FX Weekly
Group Economics Macro & Financial Markets Research
07 January 2016
Yen “the king”of safe-haven Georgette Boele Co-ordinator FX & Precious Metals
Yen was the ultimate safe haven, while the US dollar also did well… …but currencies of commodity exporting countries sharply lower
Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
Roy Teo
Yen ultimate safe haven…
Senior FX Strategist
So far 2016 has started off on the wrong foot. The brutal sell-off in Chinese equity markets
Tel: +65 6597 8616
was initially triggered by a weaker-than-expected Chinese PMI and by uncertainty
roy.teo@sg.abnamro.com
regarding new and expiring stock market regulation. The move was accelerated by the weaker fixing of the Chinese yuan by the PBoC. The latter sparked fears of a more substantial weakness of the yuan in the making (see our FX Special – Gradual depreciation in the CNY TWI). As a result, the ultimate safe haven in currency markets, the Japanese yen, profited strongly. The yen outperformed the US dollar by more than 2% so far this week: USD/JPY dropped below 118. We do not rule out that further strength in the yen will trigger BoJ intervention. The US dollar was the runner up, appreciating versus most other emerging and major currencies. Going forward we expect sentiment in currency markets to calm down and investors to refocus on monetary policy divergence. Therefore, we expect EUR/USD to decline to below parity this year and USD/JPY to rally to 135.
Major FX performance ytd In %, with USD as basis
4 2 0 -2 -4 -6 JPY
CHF
EUR
NOK
SEK
GBP
CAD
NZD
AUD
Source: Bloomberg
Insights.abnamro.nl/en
FX Weekly - Yen “the king”of safe-haven - 07 January 2016
…but currencies of commodity exporting countries sharply lower The sell-off in commodity prices, lower Chinese yuan and fears of a more substantial growth slowdown in China pressured currencies of commodity exporters such as the Australian dollar, New Zealand dollar, Canadian dollar, Russian ruble, South African rand, Mexican peso, Brazilian real and Chilean peso. In addition, economic and political challenges as well as the prospect of further easing in some countries have also weighed on these currencies. The South African rand was the weakest emerging market currency mainly because of the recent political crisis, weak economy and sharp falls in palladium and platinum prices. In Asia, both the Taiwan dollar and South Korean won (KRW) weakened given that China accounts for about 25% of their exports. Pressure on the KRW extended due to geopolitical uncertainties after North Korea announced that they successfully conducted nuclear test on 6 January. For 2016 we see a recovery in Latin American currencies, the Russian ruble, South African rand because of stabilisation of commodity prices and some improvement on the domestic front. In the case of the Australian dollar and New Zealand dollar we remain bearish because of monetary policy easing in the coming months to support the economy. This is not fully priced in by financial markets.
EM FX performance ytd In %, with USD as basis
2
0 -2 -4
Source: Bloomberg
ZAR
TRY
BRL
MXN
PLN
KRW
CLP
RUB
CNY
SGD
TWD
INR
IDR
THB
CZK
-6
HUF
2
3
FX Weekly - Yen “the king”of safe-haven - 07 January 2016
ABN AMRO major currency forecasts Change 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
07-Jan Q1 2016 1.0849 1.00 117.64 127 127.63 127 1.4551 1.41 0.7456 0.71 1.0014 1.10 1.0864 1.10 0.6992 0.68 0.6612 0.62 1.4145 1.35 9.2792 9.50 9.7056 9.25 7.4596 7.46
Q2 2016 0.95 130 124 1.28 0.74 1.18 1.12 0.66 0.60 1.37 9.50 9.25 7.46
Q3 2016 0.95 133 126 1.25 0.76 1.20 1.14 0.64 0.58 1.39 9.50 9.00 7.46
Q4 2016 0.95 135 128 1.27 0.75 1.21 1.15 0.62 0.58 1.41 9.50 9.00 7.46
Q1 2017 1.00 130 130 1.35 0.74 1.15 1.15 0.64 0.60 1.40 9.25 8.75 7.46
Q2 2017 1.00 130 130 1.37 0.73 1.15 1.15 0.68 0.62 1.35 9.00 8.50 7.46
Q3 2017 1.05 125 131 1.46 0.72 1.14 1.20 0.70 0.64 1.30 8.75 8.25 7.46
Q4 2017 1.10 120 132 1.57 0.70 1.09 1.20 0.72 0.66 1.25 8.50 8.00 7.46
Q1 2017 6.70 6.70 67 1,240 1.50 38.00 34.00 1,500 55 2.85 13.00 4.10 26.25 295 3.55 15.50 650
Q2 2017 6.65 6.65 66 1,220 1.48 37.50 33.70 14,700 55 2.80 12.80 4.05 26.00 290 3.50 15.25 640
Q3 2017 6.65 6.65 66 1,200 1.46 37.20 33.50 14,500 50 2.75 12.70 4.05 25.75 285 3.45 15.00 630
Q4 2017 6.60 6.60 65 1,200 1.45 37.00 33.20 14,200 50 2.75 12.50 4.00 25.50 280 3.40 14.50 620
Source: ABN AMRO Group Economics
ABN AMRO EM currency forecasts Change 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
07-Jan 6.60 6.69 66.9 1,200 1.44 36.31 33.32 13,927 75 3.01 16.04 4.34 27.50 316 4.05 17.67 719
Q1 2016 6.55 6.65 66 1,200 1.45 37.00 33.50 14,500 60 3.00 13.80 4.20 27.00 305 3.75 16.50 690
Q2 2016 6.60 6.65 67 1,220 1.47 37.20 33.70 14,800 60 2.95 13.60 4.15 27.00 300 3.70 16.25 680
Q3 2016 6.65 6.70 67 1,230 1.48 37.50 33.80 14,900 55 2.95 13.40 4.15 27.00 300 3.60 16.00 670
Source: ABN AMRO Group Economics
Q4 2016 6.70 6.73 67 1,240 1.50 38.00 34.00 15,000 55 2.90 13.20 4.10 26.50 300 3.60 15.75 660
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FX Weekly - Yen “the king”of safe-haven - 07 January 2016
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