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Consensus FX Forecasts May 2015

Simon Knappstein +31 (0)6 233 99 584 [email protected]

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Market Focus

Developed Markets: The pause in the nine-‐month USD rally injected an alleviating tone into EM-‐FX. Although this soft dollar environment can last a while longer, the medium term outlook should still favor a USD rally, as growth outperforms, the Fed will be the first major central bank to hike interest rates and investment flows prove supportive. For the Eurozone the view is that the German Bund market sell-‐off has largely run its course with the short end of the Eurozone yield curve kept in check by ECB determinedness to carry out its QE buying through September 2016. Although interest rate differentials will continue to weigh on the Euro, the outlook has shifted as data releases suggest a cyclical turn with monetary dynamics improving and inflation expectations rising. So less divergence in monetary policy to be expected further out. The Odyssey by Tsipras and Varoufakis has not yet resulted in a glorious homecoming, Grexit still remaining a risk factor near-‐term. The surprisingly strong vote for the Conservative party has removed some of the political risk premium in GBP and strengthened GBP. Most upward potential is seen against the Euro. If and when the USD resumes its bull run AUD and NZD should suffer. A still fragile economic outlook will likely challenge the narrow trading range enjoyed by JPY. Periods of global risk aversion could provide for temporary JPY gains, however the fundamental picture suggests JPY weakness into year-‐end. Emerging Markets: The steady RUB recovery will prompt the central bank to aggressively cut interest rates, conditional on absence of geopolitical escalations. The TRY is expected to hand back its gains given political risk by interference in monetary policy. Latam: The MXN and BRL will remain vulnerable to adverse market reaction triggered by US Fed tightening action. Asia: The CNY continues to face elevated volatility as the PBoC keeps cutting rates. Yet there appears to be little change in official currency policy. A further slowing of economic growth might change that stance though. In general the Asian currency outlook remains susceptible to another round of USD strengthening in the months ahead.



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Developed Markets § EUR/USD average spot: 1,1220 (Apr: 1,0750)

• Though spot is 5 figures higher than last month, consensus forecast for EUR/USD is now lower at 1.0440 in 12 months.

• Disappointing US economic data and a smaller yield spread have weakened the USD.

• After a prolonged weak 1Q expectations are for a pick-‐up in US activity.

• Initial rate hike in September looks more likely than June now.

• ING is the most bearish forecasting 0,9200 at one year.

§ USD/JPY average spot: 119,67 (Apr: 119,75)

• Consensus forecast for USD/JPY is almost unchanged at 129,49 in one year. Outlook remains for a higher USD/JPY.

• Economic recovery remains fragile.

• Opinions on possible further expansion of its QE programme are split.

• A rise in the short-‐end of the US yield curve will support USD/JPY higher.

• Handelsbanken remains the most bullish looking for 140,00 in one year’s time.

§ GBP/USD average spot: 1,5530 (Apr: 1,4850)

• Consensus opinion sees GBP/USD trending lower towards 1,4850 in one year.

• Conservative victory has pushed spot sharply higher.

• An earlier start to US tightening than in the UK is the main driver behind a bearish outlook for GBP/USD..

• Brexit is now a long term risk factor.

• Handelsbanken is the most bearish forecasting 1,3900 in 12 months.



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§ EUR/JPY average spot: 134,27 (Apr: 128,61)

• Consensus forecast sees EUR/JPY hovering around 134,00. Not much changes since last month.

• With the BoJ and the ECB steady progressing QE, the pair will remain driven by portfolio flows, most likely weakening the Yen.

• Recent sell-‐off in German Bunds has squeezed rates higher and taken spot EUR/JPY with it.

• RBC is the most bullish forecasting 146,89 in 12 months.

§ EUR/GBP average spot: 0,7220 (Apr: 0,7230)

• Consensus opinion is looking for a slightly lower EUR/GBP at 0,7020 in one year’s time.

• Post-‐election GBP strength has countered a general EUR bounce higher, keeping EUR/GBP pretty stable last month.

• Re-‐pricing of BoE rate cycle will pressure the pair towards 0,7050 in 2H15.

• Some forecasters expect that increasing EZ growth will support EUR/GBP in 2H15.

• ING is most bearish, forecasting 0,66 in 12 months.

§ EUR/CHF average spot: 1,0440 (Apr: 1,0390)

• Consensus opinion forecasts EUR/CHF to climb to 1,0720 in 12 months.

• Uncertainty regarding SNB policy in the new floating CHF regime remains high.

• Negative rates and increased charges on excessive sight deposits seem insufficient to deter inflow and to weaken the CHF.

• Grexit remains a risk factor. • ING remains the only bearish one

forecasting 0,95 in 6 months.



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§ EUR/NOK average spot: 8,4040 (Apr: 8,4700)

• Consensus opinion sees EUR/NOK moving slightly higher near-‐term and lower thereafter to 8,2880.

• A stable oil price lends support to NOK strength.

• Norges Bank now projects one more rate cut, most likely 25bp at the June meeting.

• Post June, the end of • Norges Bank easing together with

ECB QE will lower EUR/NOK. • Handelsbanken is the most

bullish forecasting 9,00 in one year’s time.

§ EUR/SEK average spot: 9,3820 (Apr: 9,3090)

• There is a high conviction consensus opinion that EUR/SEK will drift slightly lower to around 8,9400 in 12 months.

• By upping its QE programme Riksbank so far succeeds in capping SEK strength.

• The ECB QE effect predominates, and with improving economic data from Sweden EUR/SEK should slowly start trending lower.

• Handelsbanken is the most bearish looking for 8,65 in one year.

§ USD/CAD average spot: 1,2070 (Apr: 1,2460)

• Consensus forecast for USD/CAD adapted to a lower spot, looking for a rise to 1,2500 in 3Q15 and flat thereafter

• Recent string of disappointing US economic data and a stable oil price has moved spot USD/CAD 5 figures lower.

• CAD is supported by the neutral policy plus a cautious optimistic view by the BoC.

• Rising US yields and a strong USD are still expected to drive USD/CAD higher next quarters.

• ING is now the most bullish looking for 1,3200 in 12 months.



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§ AUD/USD average spot: 0,7930 (Apr: 0,7700)

• Consensus forecast sees AUD/USD trending lower to 0,7550 in 6 months, and stable thereafter.

• RBA still finds AUD overvalued, but recent USD weakness, an attractive yield and a, perceived to be the last, 25bp rate cut in May has translated in a higher AUD/USD spot rate.

• Fundamental outlook remains bleak, though China is commodity supportive.

• ING is the most bearish forecasting 0,70 in 12 months.

§ NZD/USD average spot: 0,7480 (Apr: 0,7580)

• Consensus forecast for NZD/USD sees the pair trending lower to 0,7270 in 12 months.

• RBNZ remains a dovish bias and sees NZD value still as “unsustainable and unjustified”.

• Recent economic data points at slower growth and speculation for December rate cut is building.

• USD strength in anticipation of a Fed tightening cycle is likely to drive NZD/USD lower this year.

• RBC remains the most bearish forecasting 0,6730 in one year’s time.



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Emerging Markets § EUR/PLN average spot: 4,0670 (Apr: 4,0200)

• Consensus opinion forecasts a broadly unchanged EUR/PLN around 4,06 the next 12 months.

• The currency is supported by both a moderately more positive outlook for growth and the ECB’s QE program.

• The result of the first round of presidential elections introduces political uncertainty. This would make PLN react less to further positive real sector data.

• Handelsbanken is now the most bearish forecasting 3,85 in 12 months.

§ EUR/HUF average spot: 306,58 (Apr: 299,14)

• Consensus forecast is for an almost unchanged level for EUR/HUF during 2015 around 307.

• HUF has weakened recently on broader EUR strength and higher global yields.

• Hungary’s fairly strong external position is likely to be supportive for HUF in the medium term.

• Monetary easing is constrained and HUF carry is expected to remain positive for an extended period.

• Rabo is the most bearish, forecasting 288 in one year’s time

§ EUR/CZK average spot: 27,414 (Apr: 27,440)

• Consensus opinion changed and now sees EUR/CZK basically flat around 27,50 this year

• A chronically weak EUR and a solid performance of the Czech economy indicate a lower EUR/CZK towards floor at 27,00, although not everyone supports the view that the floor at 27,00 will be abandoned.

• Nordea is the most bearish on EUR/CZK looking for 26,58 in one years time.



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USD/RUB average spot: 50,552 (Apr: 52,990)

• Consensus opinion forecasts an almost flat profile around 56.00 during this year.

• Higher oil prices, a string of disappointing US economic data and an attractive carry have lent support to the Ruble recently.

• Inflation seems to have peaked and further rate cuts are expected. Bulk of RUB strength seems behind us.

• Danske remains the most bullish on USD/RUB forecasting 0,70 in 12 months, vs. 0.80 last month.

§ USD/TRY average spot: 2,6440 (Apr: 2,6560)

• Consensus forecast expects USD/TRY a bit higher at 2,77.

• A general EM-‐FX friendly climate has recently supported Turkish Lira.

• Political pressure on the CBT to ease policy is lira negative.

• A fed rate hike and a general stronger USD will further put upward pressure on USD/TRY.

• Falling energy prices and the decelerating CPI are yielding better prospects for the Turkish economy in 2015-‐17

• Rabo is the most bullish at 2,90 in 12 months.

§ USD/ZAR average spot: 11,932 (Apr: 12,012)

• Consensus opinion sees a dome-‐shaped USD/ZAR profile around 12,15 for this year.

• Economic conditions remain challenging and social unrest is rising.

• SARB is on hold in response to lower expected inflation.

• Rising US yields are likely to support a higher USD/ZAR.

• Scotia is the most bullish forecasting 12,26 in 6 months time.



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Latam

§ USD/BRL average spot: 3,013 (Apr: 3,107)

• Consensus forecast for USD/BRL sees the pair rising to 3,22 in 6 months and stabilising thereafter.

• As for most EM-‐FX, BRL found support in a weaker USD recently.

• FX policies have been a source of volatility as BACEN has finally decided to reduce its stock of FX swaps, effectively buying USD from the market.

• A difficult domestic outlook continues to weigh on the prospects for the currency.

• Rabo is the most bullish on USD/BRL forecasting 3,50 in 12 months.

§ USD/MXN average spot: 15,266 (Apr: 15,156)

• Consensus opinion is unchanged and forecasts a practically flat USD/MXN around 15.20 for one year.

• Expected USD strength in 2H15 will likely put upward pressure on USD/MXN, partly balanced by downward pressure because of tighter policy.

• Economic data disappointed lately.

• Overall, balanced risks. • ING is the most bullish

forecasting 16,00 in 12 months.



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Asia § USD/CNY average spot: 6,2060 (Apr: 6,2050)

• Consensus opinion forecasts a relatively stable USD/CNY around 6,20 for the next 12 months.

• PBOC has a strong easing bias as economic growth slows further and the housing market corrects.

• PBoC is not targeting a weaker CNY despite economic slowdown.

• An increasing trade balance surplus is still supporting the CNY.

• Rabo is still the most bullish on USD/CNY looking for 6,40 in 12 months.

§ USD/IDR average spot: 13005 (Apr: 12998)

• Consensus outlook sees USD/IDR climbing slightly to 13550 this year.

• The data to date continues to paint a grim picture of the economy and further rate cuts are likely.

• BI seems not to oppose further IDR depreciation.

• Fed normalization keeps risks to the upside for USD/IDR.

• ING is now the most bullish on USD/IDR looking for 13800 in 12 months.

§ USD/INR average spot: 63,670 (Apr: 62,417)

• Consensus opinion sees USD/INR slightly lower around 63,00 for one year.

• A monetary easing bias remains in place in India while the central bank is assessing the impact of the earlier rate cuts.

• Recent portfolio outflows and a delay in key reforms have put pressure on INR.

• Expectations of a better growth outlook given market-‐friendly reforms will support INR further out.

• Handelsbanken and Rabo are the most bullish with 64,00 in 1 year.



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§ USD/KRW average spot: 1080 (Apr: 1095)

• Consensus opinion forecasts a higher USD/KRW at 1155 in one year.

• BoK is seen keeping an accommodative bias.

• Although relatively stable for now, a weaker JPY and a stronger USD will put upward pressure on USD/KRW in 2H15

• Scotia is most bullish on USD/KRW forecasting 1160 in 8 months.

§ USD/MYR average spot: 3,560 (Apr: 3,684)

• Consensus opinion is that USD/MYR will remain almost flat around 3,65 this year.

• The Ringgit strengthened last month on soft US economic data and a stable oil price.

• Oil price to remain a main driver of the MYR this year.

• However, in 2H15 Ringgit risks more weakness because of a strengthening USD.

• ING is the most bullish on USD/MYR expecting an increase to 3,78 in one year’s time.

§ USD/SGD average spot: 1,3260 (Apr: 1,3650)

• Consensus opinion is that SGD will weaken to 1,3700 in 12 months.

• SGD appreciated last month based on a weaker USD.

• Rising US yields with the start of the Fed tightening cycle will likely lift USD/SGD to 1,37 in 2H15.

• Somewhat weaker economic readings are not expected to continue near term.

• Scotia is the most bullish on USD/SGD forecasting 1,40 in 12 months.



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§ USD/PHP average spot: 44,530 (Apr: 44,580)

• Consensus forecast sees USD/PHP rising slightly from 44,50 to 45,27 in 12 months.

• A weakening JPY and a stronger USD this year will most likely drag USD /PHP higher.

• Relief for the USD/PHP should come in the latter part of the year as US growth becomes more entrenched, which should be supportive of overseas remittances and exports.

• Only Maybank forecasts a lower USD/PHP to 44,50 in 12 months.

§ USD/THB average spot: 33,200 (Apr: 32,467)

• Consensus forecasts a higher USD/THB at 33,90 in 12 months.

• BOT cut rates end of April in a surprise move, possibly induced by weak trade data. Monetary policy has become more accommodative.

• On-‐going domestic political drag and Fed policy normalization accompanied by broad USD strength will most likely push USD/THB higher.

• Scotiabank is the most bullish forecasting 33,83 in one year’s time.

§ USD/TWD average spot: 30,582 (Apr: 31,230)

• Consensus opinion sees a mildly climbing USD/TWD to 31,75 in 12 months.

• Exports remained strong but domestic demand weakened, increasing the trade surplus and support for the TWD.

• Only a move in USD/JPY will most likely take USD/KRW higher, as correlation is big.

• Scotiabank is the most bullish forecasting 32,70 in 7 months.



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Appendix: Ø The comments for each currency pair are a select choice from the underlying

research by the editor to paint an appropriate picture that suits the consensus opinion.

Ø The high and low values in the charts are the extreme values for a given forecast period. In most cases the lines connecting these point forecasts do not represent a single opinion by a single forecast provider.

Ø Not all providers have an opinion on every currency pair. The number of forecasts is not the same for all currency pairs.

Ø Updates on specific forecasts in-‐between monthly reports can be found on www.fxprospect.com.

Disclaimer: This report is directed exclusively to professional investors. The information in this report is based on sources believed to be reliable but FX Prospect and the author do not guarantee the completeness and/or the correctness of these sources. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness. This report is provided for informational purposes only. This document does not constitute investment advice and nor is any information provided intended to offer sufficient information such that it should be relied upon for the purposes of making a decision in relation to whether to acquire any financial products. FX Prospect and the author accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this report.

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