US dollar, Swiss franc and British pound US yield advantage has shrunk USD % points Trend: sideways USD The euro-dollar exchange rate rose most recent

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1 Helaba Research FX BRIEFLY 8 April 2016 AUTHOR Christian Apelt, CFA phone: / research@helaba.de EDITOR Markus Reinwand, CFA PUBLISHER: Dr. Gertrud R. Traud Chief Economist/ Head of Research The US dollar weakened noticeably in recent weeks, and the British pound lost even more ground. Conversely, the euro was among the big winners, surpassed only by the Japanese yen and a few emerging market currencies. 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 03/09 to 04/07/16) -3,3 US dollar 1,3 Japanese yen -4,4 British pound 0,9 Swiss franc -2,6 Canadian dollar -3,1 Australian dollar -1,5 New Zealand dollar 0,0 Swedish krona -1,0 Norwegian krone 0,1 Czech koruna 0,5 Polish zloty -1,0 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. -3,9-3,6-3,2-2,9-2,7-2,4 Core currencies Rest of G10 Currencies of emerging countries Sources: Bloomberg, Helaba Research 0,9 1,6 Russian ruble Turkish new lira South Korean won Chinese yuan Indian rupee South African rand Brazilian real Mexican peso HELABA RESEARCH 8 APRIL HEL ABA 1

2 US dollar, Swiss franc and British pound US yield advantage has shrunk USD % points Trend: sideways USD The euro-dollar exchange rate rose most recently to Though the ECB took new expansionary measures, it did quash hopes for further interest rate cuts. A few economic indicators in the US improved, but the Fed still dampened expectations about interest rate hikes. As a result, the US yield advantage shrank. The US dollar could tend toward further weakness for the time being also because of the high valuation. The Fed is likely to raise its key rate only in the middle of the year, thus giving the US dollar a boost in the second half of the year. Stable franc despite smaller interest disadvantage CHF % points Trend: sideways CHF The euro-franc exchange rate traded virtually unchanged at Following the stronger movements in February, the exchange rate has returned to calmer waters. The Swiss National Bank (SNB) retained its policy in spite of new ECB measures. The most recent economic data in Switzerland were persuasive. Even the price declines slowed. However, the SNB could respond to an appreciation of the franc with rate cuts or currency market interventions. The stabilization of the euro-franc exchange rate around 1.10 should therefore succeed. Already large hedges against the Brexit % GBP Trend: appreciation GBP The pound sterling lost ground again, and the euro-pound rate rose to Concerns about a possible exit from the EU continue to weigh on the pound. However, the already large hedges against a pound devaluation argue for things to calm down until the referendum in June. Growth remains solid, though without any larger upward dynamism. Inflation should pass through its trough. The Bank of England could raise its key rate still at the end of In case of a Yes to the EU and thanks to higher interest rates, the europound exchange rate should weaken substantially. Sources: Macrobond, Bloomberg, Helaba Research HELABA RESEARCH 8 APRIL HEL ABA 2

3 Japanese yen, Norwegian krone and Swedish krona Japan s yield disadvantage shrinking again JPY % points JPY The Japanese yen gained a little against the euro and noticeably against the US dollar. The dollar-yen exchange rate dropped to a 17-month low. Japan s interest rate disadvantage shrank. Most economic indicators in Japan were disappointing, inflation is low. Because of the yen strength, the Bank of Japan could cut its negative deposit rate further. In the second half of the year, the yen should decline clearly against the US dollar and slightly against the euro because of higher US interest rates. Norwegian krone remains in the pull of the oil price USD/barrel, inverted NOK Trend: appreciation NOK The Norwegian krone lost ground against the euro, the euro-krone exchange rate rose to 9.5. Norway s central bank cut its key rate to 0.5 % and held out the prospect of another cut. Overall more important was a setback of the oil price. The low energy prices weigh on the economy, the unemployment rate has risen noticeably. Inflation, however, is elevated. The central bank could change course in 2017, especially when oil prices recover. The euro-krone exchange rate should thus decline over the course of the year. Swedish krona still with yield advantages SEK % points Trend: medium term appreciation SEK The Swedish krona rose marginally against the euro, the euro-krona exchange rate is trading around Sweden s economy is growing robustly, even if the most recent economic indicators point to a slightly weakening dynamic. Inflation should tend upward, despite the recent setback. The central bank is likely to wait and see for now, though it could further limit the krona s appreciation potential. But at least over the medium term, Sweden s fundamental trend argues for a falling euro-krona exchange rate. HELABA RESEARCH 8 APRIL HEL ABA 3

4 Australian dollar, Canadian dollar and Chinese yuan Is the Aussie disconnecting from commodity prices? Index USD AUD The Australian dollar lost ground to the euro and gained slightly against the US dollar. Commodity prices declined again most recently. Australia s economy grew robustly overall, though most of the recent economic indicators worsened. Inflation is moderate, though further rate cuts by the Reserve Bank cannot be entirely ruled out. Interest rate spreads already argue against the Australian dollar. In view of the lower commodity prices, the Aussie should depreciate against the euro and the US dollar. Excessive Loonie recovery relative to oil price CAD USD/barrel, inverted Trend: slight depreciation CAD The Canadian dollar depreciated against the euro, but appreciated slightly against the US dollar. The usual pace setter of the Loonie, the oil price, dropped most for a while. The economic indicators were more positive, and so growth is improving overall after the difficult previous year. Cuts in the key interest rate are therefore not in the offing. But the recovery of the Loonie seems excessive as measured against interest rate differences and the oil price. Canada s currency could thus suffer a renewed setback against both the euro and the US dollar. Interest rate trend should weigh on the yuan CNY % points CNY The Chinese yuan lost ground against the euro, but it rose slightly against the US dollar. China s foreign currency reserves actually rose a little in March. The capital flight seems to have been arrested for now. While growth slowed slightly, at least the sentiment indicators improved. China s monetary policy, unlike US policy, is likely to be loosened. A further yuan depreciation is therefore likely. However, given China s still immense reserves, the losses should be only moderate. HELABA RESEARCH 8 APRIL HEL ABA 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 -4,5-3,3 1,14 1,15 1,10 1,05 1,05 Japanese yen 6,1 1, British pound -8,9-4,4 0,81 0,75 0,73 0,70 0,70 Swiss franc 0,1 0,9 1,09 1,10 1,10 1,10 1,10 Canadian dollar 0,5-2,6 1,50 1,53 1,45 1,41 1,41 Australian dollar -1,6-3,1 1,52 1,64 1,55 1,50 1,50 Swedish krona -1,3 0,0 9,29 9,10 9,00 8,80 8,80 Norwegian krone 1,5-1,0 9,47 9,30 9,00 8,70 8,70 Chinese yuan -3,7-2,9 7,37 7,71 7,48 7,14 7,14 vs. US-Dollar (vs. USD, %) Japanese yen 11,1 4, Swiss franc 4,8 4,3 0,96 0,96 1,00 1,05 1,05 Canadian dollar 5,3 0,8 1,31 1,33 1,32 1,34 1,34 Swedish krona 3,3 3,4 8,17 7,91 8,18 8,38 8,38 Norwegian krone 6,3 2,4 8,32 8,09 8,18 8,29 8,29 Chinese yuan 0,5 0,8 6,46 6,70 6,80 6,80 6,80 1,57 US-Dollar vs. (vs. USD, %) British pound -4,6-1,1 1,41 1,53 1,51 1,50 1,50 Australian dollar 3,0 0,3 0,75 0,70 0,71 0,70 0,70 * Sources: Bloomberg, Helaba Research HELABA RESEARCH 8 APRIL HEL ABA 5