Group Economics
G10 FX Weekly
Macro & Financial Markets Research
Still positive on the USD
Roy Teo, +65 6597 8616
31 July 2015
US dollar recovers after FOMC meeting NZD and CAD stage a relief recovery BoJ, BoE and RBA to keep monetary policy unchanged next week
US dollar: a weak start …
Swiss franc (CHF) also underperformed as risk sentiment in
Earlier this week, soft equity markets in China resulted in safe
financial markets improved. The SNB intervention in the
haven flows into the Japanese yen. The yen rose to almost
currency market to weaken the CHF has continued as total
123 against the US dollar (USD) as a result. Better than
sight deposits in the Swiss National Bank (SNB) rose.
expected business confidence in Germany also supported the
Expectations that the Reserve Bank of Australia (RBA) will
euro to above 1.11. Sterling gained after economic growth in
ease monetary policy in the coming months weighed on the
the second quarter recovered after a slowdown in the
Australian dollar (AUD) despite a recovery in iron ore prices.
beginning of this year. Surprisingly weak US consumer confidence data also weighed on the USD.
NZD and CAD relief recovery There was a relief recovery in both the Canadian (CAD) and
... but recovers after FOMC
New Zealand (NZD) dollars in the past week. The CAD was
However the USD recovered after the FOMC upgraded its
supported as oil prices stabilized, while the NZD recovered
assessment of the labor market and hinted that a rate hike this
after the Reserve Bank of New Zealand (RBNZ) Governor
year was getting closer. Short term yields in the US firmed
Wheeler was less dovish on the economy’s outlook. He stated
which supported the USD. In our view, the next two labour
that though further monetary policy easing is likely, aggressive
market reports (7 August and 4 September) should show that
rate cuts over the coming months would only be warranted if
nonfarm payrolls continuing to rise comfortably about the 200k
the economy looked to be moving into recession. Looking
mark with unemployment rate trending lower. Hence we expect
ahead, we expect the RBNZ to lower the Official Cash Rate
the FOMC to raise its target range for the fed funds rate by
(OCR) by 25bp to 2.75% in September.
25bps to 0.25-0.5% on 18 September. As this is not fully priced in by financial markets, we maintain our view that the USD
Central banks to keep monetary policy unchanged for now
strength will persist in the coming months.
Next week, we expect central banks in the UK, Japan and Australia to keep monetary policy unchanged. We expect the
Markets have not fully priced in US rate hike in 2015
Bank of England to raise interest rates by 25bp later this year in November. On the other hand, we expect the RBA to cut the
%
OCR by 25bp as soon as September. The Bank of Japan is
0.75
also likely to increase monetary stimulus, probably early next year, as it becomes evident that inflation is unlikely to reach the 2% target in the first half of fiscal year 2016. 0.50
ABN AMRO major currency forecasts 0.25 Jan-15
Mar-15
May-15
Jul-15
Futures implied Fed funds rate in Dec 2015 Source: Bloomberg, ABN AMRO Group Economics
CHF, SEK and AUD weaker The Swedish Krona (SEK) weakened as both retail sales and consumer confidence were weaker than expected. However, the SEK firmed on Thursday on strong Q2 GDP numbers. The
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
24-Jul 1.0991 123.94 136.23 1.5521 0.7082 0.9593 1.0544 0.7354 0.6611 1.3023 9.4127 8.9799 7.4615
Q3 2015 1.00 125 125 1.47 0.68 1.05 1.05 0.72 0.65 1.30 9.50 9.00 7.46
Q4 2015 1.00 128 128 1.49 0.67 1.05 1.05 0.70 0.63 1.32 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 0.69 0.62 1.32 9.50 8.50 7.46
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.67 0.60 1.34 9.50 8.25 7.46
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.65 0.59 1.35 9.50 8.00 7.46
Q4 2016 1.15 135 155 1.51 0.76 0.96 1.10 0.64 0.58 1.37 9.50 8.00 7.46