G10 FX Weekly
Group Economics Macro & Financial Markets Research
12 May 2016
Some recovery in the USD Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
USD has recovered in recent weeks JPY weakens due to verbal intervention from Finance Ministry Commodity currencies under pressure Norges Bank leaves rates unchanged at 0.5%
Georgette Boele Co-ordinator FX & Precious Metals Strategy
US dollar has stabilized in recent weeks
Tel: +31 20 629 7789
Despite the weaker-than-expected non-farm payrolls last Friday, the US dollar (USD)
georgette.boele@nl.abnamro.com
gained moderately. This is due to some rise in inflation expectations as a result of higher oil prices and market expectations that the US economy will recover to above 2% in the second quarter of this year. Financial markets have priced out that the Fed will tighten monetary policy in June. The resilient dollar is also due to weakness in other currencies as further elaborated below. USD trade weighted index Index level
125 120 115 110 105 Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
USD TWI Source: BIS, ABN AMRO
Verbal intervention weighs on the JPY The Japanese yen (JPY) declined from 107 to above 109 as interest rate differentials adjusted for inflation expectations between the US and Japan firmed. In addition, strong verbal comments from Finance Minister Aso that they have the means to intervene in the currency market and that the US does not object to their currency policy resulted in some liquidation of speculative long yen positions. We doubt that Japan will intervene to weaken the yen unless it strengthens closer to 100 and/or volatility in the currency rises to extreme levels. Nevertheless expectations of further
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G10 FX We eekly - Some recovery in i the USD - 12 May 201 16
monettary stimulus ffrom the Bank k of Japan (BoJ) are likely too cap strong gains in the JPY. Indeed, if preliiminary estima ates of Japan’s economic grrowth in the first quarter due to o be released o on 18 May is weaker w than expected, e the pressure for the BoJ to act sooner than late er will increase e. Hence, in th he absence off risk sentimen nt deterio orating sharplyy, USD/JPY is s likely to find some supportt above this month’s m low of 105 5.55. Separate ely, bank lending growth in Japan J recoverred from 2% to o 2.2% in April, dispelling d marrket fears that negative interrest rate policyy would impac ct banks’ willing gness to lend. We expect further monetary y stimulus from m the BoJ late er this year. As a result a weake er yen to aroun nd 110 versus s the US dollarr is expected in the near term. Comm modity curren ncies under pressure p The Australian A dolla ar (AUD) rema ains under pressure due to m market expecttations that the Re eserve Bank o of Australia (RBA) may follow w up with anoother rate cut as a soon as next month. m In our vview, the RBA A is likely to low wer the Officiaal Cash Rate (OCR) by 25bp to t 1.5% later tthis year in Au ugust. This is almost a fully prriced in by fina ancial marke ets. Lower iron n ore prices ha ave also weigh hed on the AU UD. aker AUD weig ghed on the New Zealand dollar (NZD), thhough losses were A wea partiallly erased afte er the Reserve e Bank of New w Zealand (RB BNZ) said that there is no time ta able for any ne ew housing measures m to co ool rising housse prices. As a result, marke et speculation that the RBNZ Z will lower the e OCR by 25bbp in June dec clined. We stick to o our view tha at the RBNZ will w cut interest rates by 25bpp next month. As a result any ga ains in the NZ ZD are likely to o be temporary y. The Canadian C dolla ar (CAD) recov vered after the e Bank of Canaada senior de eputy govern nor Wilkins sa aid that despite e recent wildfires in Alberta,, there is no urgency for more monetary m stim mulus. Partial restarting r of oiil sands produuction in Alberta and firmer crude oil price es also suppo orted sentimen nt in the CAD. We expect the CAD to streng gthen to aroun nd 1.20 agains st the USD by the end of thiss year. Norge es Bank leave es rates unch hanged The sttrong rally in o oil prices since e the lows set in January, haas given stron ng support to the Norwegian krrone. Today, Norwegian N Q1 GDP numberrs were releas sed. Both total GDP G and main nland GDP surrprised on the upside. Meannwhile, the No orges Bank kept in nterest rates u unchanged at 0.5%. In the statement s the Norges Bank said that “consu umer price inflflation remains s elevated, butt a stronger krrone may conttribute to a slightly y more rapid d decrease in in nflation than prrojected in Maarch. On the other hand, the ris se in oil prices may reduce uncertainty u an nd contribute too somewhat higher h growth h in the Norwe egian econom my”. We think th hat the Norgess Bank is com mfortable with a strengthening g krone in an environment e of o higher oil prrices, which we expect. We ex xpect the kron e to outperforrm the euro thiis year and neext year.
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G10 FX We eekly - Some recovery in i the USD - 12 May 201 16
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/SEKK EUR/NOKK EUR/DKKK
12-May 1.1412 108.85 124.21 1.4419 0.7914 0.9721 1.1093 0.7322 0.6822 1.2867 9.2915 9.3261 7.4408
Q2 2016 Q3 2016 QQ4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 20117 1.15 1.15 1.15 1.15 1.15 1.15 1.15 110 110 105 110 110 108 1005 127 124 1221 127 127 121 127 1.52 1.54 1.556 1.48 1.50 1.40 1.42 0.76 0.75 0.774 0.78 0.77 0.82 0.81 0.97 0.98 0.999 0.96 0.97 0.96 0.96 1.12 1.13 1.14 1.10 1.11 1.10 1.10 0.78 0.79 0.880 0.76 0.77 0.76 0.76 0.70 0.71 0.772 0.68 0.69 0.68 0.68 1.17 1.16 1.15 1.20 1.18 1.25 1.22 9.00 9.00 8.775 9.25 9.25 9.25 9.25 8.50 8.25 8.225 8.75 8.50 9.25 9.00 7.46 7.46 7.446 7.46 7.46 7.46 7.46
Source: ABN AMRO Grouup Economics
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