G10 fx weekly 3 september 2015

Group Economics

G10 FX Weekly

Macro & Financial Markets Research Georgette Boele, tel,+31 20 6297789

Dovish ECB weighs on euro

3 September 2015 • • •

Dovish ECB pushes the euro lower Neutral Riksbank boosts Swedish krona, however further stimulus set to weigh on SEK The Australian dollar dips below 0.70 on weak data and we expect further weakness ahead

Dovish ECB pushes the euro lower

…while the Australian dollar dips below 0.70

The recent waves of risk aversion did not result in support for

Whereas Chinese equity markets and commodity markets

the euro. Instead the yen and the US dollar moved higher. This

stabilised somewhat, the Australian dollar was again under

confirms our view that the spike higher in EUR/USD in August

heavy pressure. It dipped temporary below our year-end target

was not safe-haven demand related but merely the closing of

of 0.70 versus the US dollar. Weak domestic data and weak

euro short positions. In addition, the increased likelihood for

sentiment mainly contributed to its weakness. For a start, GDP

additional QE by the ECB has weighed on the euro this week.

for Q2 came in below market consensus at 0.2% qoq and,

The ECB left monetary policy unchanged today. It adjusted

2.0% yoy. In addition, retail sales sharply undershot market

downwards its forecasts for growth and inflation, as expected.

expectations with a decline of 0.1% mom (0.4% was

Mr. Draghi sounded very dovish during the press conference

expected). Moreover, the Reserve Bank of Australia left

and the Q&A session. There are two strong signals that the

interest rates unchanged at 2.0%. We expect a rate cut later in

ECB will likely step up QE. For a start, the lower 2017 inflation

2015. We expect the Australian dollar to remain under

forecast. Moreover, the ECB’s view that there are downside

pressure versus the US dollar. Our targets for the end of 2015

risks to the inflation outlook. As a result, EUR/USD dropped

and 2016 are 0.70 and 0.64 respectively.

from 1.1230 before the start of the press conference to a low of 1.1112. We remain bearish on EUR/USD mainly because of

Performance

monetary policy divergence across the Atlantic. Our target for

In %, with US dollar as basis

the end of 2015 for EUR/USD is parity.

Neutral Riksbank boosts Swedish krona…

The Riksbank left the repo rate unchanged at -0.35%. In the press release it stated that “economic activity in Sweden is strengthening and inflation is showing a clear upward trend.

2 1 0 -1

The economic outlook and inflation prospects remain largely unchanged since the decision in July. The Riksbank remains prepared to make monetary policy even more expansionary in

-2 -3 JPY

the event of inflation prospects deteriorating.” As a result of

SEK

NOK

CAD

EUR

GBP

CHF

NZD

AUD

this decision and statement, the krona strengthened. We expect further monetary policy easing in the form of more

Source: Bloomberg, ABN AMRO Group Economics

quantitative easing, a lower repo-rate path, further rate cuts, FX interventions or a combination of these. The chances of

ABN AMRO major currency forecasts

additional monetary easing by the ECB have increased significantly. This will probably weigh on the euro also versus the Swedish krona. It is likely that the Riksbank will see a strengthening of the Swedish krona versus the euro as a threat to its inflation target. Therefore it would probably step up monetary policy easing. Our target in EUR/SEK for the end of 2015 is 9.5.

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

03-Sep Q3 2015 Q4 2015 1.1130 1.00 1.10 120.12 128 123 133.70 128 135 1.5271 1.55 1.49 0.7289 0.67 0.71 0.9754 1.10 0.99 1.0855 1.09 1.10 0.7007 0.72 0.70 0.6361 0.65 0.63 1.3256 1.34 1.36 9.3837 9.50 9.50 9.2449 9.25 9.00 7.4613 7.46 7.46

Source: ABN AMRO Group Economics

Q1 2016 1.00 130 130 1.49 0.67 1.10 1.10 0.69 0.62 1.38 9.50 8.50 7.46

Q2 2016 1.05 135 142 1.52 0.69 1.07 1.12 0.67 0.60 1.41 9.50 8.25 7.46

Q3 2016 1.05 135 142 1.50 0.70 1.09 1.14 0.65 0.59 1.43 9.50 8.00 7.46

Q4 2016 1.10 135 149 1.49 0.74 1.05 1.15 0.64 0.58 1.45 9.50 8.00 7.46

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G10 FX Weekly - Dovish ECB weighs on euro

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