Group Economics
G10 FX Weekly
Macro & Financial Markets Research Georgette Boele, + 31 20 629 7789 Roy Teo, +65 6597 8616
Yen strength an opportunity
9 July 2015 • • •
Yen outperforms and could strengthen to 118 versus the US dollar in the coming days… … this would be an opportunity to position for weakness afterwards The euro is likely to weaken further
Yen could strengthen to 118 in the coming days…
the Chinese economy. The Chinese authorities have an
The Japanese yen was the outperformer, strengthening to
enormous arsenal to support the economy. Taking all the
120.50 against the US dollar due to safe haven flows and
above into account, we expect USD/JPY to rise to 128 at the
relatively cautious FOMC minutes. Further declines in China’s
end of this because of monetary policy divergence, widening
equity markets and unfavourable outcome in this Sunday’s EU
bond yield spread between the US and Japan and an
summit would support the yen further. If USD/JPY were to drop
improvement in investor sentiment.
below 120, this could trigger rumoured stop losses below 120, and could accelerate the sell-off in USD/JPY. As a result,
Euro is likely to weaken further
USD/JPY could approach 118.00. Then we would expect the
The Greek No-vote resulted in euro weakness and EUR/USD
pair to stabilise.
reached a low of 1.0916. However, the euro recovered afterwards, because of some hopes that Greece may come to
Yen outperforms
a deal with its creditors and euro crosses (EUR/CHF,
Performance in % versus the USD, in USD terms
EUR/GBP, EUR/JPY) were well supported. An unfavourable outcome this weekend, would weigh on euro and previous low
2
in EUR/USD of 1.0458 (close) will likely be reached in the days
1
afterwards.
0
Commodity currencies feel the pressure
-1
Weakness in commodity prices (metals and oil) negatively -2
affected commodity currencies such as the Australian dollar,
-3
Canadian dollar and the Norwegian krone. The Australian dollar slumped to the lowest level since the middle of 2009 as
-4 JPY
NZD
EUR
CHF
SEK
GBP
CAD
AUD
NOK
Australia’s key commodity export iron ore price declined by more than 20% in the past week due to renewed worries on
Source: Bloomberg, ABN AMRO Group Economics
China’s demand. They will likely remain vulnerable if the Fed hikes rates later in the year and the US dollar rallies.
…this would be an opportunity to position for weakness afterwards However, we expect USD/JPY to move higher in the coming months for the following reasons. For a start, we expect the US Federal Reserve to start hiking interest rates in September and to hike in 2015 and 2016 more than financial markets currently anticipate. In addition, USD/JPY is very sensitive to developments in interest rate spreads. Expectations about an upcoming Fed rate hike should result in a widening of the interest rate spread between the US and Japan. Therefore, it is highly likely that USD/JPY will rally. Moreover, it is unlikely that a Greek exit will result in a Lehman-like reaction in financial markets. So any yen safe haven buying by investors will probably be temporary. This would be an opportunity to buy USD/JPY. Moreover, we do not expect a major slowdown in
ABN AMRO major currency forecasts 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
09-Jul 1.1044 121.42 134.09 1.5395 0.7174 0.9494 1.0485 0.7461 0.6727 1.2725 9.3750 9.0970 7.4620
Q3 2015 1.00 125 125 1.47 0.68 1.05 1.05 0.73 0.69 1.27 9.50 9.00 7.46
Q4 2015 1.00 128 128 1.49 0.67 1.05 1.05 0.72 0.65 1.30 9.50 8.50 7.46
Source: ABN AMRO Group Economics
Q1 2016 1.05 130 137 1.52 0.69 1.00 1.05 0.70 0.65 1.31 9.50 8.50 7.46
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.68 0.63 1.33 9.50 8.25 7.46
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.67 0.62 1.34 9.50 8.00 7.46
Q4 2016 1.15 135 155 1.51 0.76 0.96 1.10 0.66 0.62 1.35 9.50 8.00 7.46