FX Weekly
Group Economics Macro & Financial Markets Research
31 March 2016
USD out of favour Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
Dovish comments from Fed Chair Yellen weigh on the US dollar Dollar has been weak across the board with commodity FX in favour Weaker US data will likely weigh on the dollar going forward RBA to keep OCR unchanged, carry trades trend to persist
Roy Teo Senior FX Strategist
Dovish comments from Fed Yellen weigh on the USD
Tel: +65 6597 8616
Currently, financial markets appear to be biased towards a weaker US dollar.
roy.teo@sg.abnamro.com
Comments from Fed officials have been playing a role in the movements of the dollar. But the more dovish comments have had a higher impact. Indeed, the more dovish comments from the Fed Chair Yellen this week have resulted in a weaker dollar. Once more the rally in USD/JPY ran out of steam above the 113.00 level. We think that it will be difficult for USD/JPY to clear 113-115 level. Also in EUR/USD the dollar upside seems to be capped. EUR/USD has been very resilient to positive US dollar news, while any negative dollar news is widely used to weaken the dollar. In short, the upward pressure in EUR/USD is increasing. If US economic data come in somewhat below expectations, EUR/USD could move above 1.15. FX performance Major FX In % with USD as basis
4 3 2 1 0 NZD
NOK
CAD
SEK
AUD
EUR
GBP
CHF
JPY
Source: Bloomberg
Currencies of commodity exporting countries (NZD, CAD, NOK, ZAR, MXN, and BRL) have outperformed, especially if they have attractive yields. The fact that the weaker US dollar has not pushed commodity prices to new highs only dampened the upside in these currencies somewhat. This signals that the underlying sentiment in
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FX Weekly y - USD out of favour - 31 3 March 20 016
emerg ging market an nd commodity currencies co ontinues to impprove as carry y comes into fo ocus as well. T The recovery in n these currenc cies will likely reeduce inflation pressures in coun ntries such as Brazil, Chile, Mexico, M South Africa A and Russsia. As a result, central banks in these counttries could focu us more on sup pporting growthh. This will be a positive develo opment. Going forward we expect e the sentiment toward s these curren ncies to
continue to improve e resulting in a relatively goo od performancce. FX pe erformance E EM FX In % witth USD as basis
5 4 3 2 1 0
IDR
THB
INR
PLN
CNY
CLP
KRW
TWD
HUF
RUB
CZK
SGD
TRY
BRL
ZAR
-1
MXN
2
Source: Bloomberg
Asian n currencies g gained with th he exception of IDR With th he exception off the Indonesia an rupiah (IDR)), most Asian ccurrencies gain ned by about 1%. Weaker W commod dity prices and concerns that Bank Indonessia will not tolerrate a strong currency have weigh hed on the IDR. The Chinese yuan traded soomewhat stronger against the US S dollar, but ed ged a bit lowerr against currencies of China’’s main trading g partners. An imp proving China cconsumer conffidence bodes well for the nonn-manufacturin ng PMI print for March.
Chine ese yuan trad de weighted in ndex Index le evel
106 6 105 5 104 4 103 3 102 2 101 1 100 0 99 9 98 8 97 7 D Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
CNY Index
Source: CFETS, ABN AM MRO
RBA to t keep OCR unchanged, carry trades trend to perssist The Reserve R Bank o of Australia (R RBA) is widely y expected to kkeep the Offic cial Cash Rate (OCR) ( unchan nged at 2% on n 5 April. We also a doubt thatt the RBA will strike a dovish h tone on the A Australian dollar (AUD) give en that gains inn the exchang ge rate are not ma aterially differe ent from the rise in iron ore prices, Austraalia’s key commodity
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FX Weekly y - USD out of favour - 31 3 March 20 016
exportt. The current carry trade theme is likely to t continue suupport the AUD D and New Zealan nd dollar (NZD D) higher towa ards 0.7850 an nd 0.7200, resspectively in th he coming weeks s. AUD/U USD; Carry trrade index Level
Index leveel
1.0 00 0.9 95 0.9 90 0.8 85 0.8 80 0.7 75 0.7 70 0.6 65 J Jan-14
181 1 179 9 177 7 175 5 173 3 171 1 169 9 167 7 165 5 Jul--14
Jan-15
Jul-15
J Jan-16
AUD/U USD (lhs) Financcial conditions Asia carry trade indeex (rhs) Source: Bloomberg
ABN AMRO majorr currency forecasts
EUR/USDD USD/JPYY EUR/JPY GBP/USDD EUR/GBPP USD/CHFF EUR/CHFF AUD/USDD NZD/USDD USD/CADD EUR/CADD EUR/SEKK EUR/NOKK EUR/DKKK
31-Mar 1.1365 112.36 127.69 1.4381 0.7902 0.9634 1.0948 0.7677 0.6926 1.2947 1.4714 9.2432 9.4256 7.4515
Q2 2016 1.15 113 130 1.40 0.82 0.96 1.10 0.76 0.68 1.30 1.50 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 1.47 9.25 9.00 7.46
Q 2016 Q4 1.15 115 132 1.48 0.78 0.96 1.10 0.76 0.68 1.26 1.45 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 1.44 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 1.43 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 1.41 9.00 8.25 7.46
Q4 20117 1.15 1008 1224 1.556 0.774 0.999 1.14 0.880 0.772 1.220 1.338 8.775 8.225 7.446
Source: ABN AMRO Grouup Economics
ABN AMRO emerg ging market currency c fore ecasts
USD/CNY Y (onshore) USD/CNH H (offshore) USD/INR W USD/KRW EUR/KRW W USD/SGD D USD/THB B USD/TWD D USD/IDR USD/RUB B USD/TRY Y USD/ZAR R EUR/PLN N EUR/CZK K EUR/HUFF USD/BRLL USD/MXN N USD/CLP P
31-Mar 6.46 6.46 66.2 1,143 1,302 1.34 35.15 32.40 13,239 67 2.82 14.74 4.26 27.05 314 3.62 17.20 673
Q2 2016 6.55 6.55 66.5 1,165 1,340 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 1,340 1.38 35.00 32.80 13,400 64 2.80 14.75 4.30 27.00 310 3.55 17.00 660
Source: ABN AMRO Grouup Economics
Q 2016 Q4 6.70 6.70 67.0 1,165 1,340 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 1,323 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 1,140 1 1,311 1.36 3 34.60 3 32.50 133,300 58 2.75 1 14.00 4.15 2 26.25 300 3.40 1 15.75 630
Q3 2017 6.80 6.80 65.5 1,130 1,300 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 6.880 6.880 655.0 1,1220 1,2888 1.335 34.000 32.000 13,0000 5 55 2.775 13.550 4.10 25.550 2990 3.330 15.225 6000
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FX Weekly y - USD out of o favour - 31 3 March 20 016
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