G10 FX Weekly
Group Economics Macro & Financial Markets Research Georgette Boele, +31 20 629 7789
Ripples of China FX move
Roy Teo, +65 6597 8616
13 August 2015
China FX move has weighed on the USD, but USD weakness will be temporary in our view Commodity currencies were sold off but recovered afterwards… …however we remain negative on Australian dollar and New Zealand dollar We expect more yen weakness ahead
China FX move has weighed on the US dollar
weaker yuan will also reduce China’s purchasing power for
China’s FX regime shift (see our EM FX Weekly) has
commodities. However, sentiment improved and commodity
negatively impacted the US dollar. There are two reasons for
currencies recovered as Chinese authorities seek to calm
this. First, as recent episodes of deterioration in investor
market volatility in the yuan. Furthermore, market speculation
sentiment have shown, the US dollar is negatively affected
has increased that the Fed may delay raising interest rates if
because it is mainly driven by cyclical forces such as the state
the US dollar strengthens further and worries on China’s
of the US economy and Fed rate hike expectations. Second,
growth lingers. Separately the Reserve Bank of Australia
financial markets have slightly scaled back expectations about
(RBA) was more sanguine on the depreciation in the yuan.
a possible rate hike in September because of concerns about
RBA deputy governor Lowe said that if the yuan depreciation
China. We do not share this view. Chinese authorities are
reflects genuine reform and would support China’s economy,
working hard to support the economy, which is logical. We
Australia may benefit from a stronger China in the long term.
expect ongoing strength in the US labour market to trigger a
We remain negative on the Australian dollar and New Zealand
Fed rate hike in September. Currently, money market futures
dollar going forward mainly because of growth and monetary
have not even fully priced in one rate hike. We expect two rate
policy divergence relative to the US.
hikes this year. This, and the upward adjustment in interest rate expectations for 2016 should give a strong boost to the
Japan economy to contract in the second quarter
US dollar this year. We expect EUR/USD to test parity in the
Next week, Japan’s second quarter GDP preliminary estimate
coming months mainly because of the monetary policy
will be released. The economy is widely expected to contract
divergence between the US and eurozone.
1.8% qoq s.a. after a 3.9% expansion in the first quarter. Indeed, this reinforces our view that the Bank of Japan’s (BoJ)
Performance this week
2% inflation target by the first half of Fiscal year 2016 is too ambitious. We maintain our view that the BoJ is likely to step
Performance in %, with USD as base
up monetary stimulus early 2016. We maintain our year end
4
USD/JPY target of 128. 3
ABN AMRO major currency forecasts
2 1 0 -1 -2 SEK
NOK
EUR
CAD
GBP
CHF
JPY
NZD
AUD
Source: Bloomberg
Commodity currencies sell off before recovery The sharp decline in the Chinese yuan earlier this week triggered a selloff in commodity currencies. This is due to market fears that the devaluation in the yuan is a signal that the Chinese economy is weaker than economic data imply. A
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
13-Aug Q3 2015 Q4 2015 1.1136 1.00 1.00 124.48 125 128 138.62 125 128 1.5629 1.47 1.49 0.7125 0.68 0.67 0.9778 1.05 1.05 1.0889 1.05 1.05 0.7370 0.72 0.70 0.6614 0.65 0.63 1.2979 1.34 1.36 9.5896 9.50 9.50 9.0937 9.00 8.50 7.4631 7.46 7.46
Source: ABN AMRO Group Economics
Q1 2016 1.05 130 137 1.52 0.69 1.00 1.05 0.69 0.62 1.38 9.50 8.50 7.46
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.67 0.60 1.41 9.50 8.25 7.46
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.65 0.59 1.43 9.50 8.00 7.46
Q4 2016 1.15 135 155 1.51 0.76 0.96 1.10 0.64 0.58 1.45 9.50 8.00 7.46
2
G10 FX Week kly - Ripples off China FX mov ve
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