- USD: Positive outlook. USD has only temporarily been de-railed by concern over the policy response to pressure on the US banking sector. Looking ahead renewed risk aversion led by deteriorating macroeconomic data outside of the US is likely to produce USD strength.
- EUR: Negative outlook. The euro is at risk from looser ECB monetary policy as the severity of the credit crunch in Europe sinks in. European banking sector issues and the widening of intra-EMU government bond spreads are also important negatives.
- JPY: The outlook is for the JPY to strengthen moderately. With risk aversion unlikely to dissipate any time soon, USD/JPY levels near Y98 should be a selling opportunity. Events to monitor include Western financial sector stabilization initiatives affecting equities.
- GBP: The short-term outlook remains negative with GBP facing the potential for an additional loss of yield support of about 25bp as the BoE eases further before more aggressively implementing credit/quantitative easing. Strong EUR/GBP support remains at 0.8744.
- CHF: Positive outlook. CHF has experienced some selling as Switzerland’s banking secrecy laws came under scrutiny. However, the CHF’s safe haven bid is likely to dominate. The eastern European crisis creates additional demand for CHF as local banks seek to repay CHF denominated liabilities.
- SEK: Positive outlook. SEK has been weighed on heavily by increased concerns over the Swedish banking sector’s exposure to eastern Europe and its potential ramifications for sovereign debt. However, these concerns are potentially exaggerated and at least shared by the Euro-area. Some expect SEK to experience significant appreciation in the months ahead.
- NOK: The outlook is for further appreciation. Norges Bank data reveals that foreign purchases of NOK continue to increase after a huge slump in H2 2008, suggesting further NOK appreciation. Q4 08 saw huge equity outflows from Norway and a reversal of those withdrawals may be behind NOK’s recent appreciation.
- CAD: Negative outlook. The economic view was vindicated by last week’s data and one continues to see 1.40 USD/CAD as feasible. FX depreciation so far has not prevented very sharp nominal GDP contraction in Q4 08 and likely Q1 09. Market also expects a CAD negative March 3 BoC decision on both rates and language.
- AUD: Negative outlook. RBA signals that most easing is already in the pipeline, but it may be behind the curve on severity of downturn. Further FX depreciation would help offset still evident contractionary forces from abroad. Capex and construction work surveys likely to show very weak Q4.
- NZD: Negative outlook. After a quiet week attention turns to the poor macro backdrop – we seem to be in the fifth quarter of recession. John Key’s government will hold a jobs summit and there is bound to be soft Jan data on credit card usage, business sentiment, foreign trade, building permits and migration.
- MXN: USD-MXN should remain in the 14.50 range over the next six months, with risks skewed to the upside during the period, but market would expect a strong MXN rebound toward the end of the year as the global risk appetite improves. The US recession will lead to a deterioration of Mexico’s balance of payments given reduced export demand and a slowdown in remittance inflows, and is therefore expected to weigh somewhat on MXN performance.
- BRL: Analysts expect BRL to strengthen for the year as a whole, boosted by an improvement of the global risk appetite in the last quarter. Beforehand, persisting global financial market uncertainty should maintain BRL’s performance broadly flat, highlighting the currency’s
resilience to a challenging risk environment. BACEN’s sizeable FX reserves and commitment to intervention should also help contain the risk of sharp sell-off for the BRL. - ARS The ARS should weaken in 2009. The economic slowdown, a sharp deterioration in the trade balance due to the decline in commodity prices, and reduced capital inflows will pressure the ARS. Market expects the central bank to allow a gradual depreciation of the ARS to protect its foreign exchange reserves and to boost export competitiveness.
- COP Market remains bearish on the outlook for the COP on the back of a deteriorating macroeconomic outlook and a widening current account deficit. The potential for monetary easing may be limited by inflationary pressures in coming months while a budget deficit limits the scope for fiscal stimulus. Exports are expected to decline further on lower commodity prices and weak demand from Colombia’s main export markets – US and Venezuela – contributing to a widening current account deficit.
- CNY USD-RMB will likely stay stable in the run-up to the key political meetings in early March. NDF prices continue to price in about 1.4% RMB depreciation, but expectations of a near term breach of 6.95-7.00 failed to sustain after policymakers reiterated the policy preference of maintaining a stable currency. Spot USD-RMB staying below 6.84 will also be crucial in limiting rightward shifts in NDFs.
- IDR Analysts remain confident on IDR recovery in the medium run. However, in the interim, USD-IDR will likely be subjected to elevated volatilities amid swings in risk appetite and also concerns in Eastern Europe. That said, the Indonesian authorities have doubled its swap line with Japan to USD12bn and will likely continue to guard against excessive IDR weakness beyond 12,000 level.
- PHP USD-PHP will likely continue to face upward pressure as macro-economic weakness stay in focus. Dips in USD-PHP will likely be shallow and limited, with the 55-day MA at 47.34 expected to hold.
- KRW: The won’s undervaluation is expected to continue to look entrenched, amid fear of a March crisis. Increasingly interventionist stance by the authorities may help to limit significant upside in USD-KRW, but unlikely to reverse the bid tone in the near term.
- HUF: The outlook for HUF is negative in the near term, owing to the significant vulnerability to a deterioration in the global risk backdrop. It has become evident that Central Europe is amongst the most vulnerable regions across emerging markets, reflecting the rising external imbalances, the severe shock to growth, and the heavy reliance on private capital flows. Analysts forecast the trough for the HUF at 330 by September followed by a recovery to sub-300 level.
- TRY: Traders expect the TRY to weaken markedly in the next few months before recovering in the latter part of the year. Analysts’ forecast envisions a trough for TRY in September to 1.75 against the USD, but they also think the TRY may recover by year-end to 1.63 as global risk appetite toward emerging markets turns around. In the near term, the main risk to the TRY is the severe delays affecting the negotiations with the IMF on a new program.
- PLN: Analysts expect the PLN to depreciate over the period up to September, before staging a recovery late in the year. From a long-term standpoint, traders are more bullish on the PLN as long as the global risk backdrop recovers. The forecast for EUR-PLN for end-December 2009 stands at 4.65. However, the PLN is likely to weaken to 5.05 by September, pushed weaker by a poorer risk aversion environment and a weaker EUR. The macro picture keeps deteriorating, including the widening current account deficit, and a more challenging financing picture for both the government and the private sector.
- ZAR: Market expects the ZAR to weaken markedly throughout the year. The trough is projected for September, with the ZAR forecasted to reach 10.95 against the USD. The ZAR is one of the most vulnerable currencies to a strong dollar environment and the global risk appetite backdrop. The fundamental picture is not currency supportive. At about 7% of GDP, the current account deficit remains uncomfortably large, especially given the heavy reliance on private portfolio flows for its financing.
Currency Outlook for select G10 and EM Currencies
February 26th, 2009 · No Comments
Tags: FOREX Market Update
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