FX BRIEFLY. 12 December Helaba Research. Performance on a month-over-month basis

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1 Helaba Research FX BRIEFLY 12 December 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 was able to gain a little ground against the US dollar. The British pound declined noticeably. The oil currencies trended downward. Among the emerging markets, especially the Brazilian real posted a strong drop. 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 11/12 to 12/11/18) -0,9 US dollar -0,5 Japanese yen -3,7 British pound 0,9 Swiss franc -1,9 Canadian dollar -0,4 Australian dollar 1,6 New Zealand dollar -0,2 Swedish krona -1,6 Norwegian krone 0,1 0,3 Czech koruna Polish zloty -0,5 Hungarian forint 1,3 Russian ruble 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. -4,2 Core currencies Rest of G10 Currencies of emerging countries Sources: Bloomberg, Helaba Research -0,1-0,1 0,3 0,2 0,1 1,0 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 US yield advantage shrank % points USD Trend: depreciation USD The US currency fell slightly on a month-over-month basis; the euro-dollar stands above Growth worries reduced interest rate expectations, the US yield advantage declined. The crisis over Italy and Brexit are again weighing on the euro. The US economy still appears to be robust, so that the Fed could hike further. This is likely to change in On balance, the US yield advantage will then probably decline further, especially since the ECB will initiate its first rate hike. In the short term, the euro-dollar rate is likely to fluctuate sideways, but will rise significantly in Uncertainties help the franc Index, inverted CHF Trend: sideways CHF The Swiss franc benefited from higher risk aversion in the financial markets. The euro-franc exchange rate slipped visibly below Nevertheless, the falling risk premiums on Italian bonds suggest that uncertainties may diminish again. The Swiss economy lost momentum, and GDP even shrank in the third quarter. Inflation also fell slightly. The Swiss central bank is much further away from a turnaround in interest rates than the ECB. Thanks to the ECB, the eurofranc exchange rate should climb to 1.20 in the second half of * calculated from VIX, High-Yield Spreads, Gold-Copper ratio Nervousness about pound sterling rising % GBP GBP The Brexit drama is coming to a head, the euro-pound rate jumped above Prime Minister May postponed the parliamentary vote on the EU withdrawal agreement and is fighting for her office. A majority in the House of Commons for the deal will be difficult, however. Political chaos could weigh heavily on the pound in the short term. However, given the alternatives, the most likely outcome is final approval of the Brexit deal. As the pound is noticeably undervalued, the currency would clearly benefit. The euro-pound exchange rate should then fall in the direction of HELABA RESEARCH 12 DECEMBER HEL ABA 2

3 Japanese yen, Norwegian krone and Swedish krona Yen so far not profiting as a safe-haven currency Index, inverted JPY JPY The Japanese yen weakened slightly against the euro and was little changed against the US dollar. The yen is hardly in demand as a safe-haven investment, even though risk aversion has increased. In addition, the US yield advantage declined. Japan's economy contracted in the third quarter. As it is, the Japanese central bank will be hesitant to change course in The high bets against the yen are regarded as a contraindicator. The valuation speaks for the currency. The yen should gain against the US dollar and move sideways against the euro. * calculated from VIX, High-Yield Spreads, Gold-Copper ratio Norway s yield advantage remains high % points NOK NOK The Norwegian crown depreciated noticeably. The eurokrone rate climbed temporarily above 9.7 and thus close to its high for the year. The headwind for the krone came from the massive fall in the price of crude oil. However, oil prices should recover. The latest economic figures were more positive. Inflation rose significantly. The Norwegian central bank will probably raise the key interest rate again in the first half of Despite a decline, the Norwegian yield advantage is at a high level. The euro-krone exchange rate is likely to try again to fall significantly. Swedish krona supported by yield differences % points SEK SEK On balance, the Swedish krona hardly moved at all. The euro-krona exchange rate remained at Though the Swedish economy contracted in the third quarter, other indicators point to a rather robust economy. Inflation declined somewhat from an elevated level. Nevertheless, the Swedish central bank should complete its interest rate turnaround in December. The interest rate differentials already speak clearly for the krona. In 2019, the Riksbank will probably raise its key interest rate even further. The euro-krona exchange rate should fall noticeably. HELABA RESEARCH 12 DECEMBER HEL ABA 3

4 Australian dollar, Canadian dollar and Chinese yuan Aussie with no tail wind from iron ore prices Index USD AUD The Australian dollar was able to appreciate noticeably only briefly. The ups and downs in the US-Chinese trade conflict are moving the "Aussie". The prices for iron ore corrected the previous rise, and industrial metals as a whole hardly changed. The Australian economy lost some of its momentum and inflation is moderate. The central bank will continue to wait and see for the time being. In the medium term, the US yield advantage will probably decline, so that the "Aussie" should appreciate slightly against the US dollar. The "Aussie" should tend to move sideways against the euro. Weak Canadian dollar justified after all? USD/barrel, inverted CAD CAD The Canadian dollar depreciated slightly against the US dollar and more significantly against the euro. The massive decline in the price of crude oil weighed on the Loonie. The associated economic concerns reduced expectations of rising key interest rates in Canada. However, the economic indicators are still proving to be robust. A higher crude oil price is likely to cause yields to rise again. The "Loonie" should then appreciate against the US dollar. The Canadian dollar will probably fluctuate around the current level against the euro. China s yield advantage is gone % points CNY Trend: slight depreciation against the euro CNY China's currency appreciated somewhat against the US dollar. The dollar-yuan exchange rate fell noticeably below 6.9 at times thanks to hopes of an easing in the trade conflict. China's foreign exchange reserves increased marginally. This does not point to a larger flight of capital, nor to a targeted devaluation strategy. The interest rate differentials point to a "fair" dollar-yuan exchange rate. A stable exchange rate seems desirable. China's currency is unlikely to change much against the US dollar for the time being and to lose some ground against the euro in the medium term. HELABA RESEARCH 12 DECEMBER 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 6,1-0,9 1,13 1,15 1,15 1,20 1,20 Japanese yen 5,4-0, British pound -2,0-3,7 0,91 0,90 0,85 0,85 0,80 Swiss franc 4,1 0,9 1,12 1,15 1,15 1,15 1,20 Canadian dollar -0,4-1,9 1,52 1,48 1,48 1,52 1,52 Australian dollar -2,1-0,4 1,57 1,60 1,55 1,60 1,58 Swedish krona -4,4-0,2 10,29 10,20 9,90 9,80 9,60 Norwegian krone 1,4-1,6 9,71 9,40 9,30 9,10 8,90 Chinese yuan -0,2 0,3 7,82 7,99 8,05 8,28 8,28 vs. US-Dollar (vs. USD, %) Japanese yen -0,6 0, Swiss franc -1,9 1,8 0,99 1,00 1,00 0,96 1,00 Canadian dollar -6,1-1,1 1,34 1,29 1,29 1,27 1,27 Swedish krona -10,0 0,7 9,09 8,87 8,61 8,17 8,00 Norwegian krone -4,4-0,7 8,58 8,17 8,09 7,58 7,42 Chinese yuan -5,7 0,9 6,90 6,95 7,00 6,90 6,90 1,57 US-Dollar vs. (vs. USD, %) British pound -7,6-2,8 1,25 1,28 1,35 1,41 1,50 Australian dollar -7,7 0,5 0,72 0,72 0,74 0,75 0,76 * Sources: Bloomberg, Helaba Research HELABA RESEARCH 12 DECEMBER HEL ABA 5