.80 6.80 65.5 1,130 1.35 34.40 32.20 13,200 57 2.75 13.75 4.15 26.00 295 3.35 15.50 620
Q4 2017 6.80 6.80 65.0 1,120 1.35 34.00 32.00 13,000 55 2.75 13.50 4.10 25.50 290 3.30 15.25 600
Source: ABN AMRO Group Economics
ABN AMRO emerging market currency forecasts Changes in bold/red
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
21-Apr 6.48 6.48 66.3 1,133 1.35 35.02 32.40 13,153 65 2.82 14.27 4.30 27.03 310 3.53 17.24 660
Source: ABN AMRO Group Economic
Q2 2016 6.55 6.55 66.5 1,165 1.36 35.00 32.50 13,200 66 2.85 15.00 4.30 27.00 310 3.60 17.25 670
Q3 2016 6.60 6.60 67.0 1,165 1.38 35.00 32.80 13,400 64 2.80 14.75 4.30 27.00 310 3.55 17.00 660
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FX Weekly - Another boost from oil - 21 April 2016
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