G10 FX Weekly
Group Economics Macro & Financial Markets Research
09 June 2016
USD slides ahead of FOMC Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com Roy Teo
US dollar slides on lower odds of a rate hike We expect no rate hike this year and this should weigh on the dollar Commodity currencies will likely be supported …also RBA and RBNZ were less dovish supporting AUD and NZD The yen sets to retest this year’s peak, but intervention is still unlikely
Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
US dollar slides on lower odds of a rate hike The US dollar has been on a slide since the weak US employment report released last Friday. This and comments from Fed Chair Yellen earlier in the week have resulted in the market substantially reducing expectations for a Fed rate hike this year. Our view is that while there is a case for a hike, the case for the Fed to remain on hold and be more cautious is much more powerful. This should nurture US growth and support sentiment on financial markets. It is likely that this will weigh on the US dollar across the board and support currencies of commodity exporting countries such as the Canadian dollar, the Norwegian krone and the Australian and the New Zealand dollars.
RBA and RBNZ less dovish: AUD and NZD rally As expected both the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) left monetary policy unchanged this week. However, both the Australian dollar (AUD) and New Zealand dollar (NZD) surged as both central banks were less dovish. As a result, financial markets reduced expectations that the RBA and RBNZ will ease monetary policy in the coming months. We expect the AUD to strengthen further towards this year’s peak of around 0.78 in the coming weeks as carry trades are back in favour. Our view that the RBA will cut the Official Cash Rate (OCR) by 25bp in August is not fully priced in. Hence the AUD is likely to decline to around 0.72 in the third quarter. Similarly, the RBNZ seems more concerned about house price inflation than the strength in the NZD, which remains stronger than justified given commodity export prices. Tighter macro prudential tools are likely to be implemented later this year to address potential financial stability concerns arising from the housing market. The current strength in the NZD could extend to around 0.75 in the coming weeks. We maintain our view that the RBNZ is likely to resume their policy easing bias in August, though the risk has increased that it might be later if house price inflation remains elevated. Our year end NZD/USD forecast is 0.68.
Insights.abnamro.nl/en
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G10 FX We eekly - USD slides ahea ad of FOMC - 09 June 2016
Japan nese yen set tto retest 105..50 level – inttervention stiill unlikely We ex xpect the Japan nese yen (JPY) to retest this year’s y peak of 105.50 agains st the US dollar in the coming w weeks. A comb bination of lowe er real interest rate differentia als between the US S and Japan an nd market expe ectations that Japan J will not inntervene in currrency markets should contiinue to favour the t yen. As the e yen strengtheens, we expec ct hedging of n currency expo osure to increa ase. The JPY nominal n effectivve exchange ra ate (NEER) foreign is at th he strongest levvel since early 2013. Howeve er, given that voolatility in the yen y is not at extrem me levels, it is u unlikely that the e Ministry of Finance will interrvene in curren ncy markets to wea aken the yen. S Stop losses are e likely to be lay yered below 1005 which will ac ccelerate price action a in the ye en towards 100. At this level, the t risk of curreency interventiion will rise materially. More mon netary stimulus s from the Bank k of Japan is likkely in July. He ence a er yen is still en nvisaged later this t year. weake
JPY NEER; N 1 wee k USD/JPY re ealized volatility Index le evel
Volatilityy
135
25 5
125
20 0
115
15 5
105
0 10
95
5
85 J Jan-11
0 Aprr-12
Jul-13 3
JPY NEE ER (lhs)
Oct-14
Jan-16
1w wk USD/JPY volattility (rhs)
Source: Bank of Japan, B Bloomberg
ABN AMRO majorr currency forecasts
EUR/USDD USD/JPYY EUR/JPY GBP/USDD EUR/GBPP USD/CHFF EUR/CHFF AUD/USDD NZD/USDD USD/CADD EUR/SEKK EUR/NOKK EUR/DKKK
09-Jun 1.1360 106.43 120.91 1.4465 0.7854 0.9614 1.0922 0.7437 0.7115 1.2722 9.2605 9.2611 7.4362
Q2 2016 1.15 105 121 1.40 0.82 0.96 1.10 0.73 0.68 1.25 9.25 9.25 7.46
Q3 2016 QQ4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 20117 1.15 1.15 1.15 1.15 1.15 1.15 110 110 110 110 108 1005 127 124 1221 127 127 127 1.48 1.50 1.52 1.54 1.556 1.42 0.76 0.75 0.774 0.78 0.77 0.81 0.97 0.98 0.999 0.96 0.97 0.96 1.12 1.13 1.14 1.10 1.11 1.10 0.75 0.75 0.775 0.74 0.75 0.72 0.70 0.71 0.772 0.68 0.69 0.68 1.17 1.16 1.15 1.20 1.18 1.22 9.00 9.00 8.775 9.25 9.25 9.25 8.50 8.25 8.225 8.75 8.50 9.00 7.46 7.46 7.446 7.46 7.46 7.46
Source: ABN AMRO Grouup Economics
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G10 FX We eekly - USD slides ahea ad of FOMC - 09 June 2016
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