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
2
G10 FX Weekly - Dovish ECB weighs on euro
Find out more about Group Economics at:https://insights.abnamro.nl/en/ This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics. The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such n i formation. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product 窶田onsidering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. ﾂｩ Copyright 2015 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").