FX Market Headlines INVESTMENT PRODUCTS: NOT A BANK DEPOSIT NOT GOVERNMENT INSURED NO BANK GUARANTEE MAY LOSE VALUE. August 15 th, 2016.

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1 August 15 th, 2016 FX Market Headlines United States United Kingdom Japan Australia INVESTMENT PRODUCTS: NOT A BANK DEPOSIT NOT GOVERNMENT INSURED NO BANK GUARANTEE MAY LOSE VALUE

2 Important Disclosure Citi analysts refers to investment professionals within Citi Research ( CR ), Citi Global Markets Inc. ( CGMI ) and voting members of the Citi Global Investment Committee. This document is based on information provided by Citigroup Investment Research, Citigroup Global Markets, Citigroup Global Wealth Management and Citigroup Alternative Investments. It is provided for your information only. It is not intended as an offer or solicitation for the purchase or sale of any security. Information in this document has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the information, consider its appropriateness, having regard to their objectives, financial situation and needs. Any decision to purchase securities mentioned herein should be made based on a review of your particular circumstances with your financial adviser. 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3 Source: Bloomberg and Citi Analysts 22 nd Jul 2016 FX Forecasts (as of 22 nd of Jul 2016):

4 United States: US Elections Scenarios: Outcomes & Risks BoE Agents: Services Weak, Manufacturing Resilient in July What will the BoJ s "comprehensive assessment" look like? Both Presidential candidates claim to offer economically simulative policies. Trump presents the most extreme possibilities for fiscal stimulus and external drag from trade wars. Clinton's continuation of Obama policies has potential for surprising outcomes as well. The best case scenario would be an initial (perhaps prolonged) lift to economic activity from increased infrastructure spending and tax cuts. The worst case would be a recession, sooner rather than later. Despite the rhetoric, Citi Analysts believe a more benign, and most likely, scenario is a continuation of moderate US growth despite the uncertainty-induced drag in advance of the election. Congressional and judicial limits to Presidential power should moderate policy proposals that are enacted, relative to what the individual candidates hope to achieve. Nonetheless, Citi Analysts recognize that tail risks are myriad. United Kingdom: The Bank of England s (BoE) Agents July survey of economic conditions showed a significant impact of the EU referendum on the domestic economy, with the services and retail sectors slowing markedly from high levels. In contrast to domestic-oriented services, manufacturing is benefitting from improving global demand and the weaker sterling exchange rate, but at low levels. This is broadly in line with other indicators such as the PMIs. Overall, the data is consistent with Citi Analysts and the Bank of England s call for a major slowdown but not recession in 2H-2016 and leaves the outlook for another Bank Rate cut to 0.1% at the MPC's November meeting unchanged. Japan: While there is significant uncertainty over what the "comprehensive assessment" of monetary policy that the Bank of Japan (BoJ) plans to conduct at its next policy meeting in September will look like, Citi Analysts currently expect the BoJ will largely justify the effectiveness of the current policy framework while also starting to carefully communicate an intention to introduce more flexibility to its large-scale government bonds (JGB) purchasing operation. Citi Analysts suspect that the preliminary outline though is unlikely to make any direct recommendations on the future direction of monetary policy, though the general tone would suggest that a tapering of the BOJ's massive stimulus program is unlikely. Australia: Citi s new RBA outlook August s cut was a defining moment for the Reserve Bank of Australia (RBA). The RBA cut the cash rate on its last monetary policy meeting despite keeping the forecast that inflation would move higher and be back inside the bottom half of the target band (2%-3%) by mid next year. This was a change from the previous four rate cuts that had been accompanied by downward revisions to either the previously printed inflation forecasts or the forecasts showing lower inflation at the very end of the forecast horizon. Citi Analysts suspect the change in behavior from the RBA shows more unease at the prospect of Australian inflation remaining weak for longer (although no weaker than before) and the possibility that there is now a structural element to weak global inflation. If this is the case, then the current 1.50% cash rate is unlikely to be the terminal rate in this policy cycle. Citi Analysts now expect the RBA to cut again in November. This will take the cash rate down to 1.25% with the risk of further easing, depending on the path of interest rates globally.

5 The Week Ahead Source: CitiFX 12 th Aug 2016 If you have any questions regarding the above or would like an update on FX please contact your Relationship Manager or one of the Treasury Sales Officers; Inga Tahtadzjana Prashanth Natarajan Joe Bond