Group Economics
G10 FX Weekly
Macro & Financial Markets Research Georgette Boele, + 31 20 629 7789
Cautious Fed weighs on dollar
Roy Teo, +65 6597 8616
18 June 2015
More dovish Fed weighs on the US dollar, while euro’s resilience continues New Zealand dollar underperformed on weak economic growth… Norge Bank cut rates to support the economy and krone
Cautious Fed weighs on dollar…
The New Zealand dollar underperformed major FX
Even though, the FOMC decision and statement were in line
The New Zealand dollar slumped by more than a cent to below
with market consensus, the downward adjustment of rate
0.69 after economic growth in the first quarter of this year
expectations of FOMC members was clearly US dollar
disappointed market expectations. The economy expanded by
negative. This resulted in a downward adjustment in the
2.6% yoy, the slowest pace since 2013 Q4 and below Reserve
market rate hike expectations for this year and next year.
Bank of New Zealand’s projection of 3.1%. This has increased
Going forward, we expect financial markets to scale up rate
market expectations that the RBNZ may need to lower the
hike expectations in the coming months driven by a strong
Official Cash Rate at a faster pace. Indeed, financial markets
acceleration in the US economy and the prospect of the start
have priced in a more than 50% probability of a 25bp rate cut
of the rate hike cycle in September. This should support the
in July and see the OCR declining below 3% by the end of this
US dollar. We continue to expect EUR/USD to reach parity this
year. We remain bearish on the NZD but see a risk that a relief
year.
rally in the short term could materialise, as financial markets are too dovish in the short term. For more details, please refer
…while euro’s resilience continues
to our FX Watch - NZD: more bearish, near term upside risk.
The euro has remained resilient this week despite the fact that financial markets have become more nervous about the
Norges Bank cut rates to support the economy
possibility of a Greek default or even a Greek exit. This
This morning, the Norges Bank cut interest rates by 25bp to
nervousness was visible in the above average short-term
1.0%. It stated that developments in the Norwegian economy
volatility in the options market. Surprisingly, this has not hurt
have been weaker than expected and the economic outlook
the euro, mainly because other currencies, such as the US
has deteriorated. Therefore, they lowered the official interest
dollar, were weaker because due domestic factors. In addition,
rate. This decision was in line with market consensus.
developments in the bond markets continue to support
However, the Norwegian krone slipped after the result. This
EUR/USD.
signals that there were some doubts if the rate cut would be delivered today after the recent higher than expected inflation
Bond market developments drive EUR/USD
data.
Yen Trade Weighted Index
-1.00
1.30 1.25
-1.25
1.20
-1.50
1.15 1.10
-1.75
1.05 1.00 Jan 15
-2.00 Feb 15 Mar 15 EUR/USD (lhs)
Apr 15 May 15 Jun 15 10y GE - US spread (rhs)
Source: Bloomberg, ABN AMRO Group Economics
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
18-Jun 1.1364 122.93 139.70 1.5864 0.7164 0.9198 1.0453 0.7750 0.6899 1.2206 9.1778 8.6680
Q2 2015 1.10 122 134 1.55 0.71 0.95 1.05 0.78 0.73 1.23 9.50 8.25
Q3 2015 1.00 125 125 1.47 0.68 1.05 1.05 0.73 0.69 1.27 9.50 8.25
Q4 2015 1.00 128 128 1.49 0.67 1.05 1.05 0.72 0.68 1.30 9.50 8.00
Source: ABN AMRO Group Economics
Q1 2016 1.05 130 137 1.52 0.69 1.00 1.05 0.70 0.66 1.31 9.50 8.00
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.68 0.65 1.33 9.50 7.75
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.67 0.64 1.34 9.50 7.50
Q4 2016 1.15 135 155 1.51 0.76 0.96 1.10 0.66 0.64 1.35 9.50 7.50
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G10 FX Week kly - Cautious Fed F weighs on n dollar
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