US dollar, Swiss franc and British pound Greater yield advantage boosted US dollar USD % points USD A greater US yield advantage in expectation of hig

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1 Helaba Research FX BRIEFLY 12 December 2016 AUTHOR Christian Apelt, CFA phone: / EDITOR Claudia Windt PUBLISHER: Dr. Gertrud R. Traud Chief Economist/ Head of Research The US dollar advanced after the elections, if less dynamically. The British pound and the Canadian dollar appreciated even more strongly. By contrast, the Japanese yen lost substantial ground. The emerging market currencies were mostly able to recover. 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 11/10 to 12/09/16) 3,1 US dollar -4,4 Japanese yen 3,4 British pound 0,1 Swiss franc 5,4 Canadian dollar 0,9 Australian dollar 1,5 1,4 2,0 New Zealand dollar Swedish krona Norwegian krone 0,0 Czech koruna -1,8 Polish zloty -2,3 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. -3,6 Core currencies Rest of G10 Currencies of emerging countries Sources: Bloomberg, Helaba Research 1,6 1,8 1,7 3,7 4,0 5,6 8,4 Russian ruble Turkish new lira South Korean won Chinese yuan Indian rupee South African rand Brazilian real Mexican peso HELABA RESEARCH 12 DECEMBER HEL ABA 1

2 US dollar, Swiss franc and British pound Greater yield advantage boosted US dollar USD % points USD A greater US yield advantage in expectation of higher key interest rates following Trump s election victory drove up the value of the US dollar, especially since the ECB extended its bond purchases. Still, the euro-dollar exchange rate was trading once again above the low of Irrespective of the presumptive rate hike in December, the Fed is likely to continue its cautious course and disappoint some hopes. Trump s basic protectionist posture argues against a strong US dollar, as do the higher budget deficits. Also because of the valuation, the euro-dollar rate should rise. SNB probably stepped up interventions billion CHF CHF Trend: sideways CHF The Swiss franc profited only temporarily from political uncertainties that manifested themselves in the rise of risk premiums for sovereign bonds in southern Europe. By now the euro-franc exchange rate is trading again around The Swiss yield disadvantage against German Bunds barely changed on balance. The SNB probably stepped up its currency interventions, and its reserves grew most recently. Economically the latest data was disappointing, inflation remained negative. The euro-franc exchange rate should return to the range of 1.08 to Technical correction in the euro-pound rate over GBP % GBP Surprisingly enough, the British pound recovered after Trump s victory, even against the US dollar. The europound exchange rate dropped as low as 0.83, though most recently it rose a little. More so than the political risks in the euro zone, the oversold chart situation probably helped the pound. Britain s growth in the third quarter proved robust. However, the economy is likely to soften. Also because of the Brexit uncertainties, the pound should weaken again. Nevertheless, the favourable valuation limits the depreciation potential for the pound. HELABA RESEARCH 12 DECEMBER HEL ABA 2

3 Japanese yen, Norwegian krone and Swedish krona Japan s current account surplus as long-term support JPY % of GDP, 3-m.-Ø, inverted Trend: slight appreciation JPY The Japanese yen lost substantial ground. The global rise in bond yields following the election of Trump widened Japan s yield disadvantage. The yen weakened against the US dollar and even against the euro. Japan s economy is growing moderately, inflation remains low. The central bank will retain its expansionary policy. The international yield rise could be exaggerated, and a countermove should help the yen. Moreover, Japan s current account surplus is high. The yen should recover slightly against the euro and more robustly against the US dollar. Norway s yield advantage continues to grow NOK % points Trend: medium-term appreciation NOK The Norwegian krone appreciated slightly against the euro most recently. The euro-krone exchange rate is trading below 9.0. A rising crude oil price is propping up the Norwegian currency. Norway s yield advantage against the euro expanded considerably, which argues for a further appreciation of the krone. After all, Norway s central bank is not holding out the prospect of any further rate cuts, in fact, it could change direction in Growth (mainland) is proving solid, inflation is elevated. The euro-krone exchange rate should decline further in Euro-krona exchange rate past the peak SEK % points Trend: appreciation SEK The Swedish krona gained a little against the euro. The euro-krona rate fell below 9.8. In spite of a temporary slump, Sweden s economic growth is proving fairly robust. While inflation is still too low from the perspective of the central bank, it is slowly rising. The phase of an ever more expansionary monetary policy should near its end in Moreover, the euro-krona rate clearly overshot on the upside, which means that the Swedish currency is noticeably undervalued. As a result, the euro-krona rate should decline noticeably over the course of HELABA RESEARCH 12 DECEMBER HEL ABA 3

4 Australian dollar, Canadian dollar and Chinese yuan Aussie ignored higher metals prices Index USD Trend: slight depreciation AUD The Australian dollar lost against the US dollar and traded virtually unchanged against the euro. Thus, Australia s currency did not benefit from the recent, massive rise in prices for base metals. Australia s GDP shrank in the third quarter for the first time since Overall the economic picture is mixed. Inflation is still too low. The central bank will remain in a wait-and-see position for now, though it could become more expansionary in case of an appreciation. The Aussie should depreciate a little against the euro, while it could gain a bit against the US dollar. Loonie defies higher US interest rates CAD % points against the euro CAD The Canadian dollar appreciated robustly, even against the US dollar. It was helped by the noticeable rise in oil prices, which supplanted the political concerns over NAFTA in the wake of Trump s election. Canada s economy is brightening noticeably; inflation, however, remained moderate. As a result, Canada s central bank will hold off for some time yet. On the one hand, the interest rate differences could weigh on the Loonie, while, on the other hand, the oil price will be supportive. The Canadian dollar should lose a little against the US dollar and more against the euro. China s currency reserves shrinking faster again CNY trillion USD CNY The Chinese yuan continued to lose ground against the US dollar. The dollar-yuan exchange rate rose temporarily over By contrast, China s currency gained slightly against the euro. China s currency reserves shrank more rapidly again. Thus, beyond the valuation effects, capital flight accelerated. Trump is stoking uncertainty with his potential policy, and the yuan weakness will hardly suit him. The yuan should stabilize against the US dollar for now. By contrast, China s currency will depreciate against the euro. HELABA RESEARCH 12 DECEMBER HEL ABA 4

5 Helaba Currency Forecasts vs. Euro (vs. Euro, %) Performance Forecast horizon at end... year to date 1 month current* Q4/2016 Q1/2017 Q2/2017 Q3/2017 US dollar 2,9 3,1 1,06 1,10 1,15 1,15 1,15 Japanese yen 7,3-4, British pound -12,1 3,4 0,84 0,90 0,90 0,90 0,90 Swiss franc 1,3 0,1 1,07 1,08 1,08 1,08 1,10 Canadian dollar 8,0 5,4 1,39 1,49 1,55 1,53 1,52 Australian dollar 5,2 0,9 1,42 1,51 1,53 1,49 1,47 Swedish krona -5,4 1,5 9,70 9,50 9,30 9,20 9,10 Norwegian krone 7,0 1,4 8,98 9,00 8,90 8,90 8,80 Chinese yuan -2,7 1,8 7,29 7,54 7,94 7,94 7,99 vs. US-Dollar (vs. USD, %) Japanese yen 4,2-7, Swiss franc -1,5-3,0 1,02 0,98 0,94 0,94 0,96 Canadian dollar 5,0 2,2 1,32 1,35 1,35 1,33 1,32 Swedish krona -8,1-1,6 9,19 8,64 8,09 8,00 7,91 Norwegian krone 4,0-1,6 8,50 8,18 7,74 7,74 7,65 Chinese yuan -6,0-1,5 6,91 6,85 6,90 6,90 6,95 1,57 US-Dollar vs. (vs. USD, %) British pound -14,7 0,1 1,26 1,22 1,28 1,28 1,28 Australian dollar 2,2-2,2 0,74 0,73 0,75 0,77 0,78 * Sources: Bloomberg, Helaba Research HELABA RESEARCH 12 DECEMBER HEL ABA 5