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1 Helaba Research FX BRIEFLY 10 June 2016 AUTHOR Christian Apelt, CFA phone: / EDITOR Claudia Windt PUBLISHER: Dr. Gertrud R. Traud Chief Economist/ Head of Research While the US dollar traded virtually unchanged against the euro, many other currencies gained ground. In particular, the New Zealand dollar and the Turkish lira appreciated. In this edition you will find brief analyses of the US dollar, Swiss franc, British pound, Japanese yen, Norwegian krone, and the Swedish krona, as well as the Australian dollar, the Canadian dollar, and the Chinese yuan. Helaba currency forecasts Helaba Landesbank Hessen-Thüringen MAIN TOWER Neue Mainzer Str Frankfurt am Main phone: / fax: / Performance on a month-over-month basis % vs. euro compared to the previous month (from 05/11 to 06/09/16) 1,0 US dollar 2,2 Japanese yen 1,0 British pound 1,7 Swiss franc 1,7 2,0 Canadian dollar Australian dollar 5,2 New Zealand dollar 0,5 Swedish krona 1,1 Norwegian krone 0,0 Czech koruna 2,1 Polish zloty 1,5 Hungarian forint This publication was very carefully researched and prepared. However, it contains analyses and forecasts regarding current and future market conditions that are for informational purposes only. The data is based on sources that we consider reliable, though we cannot assume any responsibility for the sources being accurate, complete, and up-to-date. All statements in this publication are for informational purposes. They must not be taken as an offer or recommendation for investment decisions. -0,4 0,0 0,3 0,9 2,1 2,5 2,5 Core currencies Rest of G10 Currencies of emerging countries Sources: Bloomberg, Helaba Research 3,1 Russian ruble Turkish new lira South Korean won Chinese yuan Indian rupee South African rand Brazilian real Mexican peso HELABA RESEARCH 10 JUNE HELABA 1

2 US dollar, Swiss franc and British pound US yield advantage growing with fluctuations USD % points USD The US dollar was not able to defend all of its gains against the euro and is trading around The growing expectations about interest rate hikes stoked by representatives of the Fed received a damper from the US labour market. Still, growth in the US accelerated. As a result, the Fed is likely to raise its key rate after all in the second half of the year. The US dollar should profit from the higher yield spreads, especially since the ECB remains expansionary. At the end of 2016 the euro-dollar exchange rate will presumably trade once again at the lower end of its range from 1.05 to SNB reserves rising again Billion CHF CHF Trend: sideways CHF The euro-franc exchange rate dropped from 1.11 to Concerns about the Brexit may have had a hand in this. However, the situation in Switzerland is looking more favourable. Although GDP grew only slowly in Q1, leading indicators point to acceleration. Prices are declining at a noticeably slower rate. The yield disadvantage of the franc shrank. The currency reserves of the Swiss National Bank rose again in May, which suggests interventions. The SNB should be able to contain an appreciation, and the eurofranc exchange rate should continue to hover around Hedges against the Brexit at high level % GBP GBP Overall the pound remained stable, and the euro-pound exchange rate traded around The British EU referendum on 23 June has a firm grip on the currency. In spite of fluctuations, the likelihood of a Brexit barely changed overall. Market participants are hedging against an appreciation at a high level. But should the British decide in favour of the EU, which is more likely, the pound should profit from the unwinding of the hedges. Moreover, the British economy has looked better more recently. By contrast, in case of an exit from the EU, the pound would weaken noticeably. Sources: Macrobond, Bloomberg, Helaba Research HELABA RESEARCH 10 JUNE HELABA 2

3 Japanese yen, Norwegian krone and Swedish krona Interest rate differences argue against the yen JPY % points Trend: depreciation JPY The Japanese yen appreciated markedly against the euro and the US dollar. The chances of an interest rate hike in the US dropped, and the yen also profited as a safe haven. But the yield spread vis-à-vis the US dollar and the euro barely changed. Japan s GDP growth in Q1 was a positive surprise. However, sentiment indicators counsel skepticism. The government postponed the VAT hike once again. In view of the development of the yen and inflation, the Bank of Japan is likely to take new expansionary measures. The yen should depreciate against the US dollar and the euro. Norwegian krone following oil price only in part USD/barrel, inverted NOK Trend: medium-term appreciation NOK The Norwegian krone gained slightly against the euro, and the euro-krone exchange rate is trading around The continued rise in the oil price helped the krone, though the appreciation was disproportionately low. Norway s economy is slowly regaining traction, though for now it remains burdened by the energy sector. In spite of higher inflation, the central bank is holding out the prospect of another interest rate cut. But monetary policy could make a turnaround in 2017, especially if oil prices recover. Moreover, valuation indicators suggest a declining euro-krone exchange rate. Yield advantage of Swedish krona declined SEK % points SEK The Swedish krona showed itself little changed, and the euro-krona exchange rate is trading around Although Sweden s economy is losing some of its momentum, growth is still at a high level. Inflation is slowly trending upward. Sweden s central bank is capping the krona with its expansionary policy. Still, its tolerance for a gradual appreciation should rise slowly. Most recently Sweden s yield advantage shrank. Nevertheless, the fundamental trend argues in favour of higher Swedish returns and thus for a declining euro-krona exchange rate. HELABA RESEARCH 10 JUNE HELABA 3

4 Australian dollar, Canadian dollar and Chinese yuan Aussie appropriate against the euro % points AUD AUD The Australian dollar gained against the euro and the US dollar. In contrast to crude oil, prices for industrial metals hardly rose. Australia s growth was robust in the first quarter. Unlike in the previous month, Australia s central bank held back, and it also did not hint at anything. However, in view of the low inflation, another interest rate cut is possible in the coming months. The interest rate differences argue for a depreciation of the Aussie against the US dollar. The Australian dollar should trend sideways against the euro. Loonie has priced in the oil price recovery CAD USD/barrel, inverted, logarithmized CAD The Canadian dollar appreciated against the euro and the US dollar. Oil prices continue to rise. After a good start into 2016, Canada s growth should weaken a little, not least because of the forest fires. Overall, however, the economy is growing solidly, thanks also to an expansionary fiscal policy. Monetary policy is taking a wait-and-see stance for the time being. Measured in terms of interest rate differences, the Loonie has risen too much. Canada s currency should therefore weaken against the US dollar and trend sideways against the euro over the medium term. China s currency reserves have shrunken marginally CNY billion USD CNY The Chinese yuan was among the few losers against the euro and the US dollar. The dollar-yuan exchange rate is trading only slightly below the high from last January. A certain depreciation pressure is weighing on the yuan from the offshore market. China s currency reserves declined slightly in May. The economic indicators were most recently mixed. In contrast to US monetary policy, China s central bank is likely to loosen even more. The yuan should therefore depreciate against the US dollar, while it should trend sideways against the euro. HELABA RESEARCH 10 JUNE HELABA 4

5 Helaba Currency Forecasts vs. Euro (vs. Euro, %) Performance Forecast horizon at end... year to date 1 month current* Q2/2016 Q3/2016 Q4/2016 Q1/2017 US dollar -4,0 1,0 1,13 1,15 1,10 1,05 1,05 Japanese yen 7,8 2, British pound -5,8 1,0 0,78 0,75 0,73 0,70 0,70 Swiss franc -0,3 1,7 1,09 1,10 1,10 1,10 1,10 Canadian dollar 4,4 2,0 1,44 1,53 1,45 1,41 1,41 Australian dollar -2,1 1,7 1,52 1,64 1,55 1,50 1,50 Swedish krona -0,9 0,5 9,25 9,10 9,00 8,80 8,80 Norwegian krone 4,1 1,1 9,23 9,30 9,00 8,70 8,70 Chinese yuan -4,6 0,0 7,44 7,71 7,48 7,14 7,19 vs. US-Dollar (vs. USD, %) Japanese yen 12,3 1, Swiss franc 3,9 0,7 0,96 0,96 1,00 1,05 1,05 Canadian dollar 8,8 1,0 1,27 1,33 1,32 1,34 1,34 Swedish krona 3,2-0,4 8,18 7,91 8,18 8,38 8,38 Norwegian krone 8,4 0,1 8,16 8,09 8,18 8,29 8,29 Chinese yuan -1,0-1,0 6,56 6,70 6,80 6,80 6,85 1,57 US-Dollar vs. (vs. USD, %) British pound -1,9 0,1 1,45 1,53 1,51 1,50 1,50 Australian dollar 2,0 0,8 0,74 0,70 0,71 0,70 0,70 * Sources: Bloomberg, Helaba Research HELABA RESEARCH 10 JUNE HELABA 5

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