Group Economics
G10 FX Weekly
Macro & Financial Markets Research Georgette Boele, +31 20 629 7789
Lowflation pushes euro lower
Roy Teo, +65 6597 8616
1 October 2015 • • •
“Lowflation” pushes the euro lower and also the US dollar on the defense Economic data and rotational play supports NZD RBA to keep Official Cash Rate (OCR) unchanged but shift to easing bias
“Lowflation” pushes the euro lower...
of NZD in the month of August as they seek to smooth volatility
The euro was the weakest performing major currency this
in the currency. Rising house price inflation has also reduced
week. Eurozone inflation moved into negative territory in
market expectations that the RBNZ may continue its monetary
September (-0.1% yoy from +0.1% in August) and this hurt the
easing cycle in October. Indeed, we expect the RBNZ to pause
euro as it is now more likely that the ECB will step up QE.
on 29 October before easing again in December. This is
The ECB must be worried that inflation expectations have
expected to weigh on the NZD/USD towards 0.60 by the end of
become dislodged. We continue to think the ECB will act to
this year. The NZD also received some support as investors
step up QE more likely in October. We think that the strong
switch from the Australian dollar ahead of the Reserve Bank of
monetary policy divergence we expect will push EUR/USD to
Australia (RBA) monetary policy meeting on 6 October.
parity. RBA to keep OCR unchanged but shift to easing bias
Euro under pressure
The RBA is widely expected to keep the Official Cash Rate
In %, with EUR as basis
(OCR) unchanged next week. However, we expect the RBA to signal that downside risks to the economy have increased. The
2
RBA is also likely to acknowledge that with housing credit growth and house price inflation moderating, there is more scope for rate cuts to stimulate the economy. We expect the RBA to cut the OCR by 25bp to 1.75% in November. This is
1
not fully priced in by financial markets and hence should push the AUD/USD towards 0.68 by the end of this year. The Norwegian krone also recovered
0 NZD
AUD
NOK
CAD
CHF
JPY
USD
SEK
GBP
The Norwegian krone has recovered as a result of the Norges Bank signaling that growth is more of a priority than inflation. In
Source: Bloomberg, ABN AMRO Group Economics
the current uncertain environment financial markets welcome measures that support growth and therefore the krone rallied
…and also the US dollar on the defense
(as the Indian rupee did after the larger-than-expected rate
The US dollar has been on the defense this week, falling
cut). What also helped is that oil prices did not weaken and
versus most major currencies. US economic data have
investor sentiment improved.
continued to come in strong. Another strong US employment report tomorrow could trigger an upward adjustment in Fed rate hike expectations this year. This should support the US dollar across the board. Currently financial markets only price in a 38% probability of such a hike. What also helped is that the government shutdown was avoided at the last moment. Economic data and rotational play supports NZD In the past week, sentiment in the New Zealand dollar (NZD) was supported as business confidence recovered in September. In addition data from the Reserve Bank of New Zealand (RBNZ) showed that the central bank was a net buyer
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
01-Oct Q4 2015 1.1166 1.00 120.03 128 134.03 128 1.5152 1.49 0.7370 0.67 0.9770 1.10 1.0909 1.10 0.7074 0.68 0.6437 0.60 1.3271 1.36 9.3563 9.50 9.4599 9.50 7.4605 7.46
Source: ABN AMRO Group Economics
Q1 2016 1.00 130 130 1.49 0.67 1.10 1.10 0.66 0.58 1.38 9.50 9.25 7.46
Q2 2016 1.05 135 142 1.52 0.69 1.07 1.12 0.64 0.56 1.41 9.50 9.00 7.46
Q3 2016 1.05 135 142 1.50 0.70 1.09 1.14 0.62 0.55 1.43 9.50 8.75 7.46
Q4 2016 1.10 135 149 1.49 0.74 1.05 1.15 0.60 0.55 1.45 9.50 8.50 7.46
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G10 FX Weekly - Lowflation pushes euro lower
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