Group Economics
G10 FX Weekly
Macro & Financial Markets Research Georgette Boele, +3120 629 7789
Overall dollar weakness
Roy Teo, +65 6597 8616
15 October 2015 • • • •
US dollar weakness as rate hike expectations fade Dollar to recover once Fed rate hike this year is priced out… …but we expect a relatively modest US dollar recovery for the coming months NZD strength to increase RBNZ dovish bias
US dollar weakness as rate hike expectations fade
NZD strength to increase RBNZ dovish bias
Most currencies have profited from a weaker US dollar in an
The New Zealand dollar (NZD) has strengthened to the highest
environment of better investor sentiment. Weaker US data
level since early July. The positive sentiment was supported by
(retail sales) and mixed comments from Fed officials are
the government announcing a budget surplus versus a deficit
considered as good news, because they have lowered the
forecast. In addition, house price inflation remains strong,
likelihood of the US Federal Reserve hiking this year. As a
providing less flexibility for the Reserve Bank of New Zealand
result, bad news is considered as good news and this is
(RBNZ) to lower monetary policy further. The manufacturing
supportive for currencies other than the US dollar. Indeed,
sector and consumer confidence also improved. Nevertheless,
since the weak US payrolls print on 2 October, the US dollar
we expect the RBNZ to increase their dovish tone on the
has declined by more than 2% against its trade weighted
recent strength in the NZD given that the NZD trade weighted
basket of currencies, according to BIS metrics.
index is about 7% stronger than the RBNZ year-end forecast. A stronger NZD will weigh on inflation and increase the
USD out of favour
divergence with key commodity export prices. In our view, a
In %, with EUR as basis
combination of rate cut (forecast in December 2015) and intervention to weaken the currency are likely options the
3
RBNZ will take. We expect the NZD/USD to decline to around 0.64 by the end of this year.
2
ABN AMRO major currency forecasts
1 0 -1 NZD
JPY
CHF
GBP
EUR
SEK
CAD
NOK
AUD
Source: Bloomberg, ABN AMRO Group Economics
Dollar recovery once Fed rate hike this year is priced out… Based on Fed funds futures, financial markets are pricing in less than 30% probability that the Fed will raise the Fed funds target rate by 25bp in December 2015. Last week we changed our view that the Fed would delay its first rate hike to 2016. It is likely that EUR/USD in the near-term will continue to move higher in wake of the pricing out of a possible Fed rate hike this year. Once this has happened the US dollar has room to recover. However, the recovery in the US dollar we expect at the start of next year is relatively modest. The EUR/USD will probably only start to fall again more convincingly during the course of next year when Fed rate hikes approach.
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
15-Oct 1.1440 118.44 135.84 1.5494 0.7405 0.9488 1.0886 0.7343 0.6872 1.2892 9.3035 9.2487 7.4614
Q4 2015 1.12 122 137 1.56 0.72 0.98 1.10 0.70 0.64 1.33 9.50 9.50 7.46
Source: ABN AMRO Group Economics
Q1 2016 1.10 126 139 1.55 0.71 1.00 1.10 0.68 0.62 1.35 9.50 9.25 7.46
Q2 2016 1.05 130 137 1.50 0.70 1.07 1.12 0.66 0.6 1.37 9.50 9.00 7.46
Q3 2016 1.00 133 133 1.45 0.69 1.14 1.14 0.64 0.58 1.39 9.50 8.75 7.46
Q4 2016 1.00 135 135 1.47 0.68 1.15 1.15 0.62 0.58 1.41 9.50 8.50 7.46
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G10 FX Weekly - Overall dollar weakness
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