GESTION DE RISQUES FINANCIERS FINANCIAL RISK MANAGEMENT

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GESTION DE RISQUES FINANCIERS FINANCIAL RISK MANAGEMENT 2019-03 / Market Commentary Bonjour, Here s our take on currency movements for the coming weeks.

That scenario would obviously get amplified from a retreating greenback, whereas the Fed s dovish stance on rates, and an anticipated US slowdown, would bolster other currencies.

1 GESTION DE RISQUES FINANCIERS FINANCIAL RISK MANAGEMENT / Market Commentary Bonjour, Here s our take on currency movements for the coming weeks. Although struggling, the Canadian economy could get a boost from a cessation of Sino-American hostilities and push the CAD up against the USD. That scenario would obviously get amplified from a retreating greenback, whereas the Fed s dovish stance on rates, and an anticipated US slowdown, would bolster other currencies. This would in turn help both the EUR and the GBP, both of which are showing strong resilience against disappointing economic news and an unending Brexit drama which has acquired a life of its own. Currency performance in % versus USD since beginning 2019

2 China s currency, meanwhile, is gaining momentum as the US shows signs of laying down its arms, or at least do away with an escalation of the trade conflict. World trade would obviously benefit from this. But this means that aluminum prices, plagued by a shrinking supply, could take quite a hike. CAD The loonie still manages to keep its head above water, remaining under the USDCAD 1.32 zone for the time being. But the sluggish economy, as shown by declining retail sales, could still weaken the CAD. Case in point: The Bank of Canada is staying on the sidelines, with the benchmark rate pegged at 1.75%. It s deemed unlikely that the bank will make any rate move unless the Canadian economy shows clear signs of gathering steam. So, the loonie is still a long way from its high of 1.26 of 12 months ago, but isn t showing signs of approaching the 1.36 area. Now that China and the US are extending their truce, optimism is the operational word the world over. Will it boost the CAD? That is the question. For now, the money is on a breakthrough in trade talks, which could fuel a stock market rally and boost the CAD higher against the USD. USD As winter nears its end, all eyes are on the Federal Reserve s dovish stand on rate hikes, and its impact on the greenback. Good news from the many commercial fronts where Donald Trump was waging war has upped risk appetite, making the USD losing some of its safe-haven quality. The US Dollar Index DXY is losing some ground, being the closest to the area as it s ever been in the past few months. As global FX markets have priced in positive news regarding trade, other drivers tend to be longer term and are likely to play a growing role looking ahead. The overall consensus is for rates to remain on hold for the short to medium term and as a result the market has sold the dollar, adding some downward pressure. This could lead to a gradual depreciation in the coming months, especially if signs of slower economic activity persist in the US.

3 EUR As cuts to economic forecasts are expected in early March, the Eurozone still struggles to maintain the single currency afloat. With Brexit pressures priced in, the European Central Bank points to external risks and uncertainties as factors weighing on the economy, and the EUR. Italy s recession and Germany s economy weakening come to mind. Yet, the euro should stay surprisingly strong, especially against the USD, with the EURUSD pair potentially rising towards the 1.15 area in the near future. For now, the EURUSD pair remains in the 1.14 zone, well above the 1.13 psychological threshold, under which things are expected to go south. In fact, the euro has kept above its former lows regardless of headwinds, so far. GBP

4 We ve literally run out of ways to describe the Pound sterling movements, with the Brexit deal s numerous touchy-feely rebounds. So, let s go for The GBP is in a world of its own, as usual. First, Prime Minister Theresa May delayed this week s parliamentary vote on the Withdrawal Agreement from the European Union for about 2 weeks, and expectations are high that the March 29 Brexit deadline will be extended. This makes a "no-deal" Brexit unlikely, pushing the Pound sterling upward. In fact, in late February, the GBP has rallied and reached a 3- month high against the USD, and the GBPUSD pair is on the ascent, crossing over the 1.31 mark. It s also reached a 2-year high against the euro, the GBPEUR pair peaking its nose above the 1.15 mark. The GBP has extended its advance at the start of this year, driven by building Brexit optimism, pundits observe. The currency was further boosted as Bank of England Governor Mark Carney suggested the central bank sees price growth staying above target regardless of the Brexit outcome. Now that s something to write home about. CNY The overall dovish tone by the Federal Reserve has pressured the USD, causing the CNY to strengthen, as the market factored in the slowdown in future rate paths. Indeed, the USDCNY is moving farther away from its high of 6.98, last fall. It goes into March somewhat under the 6.70 zone, the yuan gaining traction against the USD. And good news keeps piling on for the yuan, as Donald Trump said he would delay a planned hike in tariffs on Chinese imports, as trade negotiations between the two countries have made significant progress. As well, risk appetite, prompted by the tariffs delay and easing trade tensions, has initiated a rally against the USD in world markets and in the Chinese stock markets. So far, the CNY has strengthened 2.7% against the dollar in 2019, reversing some of last year's 5.5% loss. COMMODITIES - ALUMINUM The silvery metal prices seem to be on an upward momentum. In fact, prices per ton could soon get close to the USD2,000/ton barrier. ING s analysts even forecast a USD2,200/ton prices by year s end. However optimistic this may sound; the fact is that positive demand growth and continued constrained supply suggests a lift in prices is in

5 the cards for the near future. For now, price movements, as expressed by contract prices, signal a break from the downward trend of the past few months. And this upward price movement could very well get kicked up a notch if sino- American trade talks really do yield positive results for global trade. OUR MONTHLY READS This Stock Market Rally Has Everything, Except Investors Companies keep buying huge quantities of their own shares, propelling prices higher even as pensions, mutual funds and individuals sit on their hands, writes the New York Times. Iran Oil Industry Faces Bleak Outlook 40 Years After Revolution With a subscription: years-after-revolution As Iran s energy industry has little to celebrate. The country s crude output has yet to recover to pre-revolution levels and is unlikely to do so for many years, even without U.S. sanctions. In fact, oil production is languishing as foreign investors steer clear of the world s fourthlargest holder of crude, Bloomberg reports.

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