FX BRIEFLY. 10 October Helaba Research. Performance on a month-over-month basis

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1 Helaba Research FX BRIEFLY 10 October 2018 AUTHOR Christian Apelt, CFA phone: / EDITOR Claudia Windt PUBLISHER: Dr. Gertrud R. Traud Chief Economist/ Head of Research 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. The euro recently came under pressure against the US dollar. In spite of some uncertainties, the Swiss franc and the Japanese yen weakened on balance. By contrast, the oil currencies from Canada and Norway gained ground. Most of the emerging market currencies recovered most notably those from Brazil, Turkey and Russia. 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 09/10 to 10/09/18) 0,9 US dollar -0,7 Japanese yen 1,8 British pound -0,8 Swiss franc 2,6 Canadian dollar 0,7 Australian dollar 0,5 New Zealand dollar Swedish krona 2,4 Norwegian krone -0,6 Czech koruna 0,2 Polish zloty 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. -1,5 0,0 2,1 5,3 6,9 7,5 Russian ruble Turkish new lira South Korean won Chinese yuan Indian rupee South African rand 11,0 Brazilian real Mexican peso Core currencies Rest of G10 Currencies of emerging countries Sources: Bloomberg, Helaba Research HELABA RESEARCH 10 OCTO BER HEL ABA 1

2 US dollar, Swiss franc and British pound Problems in southern Europe help dollar only briefly % points, inverted USD Trend: depreciation USD The US dollar was able to appreciate. The euro-dollar rate fell below With its new budget, the Italian government is seeking conflict with Brussels, which is weighing on the euro. Although the US yield advantage over the euro rose, it is likely to be close to its peak. The currently strong US economy will lose momentum in The Fed will then act more hesitantly. In the short term, the euro-dollar exchange rate will probably trend in a directionless fashion. In the coming year, the euro should gain the upper hand, especially as the ECB will change course in Franc hardly in demand as a safe haven % points, inverted CHF CHF The Swiss franc was hardly able to benefit from renewed concerns about Italy. The euro-franc exchange rate fell only temporarily below The Swiss central bank warned against an overvalued franc. It reduced its inflation projections for 2019/20. The turnaround in interest rates by the SNB is probably further away than that of the ECB. This even though Swiss growth is strong at around 3 %. Inflation is also at a slightly elevated level. If the problems around Italy do not worsen dramatically, the euro-franc exchange rate should hover around 1.15 for the time being. Has the Brexit fear peaked? % points GBP GBP The British pound stabilized and the euro-pound exchange rate dropped below This even though the Brexit negotiations seem to have stalled. Prime Minister May is fighting both her own party and the EU. Nevertheless, the British economy is still proving to be solid. Its yield advantage is supporting the pound, even if the Bank of England is taking a wait-and-see stance for now. The Brexit negotiations will probably make significant progress in the final quarter. The British currency should benefit from this, and the europound exchange rate should fall towards HELABA RESEARCH 10 OCTO BER HEL ABA 2

3 Japanese yen, Norwegian krone and Swedish krona Does the yen profit as a safe haven, after all? Index, inverted JPY JPY The Japanese yen weakened against the euro and especially the US dollar, as rising yields in the US and Europe were weighing on it. Japan s monetary policy is maintaining its expansionary course. However, Japan s yield disadvantage should slowly form its peak vis-à-vis the US. Valuation aspects support the yen against the euro and the US dollar. The currently large bets against the yen are considered a contraindicator. Moreover, a rising risk aversion could help Japan s currency. The yen will gain against the euro and the US dollar. * calculated from VIX, High-Yield Spreads, gold-copper-ratio Large yield advantage of Norwegian krone % points NOK NOK The Norwegian krone recovered, the euro-krone rate dropped below 9.5. Norway s central bank raised its key interest rate for the first time since While it cut its rate projections slightly, the next move is on track for the beginning of Inflation is elevated, growth is solid. Already the yield advantage to date argues clearly in favour of the krone. Moreover, the high oil price should give the currency a boost. Measured against the fundamental tail wind, the krone is valued too low. The euro-krone rate should continue to fall, though more slowly than we previously posited. Swedish krona with continued yield advantage % points SEK SEK Despite a slight recovery, the Swedish krona proved weak overall. The euro-krone rate stands at a solid Parliamentary elections did not lead to chaos, even if the formation of a government will prove difficult. Sweden s economy continues to grow robustly. Inflation is trending upward. The Riksbank indicated a change of course on interest rate at the turn of the year. Sweden s yield advantage should then increase, since additional rate hikes will follow in The euro-krone rate should weaken noticeably over the medium term, though a little later than previously expected. HELABA RESEARCH 10 OCTO BER HEL ABA 3

4 Australian dollar, Canadian dollar and Chinese yuan Speculative bets against the Aussie as contraindicator Contracts, % of open interest USD AUD The Australian dollar depreciated somewhat against the US dollar. Concerns about China and world trade weighed on the "Aussie". Commodity prices remained comparatively stable. Although the Australian economy is growing very solidly, the central bank is not showing any willingness to raise interest rates. Due to the China problems, the "Aussie" will recover against the US dollar only slowly, even if the high bets against it are a contraindicator. The Australian currency is likely to move sideways against the euro. Canadian dollar supported by oil price USD/barrel, inverted CAD CAD The Canadian dollar strengthened against the US dollar and the euro. The trade dispute with the USA did end with a settlement. In addition, there was a tailwind from the rising price of crude oil. Canada's economy is growing strongly. Inflation is elevated. The Bank of Canada will continue to raise its key interest rate of 1.5 %. In 2019, the yield disadvantage of the "Loonie" against the US dollar should decline, at which time Canada's currency will appreciate slightly. Against the euro, the Canadian dollar will presumably fluctuate around the current level. China s reserves shrank slightly Trillion USD CNY Trend: slight depreciation against the euro CNY China's currency weakened against the US dollar. The dollar-yuan rate climbed above 6.9. The trade conflict with the USA escalated, the USA imposed further punitive tariffs. China relaxed its monetary policy. Concerns about a targeted devaluation strategy on the part of China are growing. However, the slight decline in currency reserves does not indicate this. The economic data are quite stable. According to interest rate differentials, the dollar-yuan rate is "fair". China's currency should remain stable against the US dollar and lose some ground against the euro in the medium term. HELABA RESEARCH 10 OCTO BER HEL ABA 4

5 Helaba Currency Forecasts Performance Forecast horizon at end... year to date 1 month current* Q4/2018 Q1/2019 Q2/2019 Q3/2019 vs. Euro (vs. Euro, %) US dollar 4,5 0,9 1,15 1,15 1,20 1,20 1,25 Japanese yen 4,2-0, British pound 1,6 1,8 0,87 0,85 0,85 0,85 0,80 Swiss franc 2,7-0,8 1,14 1,15 1,15 1,15 1,20 Canadian dollar 1,4 2,6 1,49 1,47 1,51 1,51 1,58 Australian dollar -5,0 0,7 1,62 1,60 1,62 1,60 1,60 Swedish krona -6,0 0,5 10,46 10,20 9,90 9,60 9,30 Norwegian krone 3,6 2,4 9,50 9,30 9,10 8,90 8,80 Chinese yuan -1,8 7,95 7,94 8,22 8,16 8,50 vs. US-Dollar (vs. USD, %) Japanese yen -0,2-1, Swiss franc -1,8-1,7 0,99 1,00 0,96 0,96 0,96 Canadian dollar -2,9 1,7 1,29 1,28 1,26 1,26 1,26 Swedish krona -1-0,4 9,11 8,87 8,25 8,00 7,44 Norwegian krone -0,8 1,5 8,27 8,09 7,58 7,42 7,04 Chinese yuan -6,0-1,0 6,92 6,90 6,85 6,80 6,80 1,57 US-Dollar vs. (vs. USD, %) British pound -2,7 0,9 1,31 1,35 1,41 1,41 1,56 Australian dollar -9,0-0,2 0,71 0,72 0,74 0,75 0,78 * Sources: Bloomberg, Helaba Research HELABA RESEARCH 10 OCTO BER HEL ABA 5