G10 FX Weekly
Group Economics Macro & Financial Markets Research
04 February 2016
Weak US data weigh on USD Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789
• Weak US data weigh on the US dollar • JPY resume gains – over to you Kuroda • New Zealand dollar outperformer
georgette.boele@nl.abnamro.com
Roy Teo Senior FX Strategist
Weak US data weigh on the US dollar
Tel: +65 6597 8616
Yesterday, there were two interesting market reactions. The stronger-than-expected
roy.teo@sg.abnamro.com
ADP report failed to support the US dollar. This is because currency markets are currently biased towards negative news from the US, because this would decrease the possibility of Fed rate hikes this year. As a result, stronger data are ignored and weaker data have a more substantial negative impact on the US dollar. The weakerthan-expected Markit services PMI and ISM non-manufacturing caused a dramatic sell-off in the US dollar yesterday. EUR/USD broke the physiological level of 1.10 again and rallied to a high of 1.1146 while USD/JPY dropped to a low of 117.06 thereby fully erasing the gains after the BoJ decision last week. This morning the US dollar has remained under pressure. The ball is now back in the court of the ECB and the BoJ (see below). We expect the ECB cut its deposit rate in two steps (March and June) to -0.5% and to increase its asset purchase program by 10bn in March. This is not fully priced in by financial market. FX Performance since last 28 January 2016 % with US dollar as basis
4 3 2 1 0 NZD
CAD
EUR
GBP
AUD
NOK
SEK
CHF
JPY
Source: Bloomberg
Insights.abnamro.nl/en
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G10 FX Weekly - Weak US data weigh on USD - 04 February 2016
It is likely that in the near-term, currency markets remain biased towards softer US economic data and therefore the downward pressure on the dollar could continue. However, improvement in investor sentiment and monetary policy divergence should support the US dollar versus the euro and the yen during the course of this year. JPY resume gains – over to you Kuroda The Japanese yen (JPY) losses, after last Friday surprise move by the Bank of Japan (BoJ) to introduce negative interest rates, were fully erased this week as safe haven flows resumed and the US dollar fell on weak US data. Later this year, the BoJ could increase monetary stimulus further if the yen remains resilient and continues to weigh on the outlook for exports and inflation in Japan. New Zealand dollar outperformer The New Zealand dollar (NZD) was the strongest currency this week as the unemployment rate in the last quarter of 2015 plunged from 6% to 5.3% and employment grew 0.9% after falling 0.5% in the previous quarter. However, weakness in the labour market remains as the labour force participation rate recorded its third consecutive quarterly decline to its lowest level since 2013 Q2 and there are no signs of a pick-up in wage growth. We maintain our view that the Reserve Bank of New Zealand (RBNZ) is likely to lower the Official Cash Rate (OCR) by 25bp to 2.25% as soon as March. Around 30% of this is priced in by financial markets. Our year end NZD/USD forecast is 0.58. ABN AMRO major currency forecasts Changes in red/bold
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
04-Feb Q1 2016 Q2 2016 1.1160 1.06 1.04 117.62 120 123 131.26 127 128 1.4649 1.41 1.37 0.7618 0.75 0.76 1.0030 1.04 1.08 1.1193 1.10 1.12 0.7219 0.68 0.66 0.6706 0.62 0.60 1.3682 1.44 1.46 9.3703 9.50 9.50 9.4805 9.50 9.25 7.4632 7.46 7.46
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 1.02 1.00 1.00 1.02 1.05 1.10 126 130 126 123 120 120 129 130 126 125 126 132 1.32 1.33 1.35 1.40 1.46 1.57 0.77 0.75 0.74 0.73 0.72 0.70 1.12 1.15 1.15 1.13 1.14 1.09 1.14 1.15 1.15 1.15 1.20 1.20 0.64 0.62 0.64 0.68 0.70 0.72 0.58 0.58 0.60 0.62 0.64 0.66 1.47 1.48 1.40 1.38 1.35 1.30 9.50 9.50 9.25 9.00 8.75 8.50 9.00 9.00 8.75 8.50 8.25 8.00 7.46 7.46 7.46 7.46 7.46 7.46
Source: ABN AMRO Group Economics
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G10 FX Weekly - Weak US data weigh on USD - 04 February 2016
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