Daily Insight
Group Economics Macro & Financial Markets Research
25 May 2016
A restart of the dollar rally? Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
Recent recovery of the dollar not likely to last
Germany’s ZEW economic sentiment declines ….
…. while the details of Q1 GDP suggest that part of the strength was a one-off
Aline Schuiling Senior Economist
Dollar has recovered since the end of April …
Tel: +31 20 343 5606
The US dollar weakened by around 8.5% from February 2016 up to the end of April
aline.schuiling@nl.abnamro.com
2016. It will not come as a surprise that commodity prices and emerging market currencies rallied strongly during this period. However, since the end of April, the dollar has been on a recovery path (+3%) and emerging market currencies and commodity prices (especially metals) have fallen considerably. Precious metal prices have retraced by 4 to 12%. However, oil prices have remained resilient. The upward adjustment in Fed interest rate expectations since 12 May and better-than-expected US data have played crucial roles in this market behaviour. Calculated effective exchange rate US index
175 150 125 100 75 50 80
84
88
92
96
00
04
08
12
16
Source: Bloomberg, Bank of England
… but this is expected to be a temporary recovery Is this a re-start of the US dollar rally? In short, no. We see this movement mainly as a short-term US dollar recovery. We continue to hold the view that the multi-year dollar uptrend is over and has turned negative. Short-term waves of strengthening do not change this overall outlook as long as the US dollar does not break above the 200-days moving average. In addition, if the Fed were to hike rates this year (not our base case), it will be gradual. A 25bp rate hike by the Fed this year is now roughly priced in by financial
Insights.abnamro.nl/en
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Daily Insig ght – A resta art of the do ollar rally?– 2 25 May 2016 6
markets s. In addition, U US real yields s (taking into account inflatioon expectation ns) will likely decline. This will weig gh on the dolla ar. So, the nea ar-term upsidee in the US dollar is limited in our view. What wou uld change the e overall US dollar d picture iss aggressive Fed F rate hikes responding to a strong econo omy. We think this is unlikelyy. German ny’s ZEW eco onomic sentim ment declines … The ZEW W economic ssentiment indic cator edged lo ower in May. Itt fell to 6.4, do own from 11.2 in April, but still above e the levels of February and d March. The ssurvey measu ures the expectations of econo omists and analysts about th he German ecconomy during g the next six esults for May months. The survey re y are in line with a slowdownn in GDP grow wth to more modest levels followin ng the surprisingly strong 0.7% qoq expannsion in Q1, with w the value of the ex xpectations co omponent well below its long-term averagge value of alm most 25. Indeed, we expect the e German eco onomy to grow w at a rate of aaround 0.4-0.5 5% qoq in the second half of this yea ar. In Q2, grow wth could turn n out somewhaat weaker thou ugh, as there will prob bably be some e payback for the t strength in n Q1. … while e the details o of Q1 GDP indicate that one-off positivve factors we ere at play The deta ails of Q1 GD P growth in Germany were published on Tuesday. The ey showed that the 0.7% qoq gro owth rate was due to strong domestic dem mand, whereas next exports shaved 0.1 pe ercentage point off growth. Fixed investm ment was partic cularly buoyantt in Q1. Investtment in machinery and equ uipment expannded by 1.9% qoq and construc ction investme ent by 2.3%. That T said, grow wth in construcction investme ent was lifted by the exceptionally e m mild winter and d will probably y weaken in Q Q2. Also, dome estic orders for mach hinery, which tend to be a good g leading in ndicator for fixxed investmen nt, slowed down sh harply in Q1 (tto -1.0% qoq, down from +0 0.7% in 2015Q Q4), boding ill for f investment growth in Q2.
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Daily Insig ght – A resta art of the do ollar rally?– 2 25 May 2016 6
Day
Da ate
Time
Country
Key Econo omic Indicators and d Events
Monday Monday Monday Monday Monday Monday Monday Monday
23/05//2016 23/05//2016 23/05//2016 23/05//2016 23/05//2016 23/05//2016 23/05//2016 23/05//2016
01:50 06:30 10:00 10:00 12:15 14:00 15:45
JP NL EC EC EC US US US
Merchandise trade exporrts - % yoy umer confidence - index Consu Comp posite PMI output PMI se ervices - index PMI manufacturing m - inde ex Fed's Bullard speaks in Beijing B (v) n New York Fed's Williams speaks in Markitt - Flash PMI
Tuesday T T Tuesday T Tuesday T Tuesday T Tuesday T Tuesday T Tuesday
24/05//2016 24/05//2016 24/05//2016 24/05//2016 24/05//2016 24/05//2016 24/05//2016
00:30 08:00 09:00 11:00 13:00 14:00 16:00
US DE EC DE TR HU US
Gfed's s Harkker Speaks on o Economic Outloo ok GDP - % qoq, final and de etails ECB's s Praet speaks ZEW index (expectation economic e growth) Repo rate - % Base rate -% h sold - % mo om New homes
We ednesday We ednesday We ednesday We ednesday We ednesday We ednesday We ednesday
25/05//2016 25/05//2016 25/05//2016 25/05//2016 25/05//2016 25/05//2016 25/05//2016
10:00 15:00 15:00 16:00 17:40 20:00
DE US US CA US US EC
Ifo - bu usiness climate - in ndex FHFA house price index - % mom Fed's Harker speaks y rate - % Policy Fed's Kashkari speaks on o energy and Mone etary Policy (nv) Fed's Kaplan speaks s Praet and Knot speak in Madrid ECB's
Thursday T T Thursday T Thursday T Thursday T Thursday
26/05//2016 26/05//2016 26/05//2016 26/05//2016 26/05//2016
10:30 11:15 14:30 16:00 18:00
GB US US US US
GDP - % qoq Fed's Bullard speaks (v) d goods orde ers - % mom New durable Pending home sales - % mom out Economy (v) Fed's Powell speaks abo
Friday Friday Friday Friday
27/05//2016 27/05//2016 27/05//2016 27/05//2016
01:30 14:30 16:00 19:15
JP US US US
CPI - % yoy GDP - % qoq annualised Univ. of o Michigan cons. co onfidence - index Yellen n speaks at Harvard d University at Radcliffe Day
Period
Lattest outcome
Con nsensus
Apr May May P May P May P
-6.8 1 53.0 53.1 51.7
-10.4
May P
50.8
53.2 53.3 51.9
ABN AM MRO
3 53.1 2 53.2 51.8 8
1Q F
0.7
0.7
May May 24 May 24 Apr
11.2 7.5 1.1 -1.5
12.2 7.5 0.9 1.6
13.0 0
May Mar
106.6 0.4
106.7 1 0.5
106.7 7 0.5
May 25
0.5
0.5
1Q P
0.4
Apr P Apr
1.3 1.4
0.2 0.7
0.8
Apr 1Q S May F
-0.1 0.5 95.8
-0.3 0.8 95.8
0.9 96.0 0
1.3
Sou urce: Bloomberg, Reuters, R ABN AMR RO Group Econom mics (we provide ow wn forecasts only for f selected k ey variables v and even nts) FOM MC (v) voting; (nv) no on voting
nd out more abo out Group Eco onomics at: http ps://insights.a abnamro.nl/en n/ Fin
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