Forex Investment and Currency Trading

CNY
• CNY NEER should stabilise after massive gains in 2008
• Growth slowdown is resulting in major monetary, fiscal easing
• China’s external surpluses will narrow sharply
• Still see modest CNY weakness vs. USD in H1-09

KRW
• USD-KRW has corrected lower after peaking above 1,500
• KRW NEER fall, lower oil to support C/A going forward
• Portfolio flows appears to be stabilising finally
• Bank of Korea is expected to cut rates further

SGD
• SGD saw trading rally in December, fundamentals remain weak
• MAS is expected to stay neutral in April, risk of re-centering
• SGD NEER should gradually weaken towards the band floor
• 2009 GDP contraction of -2.5% is expected

THB
• Slowing growth, inflation will continue to weigh on THB
• Current account will deteriorate further on a trend basis
• THB NEER needs to weaken to catch up with Asia
• Bank of Thailand looks set to ease further

SAR
• Revaluation expectations are eliminated
• Inflation is still high, but no longer a policy priority
• Budget deficit announced for 2009
• FX forwards have moved to the left, but still in positive territory

AED
• Currency reform is no longer a priority at this time
• Focus is now on growth given the housing market slowdown
• Central bank provided swap facilities to ease short term liquidity
• Swap facilities pushed forwards left, but still in positive territory

TRY
• Central bank in easing phase as growth is slowing sharply
• IMF accord to ease concerns on external financing needs
• Deteriorating risk conditions, fiscal slippage, political risks loom
• Growth to remain weak, access to foreign capital scarce

NGN
• Oil price slide is slowing economy, hitting external revenues
• Capital flight, banking liquidity issues prompt USD demand
• CBN appears to have accepted de facto NGN deval
• Further out, oil price rebound should help boost NGN

ZAR
• SARB policy rates to be cut by a further 200bps in 2009
• Policy easing, lower inflation to prompt capital inflows into South Africa
• April election may create short-lived policy uncertainties
• C/A deficit will weigh on ZAR outlook further out

BRL
• 2008 inflation will be just below the target’s 6.5% upper limit
• Evidence of price cuts, stronger BRL raise hopes of rate cuts
• Bacen discussed a 25bp cut at Dec meeting, but did not move
• A 50bp rate cut is expected at end-January meeting

COP
• The central bank surprised with a unanimous 50bp rate cut
• Despite high inflation, the central bank sounds dovish
• Political pressure to cut further is quite strong
• 50bp cuts are expected at each meeting in Q1-09

MXN
• The US recession, global slowdown will be painful for Mexico
• Q4 growth is expected to be barely positive y/y
• But the disinflation process is slower than the rest of Latam
• The first rate cut is expected to come in late Q1-09

EUR
• EUR-USD rebounded sharply in December on year-end flows
• To remain under pressure short term on narrowing rate spreads
• Eurozone has entered first major recession since EUR’s birth
• EUR-USD should recover in H2 on broad USD sell-off

JPY
• JPY NEER has appreciated hugely on risk aversion, weak oil
• This represents monetary tightening at a time of recession
• Japan’s trade balance is turning negative
• BoJ will fight this, first with rates, then with intervention

AUD
• Australia is slowing, led by the interest-rate related sectors
• RBA is conducting a major easing cycle, more to come
• AUD-USD found some support at 0.60, more volatility to come
• AUD weakness will be tolerated so long as it is not inflationary

NZD
• NZ has already seen three negative GDP quarters, more likely
• The RBNZ is expected to cut rates to 4.00% by end-Q1-09
• NZD NEER has collapsed, more to come near term
• The C/A deficit should narrow sharply in 2009

CHF
• CHF NEER firmed sharply in December on weaker EUR-CHF
• SNB cut rates sharply to support economy, banking system
• CHF may receive further support near term from repatriation
• Should weaken in H2 on rate spreads as risk appetite stabilises

GBP
• GBP has stabilised as rate expectations have caught up
• More GBP weakness likely as BoE is expected to cut to 0.50%
• GBP collapse is the means to restore BoP equilibrium
• OECD end-2007 PPP “”fair value”" puts cable at around 1.52

CAD
• USD-CAD has retraced after peaking at 1.3017
• BoC is expected to cut to 1.00% in Q1
• Canada will see serious recession on weak autos, timber, oil
• CAD may recover gradually in H2-09