*INVESTMENT PRODUCTS: NOT A BANK DEPOSIT. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE

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1 *INVESTMENT PRODUCTS: NOT A BANK DEPOSIT. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE Citibank Wealth Management Feb 11, 2019 with data as of Feb 8, 2019 Weekly FX Strategy FX Analysis Data Forecasts Weekly FX Insight Please note and carefully read the Important Disclosure on the last part 0

2 Weekly FX Strategy: GBP GBP news The BoE kept the interest rate unchanged at 0.75% but revised down 2019 and 2020 economic growth forecasts to 1.2% and 1.5% respectively. GBP was pressured on the rate decision. UK PM May held a meeting with President of the European Commission Juncker. He reiterated that the EU would not revise the Brexit agreement. Lawmakers will debate a parliamentary motion on Britain's exit from the European Union on February 14. Hard Brexit risk may continue to trouble GBP in the short term. GBP outlook We expect a delay in Brexit is becoming perhaps more likely and see a mild appreciation of GBP. The real risk for the currency lies in non-negligible probabilities of a Corbyn-led Government. 0-3M forecast: M forecast: 1.34 LT forecast: 1.48 GBP/USD Daily Chart (fibo 0.764) (Aug 2018 low) (Jan top) Strategy for GBP holders - Diversify into USD The BoE revised down 2019 and 2020 economic growth forecasts to 1.2% and 1.5% respectively. The BoE s dovish tilt may undermine GBP. The BoE revised down global economic forecasts for the UK and global economy. Thus, even though the BoE may still continue to tighten monetary policy, the BoE may not hike rates until August. Bearish on GBP USD Bearish on GBP HKD Strategy for USD holders - Buy GBP upon retracement Lawmakers will debate a parliamentary motion on Britain's exit from the European Union on February 14. Majority of the Parliament may not prefer a hard Brexit and the government may not actively propose it either. Even if the Parliament passes the Brexit agreement, several bills still need to be passed and thus an extension of Article 50 TEU is still likely, which may underpin GBP. Source: Bloomberg L.P., as of Feb 8, 2019 Since GBP/USD retreated to neutral levels, the pair may range trade between A break of may send the pair lower to Bullish on GBP USD Bullish on GBP HKD The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference 1

3 Weekly FX Strategy: NZD NZD news US-China trade fears renewed as White House economic advisor Kudlow said that there was a pretty sizable distance to go in US-China trade talks. US President Trump confirmed that he would not meet President Xi before the March 1st deadline. Rising trade negotiation concern and risk aversion pressured NZD. Bipartisan talks to avoid second US government shutdown are deadlocked, which restrained USD uptrend and supported NZD. NZD outlook Chinese easing, bearish dollar narrative and a marked improvement in ToT may support the NZD. However, a relatively dovish central bank may restrain the kiwi. 0-3M forecast: M forecast: 0.68 LT forecast: 0.67 NZD/USD Daily Chart (Jun 2018 top) (Dec 2018 top) (fibo 0.50) Strategy for NZD holders - Diversify into USD The RBNZ may keep the interest rate unchanged this week with its policy statement underlining global economic growth downside risk. The RBNZ may not want to be seen as relatively hawkish vis-a-vis its policy making peers. We expect the RBNZ to hike rate by Q A late hike may restrain the NZD. Bearish on NZD USD Bearish on NZD HKD Strategy for USD holders - Buy NZD upon retracement Subdued wage inflation may imply limited scope for further Fed hikes, which sends a stronger positive signal to risk appetite. This will likely be USD-negative against NZD. New Zealand mainly exports dairy products. Since December 2018, dairy product auction price rebounded nearly 20%, which may underpin NZD. Source: Bloomberg L.P., as of Feb 8, 2019 As NZD/USD s RSI continued to fall, the pair may range trade between in short term, with next resistance at Bullish on NZD USD Bullish on NZD HKD The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference 2

4 EUR/GBP (fibo 0.618) (Jan low) NZD/CAD (fibo 0.238) (fibo 0.618) Source: Bloomberg L.P., as of Feb 8,

5 Dollar Index USD outlook: As the Trump fiscal stimulus fades in terms of the delta to economic activity, we think long term yields have likely peaked, the spot US curve will continue to flatten, which may undermine the USD. More medium term, as yield spreads fall, FX depreciation likely continues. In our forecasts, as US developments become less $ positive, policy elsewhere may support other currencies. Our point forecasts show the $ around flat vs. G10 over 0-3m and around 3-4% weaker over 6-12m. Positive factors: In the event of severe risk-off in markets, USD may resume its safe-haven status, which may support the USD. The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference 0-3M forecast: M forecast: LT forecast: M forecast: M forecast: USD/CNH RMB outlook: RMB depreciation pressure will remain limited during the 90-day trade truce between China and the US, and the USDCNY will likely hover around However, the depreciation pressure will likely resume after Mar 1 if there is no bilateral agreement. As 7 is still an important psychological barrier, we believe the PBoC may not allow the RMB to depreciate beyond this level. Source: Bloomberg L.P., as of Feb 8, M forecast: M forecast: 6.90 LT forecast: (Nov 2018 top) (fibo 0.618) Bearish on CNH USD Bearish on CNH HKD Bullish on CNH USD Bullish on CNH HKD Source: Bloomberg L.P., as of Feb 8,

6 EUR/USD The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference EUR outlook: The ECB announced to end the bond purchasing program by end We expect the bank to start the policy normalization in With bond supply rising to positive value, less EU bond outflow may support the EUR. Besides, loosening monetary policy by the PBoC may spur EU s export to China, which may underpin the EUR. 0-3M forecast: M forecast: 1.34 LT forecast: (Oct 2018 top) Bearish on EUR USD (Nov 2018 low) Bearish on EUR HKD Bullish on EUR USD Bullish on EUR HKD USD/JPY JPY outlook: First, the continuation of the low interest environment squeezes net interest margins for financial institutions. Second, the bank may not want to affect the upcoming US-Japan trade talks. BOJ policy is already more restrictive in terms of balance sheet nominal expansion and broad monetary growth. This is also likely a JPY positive longer term. Bearish on JPY USD Source: Bloomberg L.P., as of Feb 8, M forecast: M forecast: 103 LT forecast: (fibo 0.618) (fibo 0.236) (Mar 2018 low) Bearish on JPY HKD Bullish on JPY USD Bullish on JPY HKD Source: Bloomberg L.P., as of Feb 8,

7 AUD/USD The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference AUD outlook: Chinese easing and bearish dollar narrative may support the AUD. However, the RBA may hike rate by H Further CNY weakness is especially possible if no bilateral trade agreement is reached, which may restrain the AUD. 0-3M forecast: M forecast: 0.73 LT forecast: (fibo 0.50) Bearish on AUD USD (Oct 2018 low) Bearish on AUD HKD Bullish on AUD USD Bullish on AUD HKD USD/CAD CAD outlook: The BoC may still have 3 more hikes in this cycle and oil bullish may benefit the CAD. But tightening path at risk may restrain the CAD. Source: Bloomberg L.P., as of Feb 8, M forecast: M Forecast: 1.29 LT Forecast: (fibo 0.764) Bearish on CAD USD (fibo 0.236) Bearish on CAD HKD Bullish on CAD USD Bullish on CAD HKD Source: Bloomberg L.P., as of Feb 8,

8 USD/CHF The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference CHF outlook: The SNB continues to cite a highly valued currency and fragile market backdrop as reasons to justify negative interest rates and FX intervention. As we expect the inflation outlook to remain subdued, particularly due to oil price base effects, the SNB most likely remains on hold for the foreseeable future. The main risks to our forecasts are developments politically in the region. Should Brexit related or Italian budgetary risk premia rise, we envisage more CHF strength than forecasted. 0-3M forecast: M forecast: 0.98 LT forecast: (Mar 2017 top) (Jun 2018 low) Technical Analysis: Since the RSI stayed at neutral territory, USD/CHF may range trade between EM Currencies Source: Bloomberg L.P., as of Feb 8, 2019 EM Currencies outlook: Against EM, the $ is flat to marginally stronger on both 0-3M and 6-12M horizons. Source: Bloomberg L.P., as of Feb 8,

9 Appendix 1: Last week performance, Citi interest rate and FX Forecasts Citi FX Outlook Forecast 0-3 month 6-12 month Long-term 2/8/2019 1Q 19 2Q 19 3Q 19 Dollar Index EUR/USD GBP/USD USD/JPY USD/CHF AUD/USD NZD/USD USD/CAD USD/CNY Source: Citi, forecast as of Jan 17, 2019 CCY Last week close Weekly Change Major Currencies Weekly Performance Citi FX interest rate Forecast Rate cut expectations Rate hike expectations 1 month high 1 month low 3 month high 3 month low 52 week high 52 week low Year-To-Date Change USD % % EUR/USD % % USD/JPY % % GBP/USD % % USD/CAD % % AUD/USD % % NZD/USD % % USD/CHF % % USD/CNY % USD/CNH % % GOLD % % Source: Bloomberg L.P., as of Feb 8,

10 Appendix 2: Last week s Economic Figures Time Importance Event Period Actual Survey Prior Monday 02/04/19 05:45 NZ!! Building Permits MoM Dec 5.10% % 02/04/19 23:00 US!! Durable Goods Orders Dec 0.70% 1.50% 0.80% Tuesday 02/05/19 08:30 AU!! Trade Balance Dec A$3681m A$2225m A$1925m 02/05/19 08:30 AU!! Retail Sales MoM Dec -0.40% 0.00% 0.40% 02/05/19 11:30 AU!! RBA Cash Rate Target Feb 1.50% 1.50% 1.50% 02/05/19 23:00 US!! ISM Non-Manufacturing Index Jan Wednesday 02/06/19 21:30 CA! Building Permits MoM Dec 6.00% -1.00% 2.60% 02/06/19 23:00 CA!! Ivey Purchasing Managers Index SA Jan Thursday 02/07/19 05:45 NZ!! Unemployment Rate 4Q 4.30% 4.10% 3.90% 02/07/19 05:45 NZ!! Employment Change QoQ 4Q 0.10% 0.30% 1.10% 02/07/19 20:00 UK!!! Bank of England Bank Rate Feb 0.75% 0.75% 0.75% 02/07/19 20:00 UK!!! Bank of England Inflation Report Feb 02/07/19 21:30 US!! Initial Jobless Claims Feb 234k 221k 253k Friday 02/08/19 21:30 CA!! Net Change in Employment Jan 66.8k 5.0k 9.3k 02/08/19 21:30 CA!! Unemployment Rate Jan 5.80% 5.70% 5.60% Source: Bloomberg L.P. 9

11 Appendix 3: Upcoming Economic Figures (Feb 11, 2019 Feb 15, 2019) Time Importance Event Period Actual Survey Prior Monday 02/11/19 17:30 UK!! GDP YoY 4Q % 02/11/19 17:30 UK!! Industrial Production YoY Dec % 02/11/19 17:30 UK!! Manufacturing Production YoY Dec % Tuesday 02/12/19 08:30 AU! NAB Business Conditions Jan Wednesday 02/13/19 04:00 NZ!!! RBNZ Official Cash Rate Feb % 02/13/19 17:30 UK!! CPI YoY Jan % 02/13/19 21:30 US!!! CPI YoY Jan % 02/13/19 21:30 US!!! CPI Ex Food and Energy YoY Jan % Thursday 02/14/19 07:50 JN!! GDP Annualized SA QoQ 4Q % -2.50% 02/14/19 08:01 UK!! RICS House Price Balance Jan % 02/14/19 18:00 EC!! GDP SA YoY 4Q /14/19 21:30 US! Initial Jobless Claims Feb /14/19 CH!! Imports YoY Jan % 02/14/19 CH!! Exports YoY Jan % 02/14/19 CH!! Trade Balance Jan $57.06b Friday 02/15/19 05:30 NZ! BusinessNZ Manufacturing PMI Jan /15/19 09:30 CH!! CPI YoY Jan % 02/15/19 17:30 UK!! Retail Sales Inc Auto Fuel YoY Jan % 02/15/19 17:30 UK!! Retail Sales Ex Auto Fuel YoY Jan % 02/15/19 21:30 CA! Int'l Securities Transactions Dec b 02/15/19 21:30 US!!! Retail Sales Advance MoM Jan /15/19 21:30 US!!! Retail Sales Ex Auto MoM Jan /15/19 22:00 CA! Existing Home Sales MoM Jan % 02/15/19 23:00 US!! U. of Mich. Sentiment Feb Source: Bloomberg L.P. 10

12 Appendix 4: Upcoming Economic Figures (Feb 18, 2019 Feb 22, 2019) Time Importance Event Period Actual Survey Prior Tuesday 02/19/19 08:30 AU!! RBA Minutes of Feb. Policy Meeting Feb 02/19/19 17:30 UK!! Average Weekly Earnings 3M/YoY Dec % 02/19/19 17:30 UK!! ILO Unemployment Rate 3Mths Dec % 02/19/19 18:00 EC! ZEW Survey Expectations Feb Wednesday 02/20/19 07:30 AU! Westpac Leading Index MoM Jan % 02/20/19 07:50 JN!! Trade Balance Adjusted Jan  183.6b 02/20/19 08:30 AU!! Wage Price Index YoY 4Q % 02/20/19 21:30 US!! Housing Starts MoM Jan /20/19 21:30 US!! Building Permits MoM Jan Thursday 02/21/19 03:00 US!!! FOMC Meeting Minutes Jan /21/19 08:30 AU!! Employment Change Jan k 02/21/19 08:30 AU!! Unemployment Rate Jan % 02/21/19 17:00 EC!! Markit Eurozone Manufacturing PMI Feb /21/19 17:00 EC! Markit Eurozone Services PMI Feb /21/19 21:30 US! Initial Jobless Claims Feb /21/19 23:00 US!! Existing Home Sales MoM Jan % Friday 02/22/19 07:30 JN!! Natl CPI Ex Fresh Food YoY Jan % 02/22/19 17:00 GE!! IFO Business Climate Feb /22/19 18:00 EC!! CPI YoY Jan % 02/22/19 21:30 CA!! Retail Sales MoM Dec % 02/22/19 21:30 CA!! Retail Sales Ex Auto MoM Dec % Source: Bloomberg L.P. 11

13 Important Disclosure Citi analysts refers to investment professionals within Citi Research (CR) and Citi Global Markets (CGM) and voting members of the Global Investment Committee of Global Wealth Management. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. Investment products are not available to US persons and not all products and services are provided by all affiliates or are available at all locations. This document is for general informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security, currency, investment, service or to attract any funds or deposits. Save to the extent provided otherwise in the Terms and Conditions for Accounts and Services or other applicable terms and conditions, information in this document has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Therefore, investment products mentioned in this document may not be suitable for all investors. Any person considering an investment should seek independent advice on the suitability or otherwise of a particular investment. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor s own particular circumstances, that the investment is consistent with the investor s investment objectives In any event, past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors. Further, any projections of potential risk or return are illustrative and should not be taken as limitations of the maximum possible loss or gain. Investments are not deposits or other obligations of, guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Neither Citigroup nor its affiliates can accept responsibility for the tax treatment of any investment product, whether or not the investment is purchased by a trust or company administered by an affiliate of Citigroup. Citigroup assumes that, before making any commitment to invest, the investor and (where applicable, its beneficial owners) have taken whatever tax, legal or other advice the investor/beneficial owners consider necessary and have arranged to account for any tax lawfully due on the income or gains arising from any investment product provided by Citigroup. If an investor changes country of residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. 12

14 Important Disclosure Although information in this document has been obtained from sources believed to be reliable, save to the extent provided otherwise in the Terms and Conditions for Accounts and Services or other applicable terms and conditions, Citigroup and its affiliates do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use. Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions. The information contained herein is also not intended to be an exhaustive discussion of the strategies or concepts. At any time, Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. If this document shows information coming from Citi Research, please refer to the attached link: which contains the important disclosures regarding companies covered by Citi's Equity Research analysts, and please refer to the attached link: for details on the Citi Research ratings system. This document may not be reproduced or circulated without Citigroup written authority. The manner of circulation and distribution may be restricted by law or regulation in certain countries. Persons who come into possession of this document are required to inform themselves of, and to observe such restrictions. Any unauthorised use, duplication, or disclosure of this document is prohibited by law and may result in prosecution. This document is distributed in Hong Kong by Citibank (Hong Kong) Limited ( CHKL ). Prices and availability of financial instruments can be subject to change without notice. Certain high-volatility investments can be subject to sudden and large falls in value that could equal the amount invested. 13

15 Important Disclosure Unrated or non investment grade Debt Securities typically offer a higher yield than investment grade Debt Securities, but also present greater risks with respect to liquidity, volatility, and non-payment of principal and interest. As a result of being classified as non investment grade Debt Securities, these Debt Securities present a greater degree of credit risk relative to many other fixed income Debt Securities. Higher Credit Risk Unrated or non investment grade Debt Securities generally have predominantly speculative characteristics with respect to the issuer s capacity to pay interest and repay principal. There is greater risk of non-payment of interest and loss of principal. Many issuers of these Debt Securities have experienced substantial difficulties in servicing their debt obligations, which has led to default and restructurings. The issuers of these Debt Securities generally have to pay a higher rate of interest than investment grade Debt Securities. Higher Liquidity and Secondary Market Risk The markets in which unrated or non investment grade Debt Securities are traded are generally more limited than those in which investment grade Debt Securities are traded. This lack of liquidity may make it more difficult to resell these Debt Securities and obtain market quotations. Downgrade Risk Downgrades in the credit rating of unrated or non investment grade Debt Securities by rating agencies are generally accompanied by declines in the market value of these Debt Securities. In some circumstances, investors in the unrated or non investment grade Debt Securities market may anticipate such downgrades as a result of these credits being placed on credit watch by rating agencies, causing volatility and speculation of further credit deterioration. Higher Vulnerability to economic cycles - During economic downturns, unrated or non investment grade Debt Securities are typically more susceptible to price volatility and fall more in value than investment grade Debt Securities as i) investors may reevaluate holdings in lower-quality bonds in favor of investment-grade corporate Debt Securities; ii) investors become more risk averse; and iii) default risk rises. This is often referred to a flight to quality. Event Risk This includes any of a variety of events that can adversely affect the issuer of unrated or non investment grade Debt Securities, and therefore the issuer s ability to meet debt service obligations to repay principal and interest to Debt Securities holders. Event risk may pertain to the issuer specifically, the industry or business sector of the issuer, or generally upon the overall economy. It could have a direct or indirect impact on the issuer and their outstanding debts. 14

16 Important Disclosure Risk relating to RMB If you choose RMB as the base currency or the alternate currency, you should also note the following: RMB is currently not freely convertible through banks in Hong Kong. Due to exchange controls and/or restrictions imposed on the convertibility, utilisation or transferability of RMB (if any) which in turn is affected by, amongst other things, the PRC government's control, there is no guarantee that disruption in the transferability, convertibility or liquidity of RMB will not occur. There is thus a likelihood that you may not be able to convert RMB received into other freely convertible currencies. CNH exchange rates and CNY exchange rates are currently quoted in different markets with different exchange rates, whereby their exchange rate movements may not be in the same direction or magnitude. Therefore, the CNH exchange rate may be different from the CNY exchange rate. 15