Consensus FX Forecasts April 2015

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Rodney King
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1 Market Focus Developed Markets: A run of soft US economic data has given the majority of world currencies the opportunity to recoup some of their YTD losses vis- à- vis the USD. However, the USD is expected to regain a broad- based appreciating bias on the back of underlying economic strength. A start of the Fed tightening cycle in June looks unlikely now though. The Euro will remain pressured as the effects of the ECB s QE scheme play out. Persistent Greek risk and a weak response from the SNB should mean that EUR/CHF breaks below parity again because of safe- haven flows. The GBP is vulnerable to near- term downside as the likely deferral of monetary tightening combined with uncertainty over the May General Election outcome looms. Against EUR it may just balance EUR weakness. The AUD and NZD will likely maintain a soft trading path. Outlook for the JPY remains that it will maintain a broad weakening bias, interrupted by brief periods of risk aversion driven corrections. Emerging Markets: The Ruble has benefitted from a higher oil price, a pause in broad USD strength and an attractive carry but this recovery may have over extended. The TRY is facing a slightly negative investor mood because of political interference in monetary policy. Latam: The MXN and BRL retain a defensive bias, although MXN should be best protected by a pro- active Banxico. BRL weakness is likely to extend further after recent consolidation. Asia: China is not targeting a weaker CNY despite economic slowdown. The CNY continues to face elevated volatility as the PBoC is clearly on an easing path. Yet there appears to be little change in official currency policy. In general the Asian currency outlook remains susceptible to another round of USD strengthening in the months ahead. 1

2 Developed Markets EUR/USD average spot: 1,0750 (Mar: 1,0830) The consensus forecast sees EUR/USD moving lower to in 12 Economic data has surprised on the upside in the EZ in recent months, whereas the opposite has been the case for the US. Fed rate hike unlikely in June. Grexit risk likely to weigh on the EUR. Some forecasters see the USD to start trending weaker as of 4Q15 RBC is the most bullish forecasting 1,1530 at one year. USD/JPY average spot: 119,57 (Mar: 120,22) Consensus forecast for USD/JPY is almost unchanged at 128,83 in one year. Any expansion of QQE would seem unlikely despite core inflation languishing near zero. Economic data out of Japan have disappointed recently. A rise in the short- end of the US yield curve will support USD/JPY higher. Handelsbanken remains the most bullish looking for 140,00 in one year s time. GBP/USD average spot: 1,4850 (Mar: 1,5010) Consensus opinion sees GBP/USD almost flat just below 1,50 for 1 year. General elections on 7 May are weighing on GBP. Political risk likely to remain after the elections, delaying the start of the tightening cycle. Tight labour market conditions might ultimately feed through in stronger wage growth. ING is the most bearish forecasting 1,3900 in 12 2

3 EUR/JPY average spot: 128,61 (Mar: 130,08) Consensus forecast sees EUR/JPY climbing slightly higher to around 136,00. Not much changes since last month. With the BoJ and the ECB steady progressing QE, the pair will most likely be driven by portfolio flows. Appetite from Japanese investors for EZ bonds may have diminished given the QE induced negative yields in EZ gov. bonds. ING is the most bearish forecasting 119,60 in 12 EUR/GBP average spot: 0,7230 (Mar: 0,7190) Consensus opinion is looking for a slightly lower EUR/GBP at 0,7070 in one year s time. Short term the GBP might weaken on the May elections outcome. Sterling strength is a concern for the MPC. The BoE is likely to remain on hold this year. Some forecasters expect that increasing EZ growth will support EUR/GBP in 2H15. RBC is most bullish with 0,78 in 12 EUR/CHF average spot: 1,0390 (Mar: 1,0640) Consensus opinion forecasts EUR/CHF to climb to 1,08 in 12 The CHF is now subject to much less predictable SNB policy moves. SNB seems to rely on negative rates and charges on excessive sight deposits. Whether these are sufficient to hold of safe haven inflows in case of a Grexit scenario? Inflation has continued to drop, now standing at - 0.9% y/y. ING is the only bearish one forecasting 0,95 in 6 3

4 EUR/NOK average spot: 8,4700 (Mar: 8,6530) An almost unchanged consensus opinion expects a tiny move higher near- term and a declining EUR/NOK thereafter to 8,3150. A recovering oil price lends support to NOK strength. Norges Bank now projects one more rate cut, likely June. Further out, solid macro fundamentals will most likely strengthen the NOK vs. an accommodative EUR. Handelsbanken is the most bullish forecasting 8,75 in one year s time. EUR/SEK average spot: 9,3090 (Mar: 9,1820) Consensus opinion sees EUR/SEK drifting slightly lower to around 8,9100 in 12 months, providing for a short- term hick up to 9,31 Riksbank so far succeeds in capping SEK strength. Riksbank may ease policy on 29 April again. In the near term volatility will remain elevated but further out EUR/SEK is likely to head south because of the bigger scale of ECB QE. Handelsbanken is the most bearish looking for 8,50 in one year. USD/CAD average spot: 1,2460 (Mar: 1,2730) Consensus forecast for USD/CAD unchanged vs. last month, steady around 1,27. The pace of CAD weakness is likely to slow. Recent string of weaker US economic data is taking away some upward pressure CAD is supported by the neutral stance of the BoC after the surprise Jan rate cut. Rising US yields and a strong USD are likely to drive USD/CAD higher next quarters. Scotia is the most bullish looking for 1,3270 in 12 4

5 AUD/USD average spot: 0,7700 (Mar: 0,7640) Consensus forecast sees AUD/USD trending lower to 0,75 in 6 months, and stable thereafter. RBA still finds AUD overvalued. May rate cut 25bps is likely. A softer outlook for the Australian economy, the likelihood of another domestic rate cut in the near- term and downside risk to commodity prices point to a weaker profile for the AUD. Rabo and ING are the most bearish forecasting 0,70 in 12 NZD/USD average spot: 0,7580 (Mar: 0,7330) Consensus forecast for NZD/USD sees the pair trending lower to 0,7270 in 12 RBNZ neutral and on hold but NZD value remains unsustainable and unjustified. Broad USD strength in anticipation of a Fed tightening cycle will play a significant role in NZD/USD performance this year. RBC has upped its forecast but remains the most bearish forecasting 0,6900 in one year s time. 5

6 Emerging Markets EUR/PLN average spot: 4,0200 (Mar: 4,1380) Consensus opinion forecasts a broadly unchanged EUR/PLN around 4,0 the next 12 The currency is supported by both a moderately more positive outlook for growth and the ECB s QE program. With yields and rates coming down across Europe, the PLN looks increasingly attractive from a carry perspective. Rabo is now the most bearish forecasting 3,85 in 12 EUR/HUF average spot: 299,14 (Mar: 304,79) Consensus forecast is for an almost unchanged level for EUR/HUF during 2015 around 300. Hungary s fairly strong external position is likely to be supportive for HUF in the medium term. Fairly strong growth and an expected pickup in inflation are likely to keep the carry on the forint relatively attractive Rabo is the most bearish, forecasting 288 in one year s time EUR/CZK average spot: 27,440 (Mar: 27,295) Consensus opinion sees EUR/CZK declining from 2,7,44 to 27,11 in 12 A chronically weak EUR and a solid performance of the Czech economy indicate a lower EUR/CZK towards floor at 27,00 Short- term that floor might hold as CNB has enough firing power to defend successfully. Nordea is the most bearish on EUR/CZK looking for 26,67 in one year s time. 6

7 USD/RUB average spot: 52,990 (Mar: 62,114) Consensus opinion forecasts an almost flat profile around during this year. Higher oil prices, a string of disappointing US economic data and an attractive carry have lent support to the Ruble recently. Weak economic fundamentals, geopolitical risks, lower oil prices, and further monetary easing by CBR will weigh on the RUB. Danske remains the most bullish on USD/RUB forecasting 0,70 in 12 months, vs last month. USD/TRY average spot: 2,6560 (Mar: 2,5900) Consensus forecast expects USD/TRY around current levels. Though spot has moved higher recently as sentiment is turning sour based on a political risk premium as a consequence of interference in monetary policy. A fed rate hike and a general stronger USD will further put upward pressure on USD/TRY. The sharp fall in oil prices over the past year is reducing Turkey s large current account deficit and this supports TRL over the medium term Rabo is the most bullish at 2,80 in 12 USD/ZAR average spot: 12,012 (Mar: 12,120) Consensus opinion expects a broadly range bound USD/ZAR around 12,15 for this year. A string of disappointing US economic data has lent (temporarily) support for the Rand. SARB is on hold in response to lower expected inflation. Economic momentum is starting to show signs of improvement. ING is the most bullish forecasting 12,70 in 6 months time. 7

8 Latam USD/BRL average spot: 3,107 (Mar: 3,033) Consensus forecast for USD/BRL sees the pair rising to 3,22 in 2 months and stabilising thereafter. As for the Ruble and the Rand, a run of soft US economic data has recently taken some pressure of USD/BRL. Petrobras corruption scandal is still posing a risk. A difficult domestic outlook continues to weigh on the prospects for the currency. ING is the most bullish on USD/BRL forecasting 3,40 in 12 USD/MXN average spot: 15,156 (Mar: 15,218) Consensus opinion forecasts a practically flat USD/MXN around for one year. Expected USD strength in 2H15 will likely put upward pressure on USD/MXN, balanced by downward pressure because of tighter policy and higher growth in 2H15. Overall, balanced risks. ING is the most bullish forecasting 16,10 in 12 8

Asia USD/CNY average spot: 6,2050 (Mar: 6,2620) Consensus opinion forecasts a relatively stable USD/CNY around 6,20 for the next 12 PBOC keeps a monetary easing bias in place as economic growth slows

9 Asia USD/CNY average spot: 6,2050 (Mar: 6,2620) Consensus opinion forecasts a relatively stable USD/CNY around 6,20 for the next 12 PBOC keeps a monetary easing bias in place as economic growth slows further and the housing market corrects. A strong trade balance surplus is still supporting the CNY. Rabo is now the most bullish on USD/CNY looking for 6,42 in 12 USD/IDR average spot: (Mar: 12916) Consensus outlook sees USD/IDR climbing slightly to this year. BI kept rates unchanged at its April meeting. Lacklustre economic growth and Fed normalization keeps risks to the upside for USD/IDR. BI started easing in Feb but seems reluctant to let the IDR weaken to swiftly. Scotia is now the most bullish on USD/IDR looking for in 11 USD/INR average spot: 62,417 (Mar: 62,530) Consensus opinion sees USD/INR unchanged around 62,60 for one year. The INR remains well supported by foreign inflows bolstered by the RBI easing cycle. Intensifying USD strength in 2H15 with the start of the Fed tightening cycle will likely support USD/INR. Handelsbanken and Rabo are the most bullish on USD/INR forecasting 64,00 in 12 9

10 USD/KRW average spot: 1095 (Mar: 1122) Consensus opinion forecasts a higher USD/KRW at 1135 in one year. BoK keeping an accommodative bias supports foreign portfolio inflows, strengthening the KRW. Although relatively stable for now, a weaker JPY and a stronger USD will put upward pressure on USD/KRW in 2H15 Scotia is most bullish on USD/KRW forecasting 1170 in 8 USD/MYR average spot: 3,684 (Mar: 3,683) Consensus opinion is that USD/MYR will remain almost flat around 3,65 this year. The Ringgit stabilised last month on the back of a run of soft US economic data and a rising oil price. However, in 2H15 Ringgit risks more weakness because of a strengthening USD and a risk of foreign fund outflow. ING is the most bullish on USD/MYR expecting an increase to 3,88 in one year s time. USD/SGD average spot: 1,3650 (Mar: 1,3750) Consensus opinion is that SGD will weaken to 1,3920 in 12 Soft US economic data and dovish Fed talk have taken the heat of USD/SGD recently. Rising US yields with the start of the Fed tightening cycle will likely lift USD/SGD to 1,39. Deflationary pressure will most likely ease somewhat on the back of a tighter domestic labour market ING is the most bullish on USD/SGD forecasting 1,42 in 12 10

11 USD/PHP average spot: 44,580 (Mar: 44,450) Consensus forecast sees USD/PHP rising slightly from 44,60 to 45,30 in 12 Slowing foreign portfolio inflows no longer supported PHP last month. A weakening JPY and a stronger USD this year will most likely drag USD /PHP higher. Only Maybank forecasts a lower USD/PHP to 44,50 in 12 USD/THB average spot: 32,467 (Mar: 32,867) Consensus forecasts a higher USD/THB at 33,15 in 12 A strong current account surplus is lending some support to the THB. On- going domestic political drag and Fed policy normalization accompanied by broad USD strength will most likely push USD/THB higher. Scotiabank is the most bullish forecasting 33,93 in one year s time. USD/TWD average spot: 31,230 (Mar: 31,475) Consensus opinion sees a mildly climbing USD/TWD to 31,75 in 12 Only a move in USD/JPY will most likely take USD/KRW out of its range, as correlation is big. Scotiabank is the most bullish forecasting 32,70 in 8 11

12 Appendix: Ø The comments for each currency pair are a select choice from the underlying research by the editor to paint an appropriate picture that suits the consensus opinion. Ø The high and low values in the charts are the extreme values for a given forecast period. In most cases the lines connecting these point forecasts do not represent a single opinion by a single forecast provider. Ø Not all providers have an opinion on every currency pair. The number of forecasts is not the same for all currency pairs. Ø Updates on specific forecasts in- between monthly reports can be found on Disclaimer: This report is directed exclusively to professional investors. The information in this report is based on sources believed to be reliable but FX Prospect and the author do not guarantee the completeness and/or the correctness of these sources. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness. This report is provided for informational purposes only. This document does not constitute investment advice and nor is any information provided intended to offer sufficient information such that it should be relied upon for the purposes of making a decision in relation to whether to acquire any financial products. FX Prospect and the author accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this report. 12

Consensus FX Forecasts October 2016

Consensus FX Forecasts October 2016 Market Focus Developed Markets: The Fed appears set to raise rates again before 2016 comes to a close. The USD is strengthening broadly; expect this to continue in the run-up to year-end. The USD is likely