- USD: The backdrop to the forecasts in FX markets revolves around four core themes: rebalancing, responses, risk aversion and reserves. Together, these four “Rs” may keep the USD bid for two more quarters. Risk aversion should keep the defensive bid for USD short-term, while the reduction in imbalances adds a more fundamental support for the dollar over the medium-term.
- EUR: It is expected that the wide combination of USD shortages, shrinking diversification demand for EUR, and both the general risk-negative environment and growing fundamental case for USD strengthening to eventually break EUR-USD lower, to 1.20 by end-Q2.
- JPY: Despite Japan’s shrinking current account surplus, it is premature to expect a sustainable downward phase for the JPY given the risk that severe equity market weakness on corporate and financial sector concerns again create a JPY-positive environment. JPY gains offer an opportunity to consider a short JPY position, particularly against currencies that are likely to gain versus the USD.
- GBP: GBP remains vulnerable to some additional loss of yield support with potential for the overnight rate to drop below its current level of 0.50%, but further declines are likely to be concentrated versus USD. Key support remains at GBP-USD 1.3500.
- CHF: The outlook for CHF remains positive with forced repayment of CHF denominated loans to Eastern European banks creating additional demand. Furthermore, there is little risk of depreciation induced by a loss of yield support with a near-zero rate policy having already been implemented by the SNB.
- SEK: SEK continues to suffer because of the exposure of the Swedish banking sector to Eastern Europe. However, these concerns appear overdone and traders expect significant SEK gains later in H1 2009, but they may not materialize until after a currency devaluation occurs in the Baltic countries.
- NOK: NOK is likely to post some additional gains as foreign purchases of the currency continue to recover from the outsized declines seen in H2 2008.
- CAD: A rise in yield spreads in favor of USD-CAD upside is being offset by USD-CAD downside pressures from a gradual improvement in oil prices.
- AUD: Weighted yield spreads and commodity export prices have been very stable since November, and so has the AUD TWI. Although there is important sentiment and jobs data out in the week ahead, it is unlikely to move AUD for more than that day. Remain AUD bearish
in the month horizon. - MXN: Changes to Banxico’s USD auction mechanism ensure a greater supply of USD will be dealt on daily basis, but some remain bearish on the short-term outlook for the MXN. A strong MXN rebound is expected toward the end of the year as global risk appetite improves
- BRL: Should outperform its regional peers, although global risk aversion may postpone an eventual recovery until year-end. The central bank’s intervention policy may curb any sharp sell-offs in USD-BRL.
- PEN: The cautious pace of easing compared to other regional central banks may benefit the PEN in the short term, particularly considering still robust FX reserves. Nonetheless, the central bank’s likely intent to scale down intervention amounts should lead to gradual PEN weakening over the course of the year.
- CLP: Planned USD sales of USD3bn and the potential for an increase in that amount may cap USD-CLP upside in the short term, although a sustainable rally for CLP may prove difficult amid broad based USD strength.
- CNY: The Chinese authorities left the scope of additional stimulus largely open. With the key political meetings slated to end and currency stability reinforced as the FX policy, market focus will likely switch to the global environment and upcoming Chinese data. USDRMB will likely stay within 6.835-6.845 range while the stock market will continue to be sensitive to risk appetite.
- IDR: Expect limited upside for NDF premiums. However, this will hinge on BI maintaining stability in spot USD-IDR amid elevated risk aversion environment and continue to facilitate further monetary easing. The pair looks set to pivot around the 12,000 level in the near term, and the scope for IDR appreciation may increase on approach to the parliamentary elections on 9 April.
- KRW: USD-KRW remains sensitized to tight USD funding situation globally. Fear of contagion from the Eastern European crisis hangs in the background to underpin USD-KRW trajectory.
- HUF: The risk of a full-fledged crisis cannot be ruled out, given the recent sharp correction that suggests a severely deteriorated investor sentiment. The HUF may continue to break new lows against the EUR in the near term, converging fast toward our projected trough of 330.
- TRY: The outlook for the TRY is negative. The TRY is breaking new lows against the USD and risks of further weakness are elevated, especially if domestic residents move away from the local currency and switch to dollars.
- PLN: The PLN is vulnerable in the near term, owing to contagion risks in the region, a deteriorating macro outlook and adverse balance of payments dynamics.
- ZAR: The ZAR has also weakened, along with other currencies in the region, but has nonetheless held up relatively well. However, this may change as we approach the elections, and if the central bank makes more noise about a possible aggressive monetary policy response.
Global Currencies Overview - G10 and EM
March 11th, 2009 · No Comments
Tags: Forex Market
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