Daily Insight
Group Economics Macro & Financial Markets Research
18 March 2016
New EUR/USD forecast Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
Dollar sharply lower because the dovish Fed rate outlook resulted in…
… a surge into more cyclical and higher yielding assets
The Norges bank cut rates to support the economy…
…while the SNB stayed on hold but remains active in FX markets
Dollar sharply lower Since the FOMC decision on Wednesday the US dollar has fallen sharply. Financial markets have become accustomed to the idea that the Fed tends to move towards market expectations instead of the other way around. Therefore, investors are of the view that they will unlikely be surprised by a Fed hiking more aggressively than market expectations in the future. Our view is that the Fed will keep interest rates on hold this year. The lowering in the Fed’s dot plot following the FOMC meeting has been a major negative for the US dollar and positive for risky assets. The US dollar index has dropped by more than 2% while currencies of commodity exporting countries have rallied roughly by between 2-4%. These currencies profited as a result of US dollar weakness and the view that the Fed being on hold would provide a more benign environment for these economies.
FX performance since 15 March 2016 In % with USD as basis
4 3 2 1 0 NZD
NOK
CAD
AUD
GBP
Source: Bloomberg
Insights.abnamro.nl/en
CHF
EUR
SEK
JPY
2
Daily Insight – New EUR/USD forecast - 17 March 2016
New forecast EUR/USD We now expect EUR/USD to be range-bound in the foreseeable future, at around 1.15. For a start, a further adjustment in Fed rate hike expectations could push EUR/USD towards the top of the range around 1.20. While the ECB could take action and ease monetary policy further given the risks to inflation. As a result, these forces will likely keep EUR/USD within a 1.101.20 range. The longer-term picture has changed for the US dollar. We think that the multiyear bull trend of the US dollar has come to an end. So if the range in EUR/USD is broken, it will likely be on the USD weakness side in our view.
Norges bank cuts rates as expected The Norges Bank cut interest rates by 25bp to 0.5% as was widely expected. In its statement the central bank mentioned “The current outlook of the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year. As the key policy rate approaches a lower bound, the uncertainty surrounding the effects of monetary policy increases. This now suggests proceeding with greater caution in interest rate setting. Should the Norwegian economy be exposed to new major shocks, the Executive Board will, however, not exclude the possibility that the key policy rate may turn negative”. The Norwegian krone reacted in a volatile manner to the decision and the comments. In the end, it strengthened mainly because of higher oil prices. We think that this was the last reduction in rates by the Norges Bank. The gradual recovery in oil prices during the course of this year should improve the outlook for the economy as well investor sentiment towards the krone.
SNB on hold but to remain active in FX markets The Swiss National Bank left interest rates on hold Thursday as was widely expected. The target for the three-month Libor remains at between -1.25% and -0.25%, and the interest rate on sight deposits at the SNB is unchanged at -0.75%. According to the central bank, “The Swiss franc is still significantly overvalued. The SNB will remain active in the foreign exchange market in order to influence exchange rate developments where necessary”. We expect the downside in EUR/CHF to be protected because of these interventions. On the other hand, an improvement in investor sentiment should weigh on the franc. As a result we expect EUR/CHF to stay close to 1.10 in 2016
3
Daily Insight – Fed will likely wait to hike again…but for how long?- 15 March 2016
Day
Date
Time
Country
Saturday Saturday Saturday Saturday Saturday Saturday
12/03/2016 12/03/2016 12/03/2016 12/03/2016 12/03/2016 12/03/2016
15/03/2016 15/03/2016 15/03/2016 06:30:00 06:30:00 06:30:00
CN CN CN CN CN CN
Monday Monday Monday
14/03/2016 14/03/2016 14/03/2016
07:30:00 11:00:00 13:00:00
Tuesday Tuesday Tuesday Tuesday
15/03/2016 15/03/2016 15/03/2016 15/03/2016
13:30:00 13:30:00
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday
Period
Latest outcome
Consensus
M2 money growth - % yoy New loans - CNY bn Aggregate financing - CNY bn Retail sales - ytd yoy Industrial production - ytd yoy Fixed asset investment - ytd yoy
Feb Feb Feb Feb Feb Feb
13.3 727 780 10.2 5.4 10.2
13.7 1200 1841 10.7 5.6 9.3
IN EC IN
Wholesale price index - % yoy Industrial production SA mom CPI - % yoy
Feb Jan Feb
-0.9 2.1 5.2
-0.2 -1.0 5.5
US US US JP
Retail sales - % mom Prod. prices index excl food and energy - % mom NAHB home builders' confidence index Policy rate - %
Feb Feb Mar Mar 15
-0.1 0.0 58 80.0
0.0 0.1 59 81.5
0.0
13:30:00 13:30:00 13:30:00 13:30:00 13:30:00 14:15:00 19:00:00 19:00:00
US US US US US US US US
CPI Inflation - % mom CPI Inflation - % yoy CPI excl food and energy - % mom CPI excl food and energy - % yoy Housing starts - % mom Industrial production - % mom FOMC rate decision lower bound FOMC rate decision upper bound
Feb Feb Feb Feb Feb Feb Mar 16 Mar 16
-0.2 1.0 0.3 2.3 5.2 -0.5 0.25 0.50
-0.2 0.9 0.1 2.2 3.2 -0.1 0.25 0.51
-0.2 0.9 0.2 2.2 3.0
17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016
00:50:00 07:30:00 09:30:00 09:30:00 09:30:00 10:00:00 11:00:00 13:00:00 13:00:00
JP NL CH CH CH NO EC GB GB
Merchandise trade exports - % yoy Unemployment rate SNB 3-month Libor Upper Target SNB 3-month Libor Lower Target SNB Sight Deposit Interest Rate Policy rate - % CPI Core yoy Policy rate - % BoE size of asset purchase programme - GBP bn
Feb Feb Mar 17 Mar 17 Mar 17 Mar 17 Feb F Mar 17 Mar
-4.0 6.5 -0.25 -1.25 -0.75 0.75 0.7 0.5 375.0
-3.8
18/03/2016 18/03/2016 18/03/2016 18/03/2016
06:30:00 11:30:00
NL RU US MX
Consumer confidence - index Key rate % Univ. of Michigan cons. confidence - index Policy rate - %
Mar Mar 18 Mar P Mar 18
-1 11.0 91.7 3.75
20:00:00
Key Economic Indicators and Events
ABN AMRO
1.2
59
0.25 0.50
-0.25 -1.25 -0.75 0.50 0.7 0.5 375.0
6.5 -0.25 -1.25 -0.75 0.50 0.7 0.5 375.0
11.0 92.3
1 11.0 91.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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