FX BRIEFLY. 8 June Helaba Research. Performance on a month-over-month basis

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1 Helaba Research FX BRIEFLY 8 June 2018 AUTHOR Christian Apelt, CFA phone: / research@helaba.de EDITOR Claudia Windt PUBLISHER: Dr. Gertrud R. Traud Chief Economist/ Head of Research The euro was able to make up its losses against the US dollar. Still, the Swiss franc and the Australian dollar appreciated noticeably. Emerging market currencies chiefly those from Turkey, Brazil, and Mexico lost substantial ground. 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. 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 05/09 to 06/07/18) 0,4 0,5 US dollar Japanese yen -0,5 British pound 3,0 Swiss franc -0,5 Canadian dollar 2,6 Australian dollar 0,5 0,7 1,0 New Zealand dollar Swedish krona Norwegian krone -0,8-1,0-0,3 Czech koruna Polish zloty Hungarian forint 1,5 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. -7,7-4,0-4,0-2,9 Core currencies Rest of G10 Currencies of emerging countries Sources: Bloomberg, Helaba Research -0,2 0,8 1,6 Turkish new lira South Korean won Chinese yuan Indian rupee South African rand Brazilian real Mexican peso HELABA RESEARCH 8 J UNE HEL ABA 1

2 US dollar, Swiss franc and British pound Yield differences support the US dollar % points USD USD The euro-dollar exchange rate suffered from the chaotic formation of a government in Italy and slipped to Since the ECB is nevertheless holding out the prospect of an end to its purchasing program, the euro recovered to In addition, President Trump's trade policy weighed on the US dollar. Political uncertainties on both sides of the Atlantic are likely to be balanced for the time being. The Fed will continue its interest rate hikes; the high US yield advantage clearly speaks in favour of the Greenback. The euro-dollar exchange rate should therefore fall to at least Franc with comeback as safe investment haven % points, inverted CHF CHF The Swiss franc appreciated significantly against the euro. The euro-franc exchange rate temporarily fell to 1.14 and most recently stood at The plans of the new Italian government led to uncertainty, the Franc was in demand as a safe investment haven. The Swiss central bank will stick to its expansionary policy. The economy is growing strongly and inflation has risen to a seven-year high. Unless the problems surrounding Italy worsen massively, the eurofranc exchange rate should settle at a level of Pound sterling with yield advantages % points GBP GBP The British pound traded virtually unchanged against the euro at The Bank of England left its key interest rate unchanged in May, as growth in the first quarter was disappointing. However, the Bank of England is likely to make up for its interest rate hike with renewed growth momentum, even if inflation eases. The British yield advantage speaks for the pound. On the other hand, political uncertainties remain because of Brexit, so that the euro-pound exchange rate is likely to remain between 0.85 and HELABA RESEARCH 8 J UNE HEL ABA 2

3 Japanese yen, Norwegian krone and Swedish krona Interest rate differences support yen against the euro % points JPY against the euro JPY For a time the Japanese yen appreciated significantly against the euro, but on balance it hardly changed against the euro and the US dollar. The higher risk aversion helped the yen only temporarily. The Japanese economy contracted in the first quarter, inflation declined. However, the Bank of Japan will maintain its expansionary policy anyway. But the yield disadvantage fell against the euro and points to a lower euro-yen exchange rate. The yen is likely to gain only slightly against the US dollar, as interest rate differentials offset US trading policy. Norwegian krone with continued high yield advantage % points NOK NOK The Norwegian krone rose slightly against the euro, with the euro-krone exchange rate at 9.5. Although the price of crude oil was unable to defend its rise, the high level supports the krone. Norway's yield advantage against the euro declined slightly, even though the central bank continues to suggest a rate hike after the summer. Growth in the first quarter was convincing, inflation picked up somewhat. Despite the setback, the interest rate differentials clearly point to an appreciation of the krone. The euro-krone exchange rate should therefore decline noticeably. Swedish krona on the path of recovery % points SEK SEK The Swedish krona recovered. Nevertheless, the eurokrona exchange rate is still clearly in double figures at Sweden continues to be economically convincing. Growth in the first quarter was robust and the mood remains optimistic. Despite the recent downturn, inflation is likely to rise. The central bank is aiming for a change of course on interest rates around the turn of the year. The prospect of rising key rates will further increase Sweden's already clear yield advantage. The euro-krona exchange rate should therefore continue to pull back. HELABA RESEARCH 8 J UNE HEL ABA 3

4 Australian dollar, Canadian dollar and Chinese yuan Aussie with clear yield advantage over the euro % points AUD AUD The Australian dollar appreciated significantly against the euro and the US dollar. Higher raw material prices helped the "Aussie". Growth in Australia was also very strong. Despite the positive economic situation, inflation has so far been quite moderate. The central bank will therefore hold back for the time being. The global trade conflict carries risks, but not only for the "Aussie". The Australian currency is likely to trade sideways against the US dollar. It is likely to appreciate against the euro thanks to the high yield advantage. High oil price supports the Loonie USD/barrel, inverted CAD against the euro CAD The Canadian dollar fell marginally against the euro and the US dollar. The escalating trade conflict with the USA has so far only had a slight impact on the "Loonie". Canada's economy is running well overall. Inflation is rising. The Bank of Canada will therefore continue to raise interest rates. In addition, the high crude oil price speaks in favour of the Canadian currency. The Loonie is likely to appreciate slightly against the US dollar. It is likely to gain more significantly against the euro thanks to the interest rate advantage. Dollar-yuan reacting mutedly to euro-dollar rate USD, inverted CNY CNY The Chinese yuan hardly changed against the euro and the US dollar. The general weakness of emerging market currencies had little effect on the yuan, even if the dollaryuan exchange rate has passed its low. The US-Chinese trade conflict bears uncertainties and could weigh on the yuan. By contrast, China's economy is proving robust. A lower euro-dollar exchange rate could cause the yuan to weaken somewhat against the US dollar. China's currency is likely to appreciate marginally against the euro, at most. HELABA RESEARCH 8 J UNE HEL ABA 4

5 Helaba Currency Forecasts Performance Forecast horizon at end... year to date 1 month current* Q2/2018 Q3/2018 Q4/2018 Q1/2019 vs. Euro (vs. Euro, %) US dollar 1,7 0,4 1,18 1,15 1,15 1,15 1,20 Japanese yen 4,5 0, British pound 1,0-0,5 0,88 0,90 0,90 0,85 0,85 Swiss franc 1,2 3,0 1,16 1,15 1,17 1,15 1,15 Canadian dollar -1,4-0,5 1,53 1,50 1,47 1,47 1,51 Australian dollar -0,7 2,6 1,55 1,49 1,47 1,47 1,50 Swedish krona -4,2 0,5 10,26 10,10 9,90 9,70 9,50 Norwegian krone 3,5 0,7 9,51 9,00 8,90 8,80 8,80 Chinese yuan 3,2-0,2 7,56 7,48 7,48 7,48 7,68 vs. US-Dollar (vs. USD, %) Japanese yen 2,7 0, Swiss franc -0,6 2,5 0,98 1,00 1,02 1,00 0,96 Canadian dollar -3,1-0,9 1,30 1,30 1,28 1,28 1,26 Swedish krona -5,9 0,0 8,70 8,78 8,61 8,43 7,92 Norwegian krone 1,8 0,3 8,06 7,83 7,74 7,65 7,33 Chinese yuan 1,8-0,5 6,39 6,50 6,50 6,50 6,40 1,57 US-Dollar vs. (vs. USD, %) British pound -0,7-0,9 1,34 1,28 1,28 1,35 1,41 Australian dollar -2,4 2,2 0,76 0,77 0,78 0,78 0,80 * Sources: Bloomberg, Helaba Research HELABA RESEARCH 8 J UNE HEL ABA 5