Forex Investment and Currency Trading

USD The USD rebound following the G7 statement proved short lived, but the weakening US economy and additional Fed cuts this quarter continue to augur for record lows for the USD versus major currencies.

EUR While European finance officials talk up the revised G7 statement, ECB members maintain a hawkish stance on inflation and future policy, supporting a EUR/USD break above 1.60 in the weeks ahead.

JPY The JPY remains more vulnerable to risk appetite developments than Japan’s fundamentals and politics, although Japanese investors’ capital outflows may somewhat limit upside risks to the JPY.

GBP At the G7 meeting UK officials apparently expressed concern about the recent fall in the trade-weighted GBP to its weakest since late 1996, but weaker home prices and BoE rate cuts suggest more downside.

CHF Swiss franc off its trade weighted highs when VIX and other risk indices receded in mid March. If Swiss ZEW remains weak the CHF can continue to underperform as risk appetite normalizes.

SEK High March inflation outcome has shifted rate spreads a little in favor of SEK although it is still underperforming with a slight uptick in VIX. Market still like SEK upside against the euro this year.

NOK The oil surge from $100 to $114 per barrel has coincided with a 3% jump in the NOK TWI this month. The TWI should now encounter significant resistance as it is within 1% of multi year high.

CAD Despite terms of trade gain, the CAD is held back by adverse rate expectation shifts. The CAD would benefit from stronger manufacturing and CPI reports into Tuesday’s BoC decision.

AUD Little market moving data ahead of next week’s PPI and CPI. AUD still supported by terms of trade story and markets are now too complacent that RBA tightening cycle is over.

NZD Lower than expected outcomes for building permits, house sales, retail trade and CPI inflation increase the chance of a less hawkish RBNZ on April 24. Remain short NZD versus AUD.

MXN USD/MXN could test the December 2005 low at 10.39 in the short term, but the pair remains susceptible to unwinding of large net long MXN futures positions (currently almost $6bn).

BRL USD/BRL has edged lower on the back of strong inflows and recovering commodity prices. COPOM is likely to hike 25bp on Apr 16. Higher rates should push USD/BRL down towards 1.65.

COP USD/COP has consolidated in a 1785-1800 range after a strong downward move in last few weeks, but wide Colombia-US rate spreads still favor a continued move downward on resuming risk appetite.

CLP The Central Bank of Chile announced plans to buy USD to accumulate $8bn in reserves. Although USD/CLP jumped 3% on the news, these purchases are likely to only stem pace of CLP appreciation.

CNY The Chinese authorities highlighted that ongoing global financial market turbulence and the Fed’s easing bias provide deterrents to aggressive interest rate hikes in China.

SGD Upward re-centering of the S$NEER midpoint sets the stage for USD/SGD to test 1.32 in the months ahead, but SGD strength may reverse in 2H08 if downside risks materialize.

PHP Intensifying inflation risk and fear of social repercussions likely to underscore pessimism toward Philippine assets and keep USD/PHP supported above 55-d MA at 44.10.

KRW Outright dovish BoK statements in April suggest increased likelihood of rate cut in May. There is an upward bias in USD/KRW in the weeks ahead.

HUF The improvement in March CPI, coupled with recent HUF firming, could ease some pressures for aggressive monetary tightening by the NBH. International risk appetite remains key for the forint.

TRY The CBT will likely keep rates on hold on Thursday given risks of more persistent high inflation. Meanwhile, political uncertainty continues to suggest TRY underperformance.

PLN Expectations for near-term NBP rate hikes contributed to PLN momentum, with EUR/PLN breaking below 3.40 likely in the coming sessions. NBP Council may get more cautious about PLN appreciation.

ZAR The rates story continue to support the ZAR as SARB opens the door to future rate rise. However, medium term outlook for the ZAR remains a bearish one on weak external position and growth prospects.