Citibank Wealth Management Weekly FX Insight Weekly FX Insight Dec 30, 2013 with data as of Dec 27 Market Review & Focus FX Analysis Weekly FX Recap 01 GBP/USD 03 USD/JPY 04 Weekly FX Focus 02 NZD/USD 05 2013 Citibank AUD/USD 06 Citibank and Arc Design is a registered service mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited USD/CNY 07 FX & Eco. Figures Interest Rate & FX 08 Economic Figures 09
Weekly FX Recap Market recap: JPY plunged last week amid Widening of U.S.-Japan yield spread U.S. durable goods orders rose 3.5% in November and initial jobless claims fell to 338K, both topped estimates. This sent the U.S. treasury yields higher and suppressed the AUD. AUD/USD dropped 0.6% to close at 0.8870 last week. AUD outlook: AUD/USD may test lower to 0.8818. The GBP surged as the U.K. government is considering rule changes that would make it easier for small and medium-sized companies to raise fund. GBP/USD rose 0.9% to close at 1.6483 last week. GBP outlook: GBP/USD may rise to 1.6618-1.6747. The JPY plunged to the 5-year low as the BOJ officials expressed concern about the slowing pace of growth and U.S.-Japan yield spread widened. USD/JPY surged 1% to close at 105.17 last week. JPY outlook: USD/JPY may rise to 108.95 gradually. 1.00% 0.50% 0.56% 0.90% Weekly changes versus US dollar 0.52% 0.84% 0.00% -0.50% -1.00% -1.50% -0.67% -0.59% -0.61% -1.03% EUR GBP CHF CAD JPY AUD NZD Spot gold 1
Weekly FX Focus: GBP to outperform 61 59 57 55 53 51 49 47 Manufacturing PMIs in major countries 58.4 57.3 56.7 55.2 53.7 52.7 47.7 45 Australia Euro Zone Canada Japan New Zealand Source: Bloomberg L.P., as of Dec, 2013 The pound outperformed last week and GBP/USD once surged above 1.65, as the U.K. government is considering rule changes that would make it easier for small and medium-sized companies to raise fund. Upbeat U.K. economy is one of the major reasons for investors to maintain a bullish on GBP. Comparing major countries' manufacturing PMIs, the U.K. manufacturing PMI rose to 58.4, the highest among other major nations, reflecting a stronger economic prospect. Apart from strong growth of manufacturing activities, the U.K. job market recovery also accelerates. For instance, unemployment rate fell to 7.4% in Oct, the lowest for the past 4 ½ years. Thus, Citi analysts expect the BOE to start raising rates in 2015, which may underpin the GBP in the medium term. GBP/USD may rise to 1.75 for the coming 6-12 months. U.S. U.K. 2
GBP/USD GBP/USD may test higher to 1.6618-1.6747 (12.90-13.00) Last Price 1.6483 (12.79) High 1.6578 (12.86) Low 1.6305 (12.65) 1.5855 (12.30) 1.6280 (12.63) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference 1.6618 (12.90) 1.6747 (13.00) 0-3m 1.65 (12.80) 6-12m 1.75 (13.58) Upcoming Economic Data Jan 2: Manufacturing PMI Market Recap: The GBP surged as the U.K. government is considering rule changes that would make it easier for small and medium-sized companies to raise fund. GBP Outlook: U.K. retail sales in November topped last month's figure, reflecting continuous growth of the U.K. economy. This may support the pound in the medium and long term. Persistently high property prices in the U.K. may force the BOE to tighten monetary policies earlier, which may support the pound. However, the Fed tapering may support the USD and restrain the GBP. Technical Analysis: GBP/USD breaches the large downward channel and may climb to 1.6618-1.6747(12.90-13.00) gradually, with support at 1.6280 (12.63). 1.6747 1.6618 1.6280 3
USD/JPY USD/JPY may test higher to 107.10 (72.46) and 108.95 (71.23) Last Price 105.17 (73.78) High 105.19 (73.77) Low 103.77 (74.78) Market Recap: The JPY fell as the BOJ's minutes showed the BOJ's officials worried large inventories and a fall of wages / economic growth may increase economic downside risk. JPY Outlook: Japan's CPI rose to 1.5% in November, reflecting accommodative monetary policies started to come into effect. The BOJ is likely to continue accommodative monetary policies to ensure an inflation target of 2%. 10-year U.S. treasury yield rose to nearly 3%. expanding U.S.-Japan yield spreads prompts institutional investors to invest in foreign assets instead of Japan s bonds. This may undermine the JPY in medium term. The BOJ may expand QE to offset the negative impacts of sales tax hikes, which may suppress the JPY. Technical Analysis: USD/JPY may test higher to 107.10 (72.46) and 108.95 (71.23), with support at 103.74 (74.80). The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference, and 1,000 yen per unit for JPY/HKD 101.53 (76.43) 103.74 (74.80) 107.10 (72.46) 109.00 (71.23) 107.10 0-3m 102.00 (76.08) 6-12m 105.00 (73.90) 103.74 101.53 Upcoming Economic Data No major economic data is released this week 108.95 4
NZD/USD NZD may consolidate between 0.8085-0.8335 (6.27-6.47) Last Price 0.8150 (6.32) High 0.8224 (6.38) Low 0.8141 (6.32) 0.7935 (6.16) 0.8085 (6.27) 0.8335 (6.47) 0.8415 (6.53) 0-3m 0.83 (6.44) 6-12m 0.82 (6.36) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference Upcoming Economic Data No major economic data is released this week Market Recap: The kiwi was supported as trade balance changed from deficit to surplus, and NZ economy remained strong in Q3, reflecting continuously strong economic growth. NZD Outlook: The kiwi was supported as the RBNZ revised up 2014-15 economic growth estimate to 3.6%, which prompted markets' confidence in NZ's economic prospect. The RBNZ may start to hike interest rates in March 2014 amid strong growth and high property prices, which may support the kiwi in the medium term. The Fed tapering may support the USD, which may restrain the NZD. Technical Analysis: NZD/USD may consolidate between 0.8085-0.8335 (6.27-6.47) 0.7935 0.8335 0.8415 0.8085 5
AUD/USD AUD/USD may test lower to 0.8579 (6.66) after breaching 0.8821 (6.85) Last Price 0.8870 (6.88) High 0.8958 (6.95) Low 0.8855 (6.87) 0.8579 (6.66) 0.8821 (6.85) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference 0.8990 (6.98) 0.9167 (7.11) 0-3m 0.91 (7.06) 6-12m 0.88 (6.83) Upcoming Economic Data No major economic data is released this week Market Recap: Fund flowed into U.S., as a rise in U.S. treasury yields boosted the funding costs, after the Fed's announcement of tapering. This suppressed the AUD. AUD Outlook: The AUD may be undermined in the medium and long term as Australia s government revised down 2014-15 GDP target to 2.5%, showing they concerned about the economy. Markets are worried that the Australia's government may not be able to boost economy significantly as Australia treasury warned deficit could last for 10 years. This may suppress the AUD. The RBA reiterated it hoped AUD/USD to depreciate to 0.85 to support the economy, which may suppress the AUD. Technical Analysis: AUD/USD may test lower to 0.8579 (6.66) after breaching 0.8821 (6.85) with resistance at 0.8990 (6.98). 0.8579 0.8821 0.8990 0.9167 6
USD/CNY USD/CNY may test lower to 6.05 Last Price High Low 0-3m 6-12m 6.0693 6.0773 6.0663 6.08 6.05 Market Recap: The CNY rose to the record high of 6.0663 as the PBOC injected liquidity through Short-term Liquidity Operations to solve funding shortages. CNY Outlook: Reform policies released by China government after the third plenum strengthened investors confidence in China s economic outlook. Fund inflows into China may support the CNY The PBOC said qualified institutional investment limit will be cancelled, which fueled expectations more foreign investments will be made in China. This support the appreciation of CNY in the medium and long term. Citi analyst expect USD/CNY may test lower to 6.05 for the coming 6-12 months. 6-12 month forecast: 6.05 7
Appendix 1: Citi Interest Rate and FX for 2013 Citi FX Outlook Source: Citi, forecast as of Nov 21, 2013 Citi FX Interest Rate 0-3 month 6-12 month 12/27/13 4Q 13 1Q 14 Dollar Index 80.95 78.96 0.25 0.25 0.25 EUR/USD 1.35 1.40 0.25 0.25 0.25 GBP/USD 1.65 1.75 0.50 0.50 0.50 USD/JPY 102 105 0.10 0.10 0.10 USD/CHF 0.91 0.89 0.00 0.00 0.00 AUD/USD 0.91 0.88 2.50 2.50 2.50 NZD/USD 0.83 0.82 2.50 2.50 2.75 USD/CAD 1.06 1.08 1.00 1.00 1.00 USD/CNY 6.08 6.05 3.00 3.00 3.00 downgraded upgraded EUR: Due to the improving economic data, receding risk of EU debt crisis and fund inflows into the eurozone, the EUR may be supported in the short to medium term. GBP: As U.K. economy improves, the BOE may hike rates earlier in 2015, which may send the GBP higher to 1.65 for the coming 0-3 months. AUD: Since the Fed may not start tapering in the short term, AUD/USD downside may be limited to 0.91 for the coming 0-3 months. NZD: 2014 NZ growth may accelerate to 3.2% and the RBNZ may hike rates in Q1 2014, which may underpin the kiwi. JPY: Since the BOJ may expand QE and the U.S.-Japan yield spread may widen, USD/JPY may rise to 105 level gradually in the medium term. 8
Appendix 2: Upcoming Economic Figures (Dec 30, 2013 Jan 3, 2014) Date Time Event Actual Prior 12/30/2013 23:00 US Pending Home Sales MoM Nov -- -0.60% 12/31/2013 22:00 US S&P/CS Composite-20 YoY Oct -- 13.29% 12/31/2013 22:45 US Chicago Purchasing Manager Dec -- 63 12/31/2013 23:00 US Consumer Confidence Index Dec -- 70.4 01/01/2014 09:00 CH Manufacturing PMI Dec -- 51.4 01/02/2014 09:45 CH HSBC/Markit Manufacturing PMI Dec -- 50.8 01/02/2014 17:00 EC PMI Manufacturing Dec -- 52.7 01/02/2014 17:30 UK PMI Manufacturing Dec -- 58.4 01/02/2014 21:30 US Initial Jobless Claims Dec -- 338K 01/02/2014 21:30 US Continuing Claims Dec -- 2923K 01/02/2014 23:00 US ISM Manufacturing Dec -- 57.3 01/02/2014 23:00 US Construction Spending MoM Nov -- 0.80% 01/03/2014 09:00 CH Non-manufacturing PMI Dec -- 56 01/03/2014 17:30 UK PMI Construction Dec -- 62.6 01/03/2014 17:30 UK Mortgage Approvals Nov -- 67.7K 01/03/2014 17:30 UK M4 Money Supply YoY Nov -- 2.40% Source: Bloomberg L.P. 9
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