Group Economics
G10 FX Weekly
Macro & Financial Markets Research
Fed outlook supports USD
Roy Teo, +65 6597 8616
6 August 2015
US dollar gains after hawkish Fed comments AUD strengthens after RBA less dovish on the exchange rate Sentiment towards the NZD remains bearish Downward revisions in CAD forecast
US dollar gains after hawkish Fed comments
the Reserve Bank of New Zealand to lower the Official Cash
The US dollar (USD) outperformed other major currencies after
Rate by 25bp to 2.75%. Another insurance rate cut of 25bp
Atlanta Fed President Lockhart, a centrist among FOMC
later this year is increasingly likely. Hence there are downside
members, said that it would take a significant deterioration in
risks to our year end NZD/USD forecast of 0.63.
economic data to convince him not to vote for a rate increase in September. Indeed we expect the next two US non-farm
Downward revisions in CAD forecast
payrolls to convince the FOMC to raise the Fed funds target
We have become more bearish on the Canadian dollar (CAD)
range by 25bp to 0.25-0.50% next month. As the Fed funds
and now expect it to decline further towards 1.36 against the
futures is only pricing in about 50% probability of a 25bp rate
USD later this year (compared to our previous forecast of
hike, we expect further gains in the USD in the coming months.
1.32). Economic growth in May slowed more than expected to 0.5% yoy, the slowest pace since December 2009. In addition,
AUD gains after RBA less dovish on the exchange rate
we are less optimistic on the recovery in oil prices as
The Australian dollar (AUD) bucked the trend among major
highlighted in our recent Energy Monitor (‘Further fall in oil
currencies, rising by almost 1% after the Reserve Bank of
prices on oversupply concerns’ published on 30 July 2015).
Australia (RBA) sounded less convinced on the need for
Since the Bank of Canada (BoC) lowered the overnight lending
further depreciation of the exchange rate. The RBA stated that
rate by 25bp on 15 July, the Western Canada select (WCS)
the AUD is adjusting to the significant declines in key
crude oil price (benchmark price for heavy oil produced in
commodity prices, leaving out its previous comment that
Alberta) has dropped by another 25% and is at the lowest level
further depreciation in the currency seemed both likely and
since early 2009. The WCS has plunged by almost 70% since
necessary. We think that the recent 20% recovery in iron ore
June last year compared to 25% decline in the CAD. Though
prices in the past month has provided some comfort that the
the trade deficit narrowed in June, we expect it to widen again
gap with the exchange rate has narrowed. As financial markets
as the fall in energy exports value outweigh the recovery in
have priced in about a 10bp of rate cuts by the end of this
non-energy exports. Consumer confidence is expected to
year, failure to reduce rates would support the AUD. However,
deteriorate further, resulting in weaker retail spending. We
we expect the Australian economy to grow at a below trend
expect the BoC to cut interest rates by 25bp in the next
rate in the coming two years and house price inflation to
monetary policy meeting on 9 September. This is to provide
moderate. As such, further monetary stimulus is still likely. We
further insurance to the economy ahead of elections on 19
maintain our year end AUD/USD forecast of 0.70.
October. This is not fully priced in by financial markets.
NZD slides as dairy prices and labor market deteriorates
ABN AMRO major currency forecasts
The New Zealand dollar (NZD) declined by more than 1% to around 0.65 after dairy prices extended their slide in the recent auction. The terms of trade shock due to the 50% plunge in dairy prices since March is only partially mitigated by a 15% decline in the NZD. In addition, the unemployment rate has been edging higher in the past year. Though speculators’ short futures positioning in the NZD is overcrowded and weekly technical indicators imply that the NZD is in oversold territory, we expect the bearish sentiment in the currency to persist until the next monetary policy meeting on 10 September. We expect
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
06-Aug 1.0914 124.81 136.22 1.5615 0.6989 0.9785 1.0679 0.7354 0.6533 1.3161 9.4833 9.0036 7.4619
Q3 2015 1.00 125 125 1.47 0.68 1.05 1.05 0.72 0.65 1.34 9.50 9.00 7.46
Q4 2015 1.00 128 128 1.49 0.67 1.05 1.05 0.70 0.63 1.36 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 1.38 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