FX Forecast Update 15 July 2015 Calm after the storm Thomas Harr Global Head of FICC Research Stefan Mellin Jens Nærvig Pedersen Kristoffer Lomholt Senior Analyst Senior Analyst Analyst Morten Helt Christin Tuxen Vladimir Miklashevsky Senior Analyst Senior Analyst Analyst www.danskebank.com/research Investment Research Important disclosures and certifications are contained from page 10 of this report.
Forecasts summary - part I Note: this month s FX Forecast Update is a shortened version due to summer holiday EUR/NOK. The NOK has in the past month suffered from a lower oil price, a surprisingly dovish Norges Bank and poor NOK liquidity. As a result we raised our forecast profile last week and now forecast the cross at 8.90 in 1M. Relative fundamentals, positioning and models, however, continue to suggest downside in EUR/NOK and we therefore still expect a stronger NOK. We target the cross at 8.70 in 3M, 8.50 in 6M and 8.40 in 12M. EUR/SEK. While the SEK is significantly undervalued and while a rebound will come eventually, short-term drivers like monetary policy suggest the SEK will stay weak in the next couple of months. The Riksbank has made monetary policy even more accommodative and has stepped up its rhetoric regarding the currency. There is, in our view, a high probability of another rate cut before year-end given the inflation outlook. The upside in EUR/SEK remains capped by fundamentals whereas the Riksbank is ready to mitigate any premature (e.g. Grexit-induced) excessive downside dynamics. We have kept our forecast profile for EUR/SEK unchanged targeting the cross at 9.30 in 1-3M, 9.20 in 6M and 9.00 in 12M. EUR/DKK. The struggle to agree on a solution to Greece s debt woes has not had a significant impact on EUR/DKK and we therefore keep our forecasts unchanged at 7.4610 on 1M and 7.4550 on 3M-12M. EUR/USD. Following a (very brief) relief rally in EUR/USD after the Greek contingent debt deal, focus should now return to the Fed as markets catch up with a first Fed hike later this year. We expect the first hike to be delivered in September, which should trigger another fall in EUR/USD in coming months. We now see the cross at 1.10 in 1M but we have kept our 3M- 12M forecast unchanged. We thus target EUR/USD at 1.04 in 3M, 1.06 in 6M and 1.10 in 12M but stress that possible undershooting is likely during the autumn. EUR/GBP. We expect relative growth and divergent monetary policy to support further EUR/GBP depreciation in the coming months targeting EUR/GBP at 0.71 in 1M (prev. 0.72) and 0.70 in 3M. We remain of the view that the Bank of England is set to hike in Q4 15 although the new 15-16 budget proposal admittedly has increased the likelihood of a later and more gradual hiking pace. Longer term, tighter fiscal policy and increased political uncertainty due to the upcoming EU referendum imply less support for the GBP. We target EUR/GBP at 0.72 in 12M (prev. 0.71). 2
Forecasts summary - part II USD/JPY. We still expect USD/JPY to remain supported by higher US interest rates in the coming months. In 1M, we target USD/JPY at 123 and still expect the cross to increase towards 126 in 6M. Fundamentally, the JPY has become substantially undervalued resulting in increased political resistance to further depreciation. Hence, we expect more verbal defence of the JPY to curb upside potential for USD/JPY, which in addition should result in more two-way volatility in the cross. On a 6M to 12M horizon, we expect USD/JPY to enter another period of range trading as support for the USD eases following the first Fed hike in September. Longer term, support to the JPY should increase as the Japanese trade balance looks set to continue. We have kept our 12M forecast unchanged at 127. EUR/CHF. With Grexit-risk declining, pressure on the SNB is easing and we think policy measures will be kept unchanged for the foreseeable future. With the SNB priced to deliver lower rates over the autumn we see potential for downside pressure on EUR/CHF still. We thus continue to see EUR/CHF at 1.04 in 1M and 3M. We maintain, however, that upside will materialise longer term and keep our 12M forecast unchanged at 1.10, while rolling our 6M projection to 1.06 (prev. 1.05). USD/CAD. After the heavy sell-off in the oil price the Bank of Canada may cut rates in July; indeed, BoC has proved its will to act with the insurance cut delivered ahead of ECB s QE in January. We see upside in USD/CAD still from both legs near term and have upped our forecast profile to 1.28 (prev. 1.24) in 1M, 1.29 (1.26) in 3M, 1.30 (1.27) in 6M and 1.28 (1.25) in 12M. AUD/USD. We expect more AUD/USD downside to play out: the AUD still suffers from a significant terms of trade shock and with the September Fed hike looming we expect the cross to depreciate even further with no additional rate cuts from the Reserve Bank of Australia. We target AUD/USD at 0.74 in 1M (previously 0.76) and 0.72 (0.74) in 3M. We expect the cross to stabilise in 6-12M, when a Fed hiking cycle has been priced and the Aussie economy recovers. We target the cross at 0.71 in 6M and 12M (from 0.73). NZD/USD. We have adapted our forecast profile somewhat as it looks increasingly likely the RBNZ will cut again. However, this is largely priced and thus downside is to come mainly from USD strength. We now see NZD/USD at 0.67 (prev. 0.68) in 1M, 0.66 (0.65) in 3M, 0.65 (0.67) in 6M but maintain our 12M forecast at 0.70. 3
Forecasts summary - part III EUR/PLN. Political uncertainty ahead of the Polish parliamentary elections (due no later than October) is likely to cause more PLN volatility in the next 1-3 months and we see a risk that EUR/PLN could inch up again in the short term. To reflect the increased political risk in Poland we have raised our 1M and 3M forecast to 4.20 in 1M (4.15) and 4.25 in 3M (4.20). On a 6-12M horizon, we expect the zloty to remain supported by both a moderately more positive outlook for growth, the ECB s QE programme while the Polish central bank is done cutting rates. Hence, we expect EUR/PLN to fall back toward 4.15 in 6-12M. EUR/HUF. We continue to believe that Hungary s fairly strong external position is likely to be supportive for the HUF in the medium term. Furthermore, fairly strong growth and an expected pickup in inflation are likely to keep the carry on the HUF relatively attractive. Following the past week s EUR depreciation, we have lowered our EUR/HUF profile slightly still looking for a modest medium-term decline in EUR/HUF towards 310 in 1-6M (315) and 305 in 12M (310). EUR/CZK. We believe the CNB will defend the floor under EUR/CZK at 27 if needed. However, inflation is gradually picking up while we expect GDP to be supported in 2015 by stronger external demand, the low oil price and expansionary fiscal policy. Hence, we are lowering our EUR/CZK forecasts to 27.1 on 1-12M from 27.4 on 1M, 27.3 (3M), 27.2 (6-12M) previously. The biggest risk to this view is a prolonged test of the EUR/CZK floor, which could trigger a kneejerk change in monetary policy. USD/RUB. We remain bearish on the RUB in the short run as dividend payments by large Russian corporations in July - August 2015 will cause additional RUB selling. The current RUB levels are still too strong for Russia's budget and economy. Thus, we expect the central bank to continue its FX purchases as long as USD/RUB trades below 60.00. We slightly raise our 1M USD/RUB forecast to 58.00 from previous 57.00 reiterating our current middle and long-run forecasts: 60.00 (3M), 63.00 (6M) and 70.00 (12M). The main upside risks to our USD/RUB forecasts remain geopolitics and the falling oil price. USD/CNY. Despite the recent turmoil in the stock market USD/CNY has continued to trade within a narrow range and PBoC is expected to keep it within a narrow range ahead of the IMF decision this autumn on possible inclusion of CNY in the SDR. We have maintained our USD/CNY forecasts unchanged forecasting modest CNY appreciation. USD/TRY. As political uncertainty in Turkey has recently eased, we have become more bullish on the TRY in the short run. We expect the pressure to return in the medium term as Fed's hike will weigh on EM assets globally. Yet, we remain bullish in the long run as economic fundamentals of the Turkish economy remain solid. We update our USD/TRY forecast as follows: 2.65 (1M) from earlier 2.75; 2.70 (3M) from 2.80; 2.80 (6M) from 2.65 while our 12M forecasts at 2.60 remains unchanged. 4
Danske Bank Markets FX forecasts vs EUR and USD Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs EUR USD 1.102 1.10 1.04 1.06 1.10-0.2-5.7-4.1-1.0 JPY 136.1 135 130 134 140-0.6-4.5-1.9 2.7 GBP 0.705 0.71 0.70 0.70 0.72 0.6-0.9-1.2 1.1 CHF 1.045 1.04 1.04 1.06 1.10-0.4-0.2 1.9 6.3 DKK 7.4627 7.4610 7.4550 7.4550 7.4550 0.0 0.0 0.1 0.3 NOK 8.96 8.90 8.70 8.50 8.40-0.7-3.2-5.7-7.3 SEK 9.37 9.30 9.30 9.20 9.00-0.8-0.7-1.7-3.7 Exchange rates vs USD JPY 123.5 123 125 126 127-0.4 1.3 2.3 3.7 GBP 1.56 1.55 1.49 1.51 1.53-0.8-4.9-3.0-2.0 CHF 0.95 0.95 1.00 1.00 1.00-0.2 5.8 6.3 7.3 DKK 6.77 6.78 7.17 7.03 6.78 0.2 6.1 4.4 1.3 NOK 8.13 8.09 8.37 8.02 7.64-0.5 2.7-1.7-6.4 SEK 8.51 8.45 8.94 8.68 8.18-0.5 5.3 2.5-2.8 CAD 1.28 1.28 1.29 1.30 1.28 0.3 1.0 1.7 0.2 AUD 0.75 0.74 0.72 0.71 0.71-0.6-3.0-3.9-3.1 NZD 0.67 0.67 0.66 0.65 0.70 0.4-0.6-1.4 7.4 RUB 56.76 58.00 60.00 63.00 70.00 1.1 2.6 4.7 10.8 CNY 6.21 6.21 6.20 6.18 6.10-0.2-0.7-1.6-4.0 Note: GBP, AUD and NZD are denominated in local currency rather than USD Source: Danske Bank Markets 5
Danske Bank Markets FX forecasts vs DKK Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs DKK EUR 7.4627 7.4610 7.4550 7.4550 7.4550 0.0 0.0 0.1 0.3 USD 6.77 6.78 7.17 7.03 6.78 0.2 6.1 4.4 1.3 JPY 5.48 5.51 5.73 5.58 5.34 0.6 4.8 2.0-2.3 GBP 10.58 10.51 10.65 10.65 10.35-0.6 1.0 1.3-0.8 CHF 7.14 7.17 7.17 7.03 6.78 0.4 0.3-1.7-5.6 NOK 0.83 0.84 0.86 0.88 0.89 0.8 3.3 6.2 8.2 SEK 0.80 0.80 0.80 0.81 0.83 0.8 0.8 1.9 4.2 CAD 5.31 5.30 5.56 5.41 5.29 0.0 5.1 2.7 1.1 AUD 5.05 5.02 5.16 4.99 4.81-0.4 3.0 0.4-1.9 NZD 4.53 4.54 4.73 4.57 4.74 0.7 5.5 2.9 8.8 PLN 1.81 1.78 1.75 1.80 1.80-1.5-2.4 0.5 1.4 CZK 0.28 0.28 0.28 0.28 0.28-0.1-0.1-0.1 0.0 HUF 0.24 0.24 0.24 0.24 0.24 0.3 0.5 0.8 3.1 RUB 0.12 0.12 0.12 0.11 0.10-0.8 3.5-0.2-8.6 CNY 1.09 1.09 1.16 1.14 1.11 0.4 6.9 6.1 5.5 Source: Danske Bank Markets 6
Danske Bank Markets FX forecasts vs SEK Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs SEK EUR 9.37 9.30 9.30 9.20 9.00-0.8-0.7-1.7-3.7 USD 8.51 8.45 8.94 8.68 8.18-0.5 5.3 2.5-2.8 JPY 6.89 6.87 7.15 6.89 6.44-0.1 4.0 0.1-6.3 GBP 13.29 13.10 13.29 13.14 12.50-1.4 0.2-0.5-4.8 CHF 8.97 8.94 8.94 8.68 8.18-0.4-0.5-3.6-9.4 NOK 1.05 1.04 1.07 1.08 1.07 0.0 2.6 4.2 3.9 DKK 1.26 1.25 1.25 1.23 1.21-0.8-0.8-1.8-4.0 CAD 6.67 6.61 6.93 6.68 6.39-0.8 4.3 0.8-3.0 AUD 6.34 6.26 6.44 6.16 5.81-1.1 2.2-1.5-5.8 NZD 5.69 5.66 5.90 5.64 5.73-0.1 4.7 1.0 4.4 PLN 2.27 2.21 2.19 2.22 2.17-2.3-3.1-1.4-2.6 CZK 0.35 0.34 0.34 0.34 0.33-0.8-0.8-1.9-4.0 HUF 0.30 0.30 0.30 0.30 0.30-0.5-0.3-1.1-1.0 RUB 0.15 0.15 0.15 0.14 0.12-1.6 2.7-2.1-12.3 CNY 1.37 1.36 1.44 1.40 1.34-0.4 6.1 4.2 1.2 Source: Danske Bank Markets 7
Danske Bank Markets FX forecasts vs NOK Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs NOK EUR 8.96 8.90 8.70 8.50 8.40-0.7-3.2-5.7-7.3 USD 8.13 8.09 8.37 8.02 7.64-0.5 2.7-1.7-6.4 JPY 6.58 6.58 6.69 6.36 6.01-0.1 1.4-3.9-9.7 GBP 12.70 12.54 12.43 12.14 11.67-1.4-2.3-4.6-8.3 CHF 8.57 8.56 8.37 8.02 7.64-0.4-3.0-7.5-12.8 SEK 0.96 0.96 0.94 0.92 0.93 0.0-2.5-4.1-3.7 DKK 1.20 1.19 1.17 1.14 1.13-0.8-3.2-5.8-7.6 CAD 6.37 6.32 6.48 6.17 5.97-0.8 1.7-3.3-6.6 AUD 6.06 5.99 6.02 5.69 5.42-1.1-0.3-5.5-9.3 NZD 5.44 5.42 5.52 5.21 5.35-0.1 2.1-3.1 0.5 PLN 2.17 2.12 2.05 2.05 2.02-2.2-5.5-5.4-6.2 CZK 0.33 0.33 0.32 0.31 0.31-0.8-3.3-5.9-7.6 HUF 0.29 0.29 0.28 0.27 0.28-0.5-2.7-5.1-4.7 RUB 0.14 0.14 0.14 0.13 0.11-1.6 0.1-6.0-15.5 CNY 1.31 1.30 1.35 1.30 1.25-0.3 3.5 0.0-2.5 Source: Danske Bank Markets 8
Danske Bank EMEA FX forecasts EUR USD DKK SEK NOK Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward PLN 15-Jul-15 4.13 3.75 181 227 217 +1M 4.20 4.14 3.82 3.75 178 180 221 227 212 217 +3M 4.25 4.15 4.09 3.76 175 180 219 226 205 217 +6M 4.15 4.16 3.92 3.77 180 179 222 225 205 217 +12M 4.15 4.20 3.77 3.78 180 177 217 223 202 216 HUF 15-Jul-15 310 282 24.0 3.02 2.88 +1M 310 311 282 282 24.1 24.0 3.00 3.01 2.87 2.88 +3M 310 311 298 282 24.0 23.9 3.00 3.01 2.81 2.89 +6M 310 312 292 282 24.0 23.9 2.97 3.00 2.74 2.89 +12M 305 314 277 282 24.4 23.7 2.95 2.98 2.75 2.89 CZK 15-Jul-15 27.1 24.6 27.6 34.6 33.1 +1M 27.1 27.1 24.6 24.6 27.5 27.5 34.3 34.6 32.8 33.1 +3M 27.1 27.1 26.1 24.5 27.5 27.5 34.3 34.6 32.1 33.2 +6M 27.1 27.0 25.6 24.5 27.5 27.5 33.9 34.6 31.4 33.3 +12M 27.1 27.0 24.6 24.3 27.5 27.5 33.2 34.6 31.0 33.5 RUB 15-Jul-15 62.5 56.8 11.9 15.0 14.3 +1M 63.8 63.2 58.0 57.4 11.7 11.8 14.6 14.8 13.9 14.2 +3M 62.4 64.6 60.0 58.5 11.9 11.5 14.9 14.5 13.9 13.9 +6M 66.8 66.5 63.0 60.2 11.2 11.2 13.8 14.1 12.7 13.5 +12M 77.0 70.2 70.0 63.2 9.7 10.6 11.7 13.3 10.9 12.9 TRY 15-Jul-15 2.91 2.64 256 322 307 +1M 2.92 2.94 2.65 2.66 256 254 319 319 305 305 +3M 2.81 2.99 2.70 2.71 265 249 331 313 310 301 +6M 2.97 3.07 2.80 2.78 251 243 310 305 286 294 +12M 2.86 3.23 2.60 2.90 261 230 315 290 294 281 Source: Danske Bank Markets 9
Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The authors of this research report are Thomas Harr (Chief Analyst), Stefan Mellin (Senior Analyst), Christin Tuxen (Senior Analyst), Morten Helt (Senior Analyst), Jens Naervig Pedersen (Analyst), Lars Christensen (Chief Analyst), Kristoffer Lomholt (Analyst), and Vladimir Miklashevsky (Analyst). Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors on request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the date of first publication. 10
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