Citibank Wealth Management Weekly FX Insight Weekly FX Insight Dec 9, 2013 with data as of Dec 6 Market Review & Focus FX Analysis Weekly FX Recap 01 USD/JPY 04 NZD/USD 05 Upcoming Economic Figures GBP/USD 06 2013 Citibank and Events 02 AUD/USD 07 Citibank and Arc Weekly Design FX is Focus a registered service 03 mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited USD/CNY 08 FX & Eco. Figures Interest Rate & FX 09 Economic Figures 10
Weekly FX Recap Market recap: USD/JPY surged last week amid expectations of tapering due to strong U.S. employment data The AUD dropped as Australia s GDP growth in Q3 slowed down from 2.4% to 2.3% and the RBA made bearish comments on the AUD. AUD/USD dropped 0.1% to close at 0.9102 last week. AUD outlook: AUD/USD may test lower to 0.8848-0.9000. The EUR climbed as the ECB statement was not as negative as expected and showed the bank needs enough time to observe inflation development, indicating the authority may not cut rates in the short term. EUR/USD surged 0.9% to close at 1.3706 last week. EUR outlook: EUR/USD may be constrained between 1.3711-1.3832. USD/JPY rose as U.S. non-farm payrolls rose 203K, topping the market forecast of 185K. and unemployment rate dropped to 5-year low at 7%. USD/JPY rose 0.5% to close at 102.91. JPY outlook: USD /JPY may test higher to 103.74-105.00. Weekly changes versus US dollar Source: Bloomberg L.P., as of Dec 6, 2013 1
Upcoming Economic Figures and Events The NZD may be underpinned amid the RBNZ s meeting Key Economic Data This Week: Dec 12 (Thur): Australia will announce November s employment data. Market expects employment may increase 10,000, much better than October s increase of 1100. This may limit the AUD s downside. (Market forecast: 10000; prior: 1100) Key Events This Week: Dec 12 (Thur): The RBNZ will announce the rate decision. => The RBNZ may reiterate the kiwi is currently overvalued but jawboning the kiwi may not have significant impact on it because NZ economy is recovering and thus the central bank will finally hike rates. If expectations of next year s increase in interest rates heat up, the kiwi may strengthen and AUD/NZD may drop further. 2
Weekly FX Focus: Fund outflows from Japan to foreign markets may undermine the JPY Bn 3100 2300 Japan s Investment Portfolio Fund Inflows/Outflows ( billion) 2483 2482 1500 +ve: fund inflows 700-100 -900-1700 -ve: fund outflows -1372 Source: Bloomberg L.P., as of Dec 6, 2013 The amount of selling foreign assets and bringing back funds to Japan by Japan s institutional investors in H1 2013 climbed to the record high. But since Japan s bond yields keep decreasing, Japan s investors could not obtain expected return and thus Japan s institutional investors started to reinvest in foreign assets. Previous fund inflows into Japan are expected to end. In fact, the chairman of the advisory board of Japan Government Pension Investment Fund (GPIF) said to revise down the holding of Japan s bonds from currently 58% to 52%. U.S. bond yields may rise on the expectation of tapering by the Fed in March next year. This may prompt Japan s institutional investors to sell low-return Japan s bonds and to buy U.S. bonds, which may underpin the USD and bring negative impacts on the JPY. In addition, Japan s personal investors also started to invest in foreign assets. Personal investors may increase investment in emerging markets while institutional investors tend to but low-risk U.S. government bonds. Since Haruhiko Kuroda took office as the governor of the BOJ, he has expanded QE and has succeeded in adjusting Japan s investment portfolio by reducing the proportion of Japan s bonds and increasing higher-risk assets and foreign investment. This may increase fund outflows of Japan, which may undermine the JPY in the medium and long term. Citi analysts expect USD/JPY may test higher to 105 level for the coming 6-12 months. -917 Q1 2013 Q2 2013 Q3 2013 Oct-13 3
USD/JPY USD/JPY may test higher to 103.74-105.00 (74.80-73.90) Last Price 102.91 (75.41) High 103.38 (75.06) Low 101.63 (76.36) Market Recap: USD/JPY rose as markets expected the Fed to start tapering earlier due to the better-than-expected employment data. JPY Outlook: U.S.-Japan yield spreads are expanding due to rising U.S. treasury yields. Fund outflows from Japan to the U.S. may suppress the JPY. Although Japan announced 18.6 trillion stimulus package, the amount was marginally in line with expectations, disappointing investors. This may undermine the JPY. The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference, and 1,000 yen per unit for JPY/HKD 100.61 (77.13) 101.63 (76.36) 103.74 (74.80) 105.00 105.00 (73.90) 103.74 0-3m 102.00 (76.08) 6-12m 105.00 (73.90) Upcoming Economic Data Dec 9: GDP Dec 9: BoP Current Account Adjusted 100.61-101.63 The BOJ may expand QE to offset the negative impacts of sales tax hikes, which may suppress the JPY. Technical Analysis: USD/JPY may test higher to the high at 103.74 (73.90) in May upon consolidation. A breach on the upside may send the pair higher to 105.00 (73.90) with support at 101.63 (76.36). Source: Bloomberg L.P., as of Dec 6, 2013 4
NZD/USD NZD may test higher to 0.8415 (6.53) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference Last Price 0.8254 (6.41) High 0.8415 (6.53) Low 0.8240 (6.39) 0.8035 (6.24) 0.8179 (6.35) 0.8436 (6.55) 0.8544 (6.63) 0-3m 0.87 (6.75) 6-12m 0.85 (6.60) Upcoming Economic Data Dec 12: The RBNZ s rate decision Dec 13: Business PMI Market Recap: Funds may flow from Australia to NZ due to the divergence of economy and monetary policies between two countries. NZD Outlook: The RBNZ may hike rates in Q1 of 2014, which may support the kiwi in the medium and long term. 0.8415 0.8544 NZ s term of trade in Q3 rose from 4.7% to 7.5%, indicating export prices were much higher than import prices. Increase in export revenue may support the kiwi s rally. The kiwi may be indirectly suppressed by a rise in the USD as the Fed may start tapering earlier. 0.7935 0.8085 Technical Analysis: NZD/USD may rebound to 0.8415 (6.53), with support at 0.8025 (6.27) Source: Bloomberg L.P., as of Dec 6, 2013 5
GBP/USD GBP/USD may test higher to 1.6500 (12.80) upon consolidation Last Price 1.6349 (12.69) High 1.6443 (12.76) Low 1.6294 (12.64) 1.5855 (12.30) 1.6260 (12.62) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference 1.6500 (12.80) 1.6618 (12.90) 0-3m 1.65 (12.80) 6-12m 1.75 (13.58) Upcoming Economic Data Dec 10: Industrial Production Dec 10: Trade Balance Market Recap: The GBP dropped as the U.K. Autumn budget only revised up 2014 economic growth to 2.4%, which disappointed the pound. GBP Outlook: The pound may be underpinned as the BOE remained the interest rate (0.5%) and the scale of bond buying unchanged, which may support the economic development. The BOE may start to hike rates in 2015 due to strong U.K. economic growth and unemployment rate dropping to 7% as early as end-2014. The Fed may start tapering earlier due to upbeat U.S. employment data. A rise in the USD may restrain the pound. Technical Analysis: GBP/USD may test higher to 1.6500 (12.80) upon consolidation, with resistance at 1.6618 (12.90) and support at 1.6260 (12.62). 1.6747 1.6618 Source: Bloomberg L.P., as of Dec 6, 2013 1.6260 1.5855 6
AUD/USD AUD/USD may test lower to 0.8848-0.9000 (6.87-6.98) Last Price 0.9102 (7.06) High 0.9168 (7.11) Low 0.8990 (6.98) 0.8686 (6.74) 0.8848 (6.87) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference 0.9273 (7.20) 0.9448 (7.33) 0-3m 0.91 (7.06) 6-12m 0.88 (6.83) Upcoming Economic Data Dec 11: Consumer Confidence Dec 12: Unemployment rate Market Recap: The AUD plunged as Australia s GDP growth in Q3 slowed down from 2.4% to 2.3%, worse than expected, indicating slow economic growth. AUD Outlook: The RBA s statement reiterated the AUD is currently overvalued, which may suppress the AUD. Department of the Treasury said economic growth may not reach the government s target and budget may deteriorate in 13/14 fiscal year, indicating concerns on economic outlook. This may suppress the AUD. Appreciation of the USD due to the possible tapering by the Fed before January next year is likely AUD-negative. Technical Analysis: AUD/USD may be suppressed and test lower to 0.8848-0.9000 (6.87-6.98), with support at 0.9273 (7.20). 0.9273 (100 MA) 0.8848-0.8893 0.8686 Source: Bloomberg L.P., as of Dec 6, 2013 0.9448 7
USD/CNY USD/CNY may test lower to 6.05 Last Price High Low 0-3m 6-12m 6.0940 6.1037 6.0892 6.08 6.05 Market Recap: Reform policies released by China government after the third plenum strengthened investors confidence in China s economic outlook. Fund inflows into China may support the CNY CNY Outlook: A series of reform policies released by China s central government may support China s economic recovery. This is likely CNY-positive in the medium and long term The PBOC said qualified institutional investment limit will be cancelled, which fueled expectations more foreign investments will be made in China. This support the appreciation of CNY in the medium and long term. Citi analyst expect USD/CNY may test lower to 6.05 for the coming 6-12 months. 6-12 month forecast: 6.05 Source: Bloomberg L.P., as of Nov 8, 2013 8
Appendix 1: Citi Interest Rate and FX for 2013 Citi FX Outlook Citi FX Interest Rate 0-3 month 6-12 month 11/29/13 4Q 13 1Q 14 Dollar Index 80.95 78.96 0.25 0.25 0.25 EUR/USD 1.35 1.40 0.25 0.25 0.25 GBP/USD 1.65 1.75 0.50 0.50 0.50 USD/JPY 102 105 0.10 0.10 0.10 USD/CHF 0.91 0.89 0.00 0.00 0.00 AUD/USD 0.91 0.88 2.50 2.50 2.50 NZD/USD 0.83 0.82 2.50 2.50 2.75 USD/CAD 1.06 1.08 1.00 1.00 1.00 USD/CNY 6.08 6.05 3.00 3.00 3.00 Source: Citi, forecast as of Nov 21, 2013 downgraded upgraded EUR: Due to the improving economic data, receding risk of EU debt crisis and fund inflows into the eurozone, the EUR may be supported in the short to medium term. GBP: As U.K. economy improves, the BOE may hike rates earlier in 2015, which may send the GBP higher to 1.65 for the coming 0-3 months. AUD: Since the Fed may not start tapering in the short term, AUD/USD downside may be limited to 0.91 for the coming 0-3 months. NZD: 2014 NZ growth may accelerate to 3.0% and the RBNZ may hike rates in Q1 2014, which may underpin the kiwi. JPY: Since the BOJ may expand QE and the U.S.-Japan yield spread may widen, USD/JPY may rise to 105 level gradually in the medium term. 9
Appendix 2: Upcoming Economic Figures (Dec 9, 2013 Dec 13, 2013) Date Time Event Actual Prior 12/09/2013 07:00 NZ QV House Prices YoY Nov -- 8.90% 12/09/2013 07:50 JN BoP Current Account Adjusted Oct -- - 125.2B 12/09/2013 07:50 JN GDP Annualized SA QoQ 3Q -- 1.90% 12/09/2013 09:30 CH CPI YoY Nov -- 3.20% 12/09/2013 21:15 CA Housing Starts Nov -- 198.3K 12/10/2013 08:01 UK RICS House Price Balance Nov -- 57% 12/10/2013 08:30 AU Home Loans MoM Oct -- 4.40% 12/10/2013 08:30 AU NAB Business Conditions Nov -- -4 12/10/2013 13:30 CH Industrial Production YoY Nov -- 10.30% 12/10/2013 13:30 CH Retail Sales YoY Nov -- 13.30% 12/10/2013 17:30 UK Industrial Production MoM Oct -- 0.90% 12/10/2013 17:30 UK Manufacturing Production MoM Oct -- 1.20% 12/10/2013 17:30 UK Trade Balance Oct -- - 3268 12/11/2013 07:30 AU Westpac Consumer Conf Index Dec -- 110.3 12/12/2013 03:00 US Monthly Budget Statement Nov -- -- 12/12/2013 04:00 NZ RBNZ Official Cash Rate Dec -- 2.50% 12/12/2013 08:30 AU Employment Change Nov -- 1.1K 12/12/2013 08:30 AU Unemployment Rate Nov -- 5.70% 12/12/2013 18:00 EC Industrial Production SA MoM Oct -- -0.50% 12/12/2013 21:30 CA New Housing Price Index YoY Oct -- 1.60% 12/12/2013 21:30 US Retail Sales Advance MoM Nov -- 0.40% 12/12/2013 21:30 US Retail Sales Ex Auto MoM Nov -- 0.20% 12/12/2013 21:30 US Initial Jobless Claims Dec -- 298K 12/13/2013 05:30 NZ BusinessNZ Manufacturing PMI Nov -- 55.7 12/13/2013 08:00 NZ ANZ Consumer Confidence MoM Dec -- 5.00% Source: Bloomberg L.P. 10
Important Disclosure For any enquiries, please call (852) 2860-0333 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. Investments referred to in this document are not recommendations of Citibank (Hong Kong) Limited ( Citibank ) or its affiliates. Although information has been obtained from and is based upon sources that Citibank believes to be reliable, Citi analysts do not guarantee its accuracy and it may be incomplete and condensed. All opinions, projections and estimates constitute the judgment of the author as of the date of publication and are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Past performance is no guarantee of future results. The document is not to be construed as a solicitation or recommendation of investment advice. Subject to the nature and contents of the document, the investments described herein are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal the amount invested. Certain investments contained in the document may have tax implications for private customers whereby levels and basis of taxation may be subject to change. Citibank does not provide tax advice and investors should seek advice from a tax adviser. Investment products: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Citi Foreign Exchange: s are a joint venture between Citi s foreign exchange, global macro and technical strategy groups and our developed and emerging markets economists. Under normal circumstances, we expect to present s on a monthly schedule although we may offer intra month updates if circumstances dictate. Technical Trend: All views, opinions and estimates derived from CitiFX Technicals (i) may change without notice and (ii) may differ from those views;, opinions and estimates held or expressed by Citi or other Citi personnel, including Citi Foreign Exchange:. Should CitiFX Technicals not cover any major currency pairs, the indication of short-term technical "bullish", "bearish", or "neutral" trends will be based on the result of analysis with various widely known short-term technical analysis tools, namely RSI, MACD, fibonacci, stochastics, bollinger bands, and simple moving averages. 11