Adam Cole 10 Currency Report Card - RBC Wealth Management

March 3, 2017

Currency Report Card March 2017

Three month forecast returns

Most bullish Most bearish

JPY SEK

NZD PLN

USD HUF

Source: RBC Capital Markets

12 month forecast returns

Most bullish Most bearish

JPY CHF

NZD KRW

IDR EUR


Forecast revisions this month: USD/JPY: Profile revised lower. Q2 2017 now 110 (previously 118) Q1 2018 now 100 (105).

USD/KRW: Profile revised lower. Q2 2017 now 1190 (1310) Q1 2018 now 1260 (1290).

USD/SGD: Profile revised lower. Q2 2017 now 1.45 (1.60) Q1 2018 now 1.51 (1.57).

USD/INR: Profile revised lower. Q2 2017 now 68 (72) Q1 2018 now 70 (73).

USD/BRL: Near-term profile revised lower. Q2 2017 now 3.30 (3.43). Long-term unchanged.

JPY and NZD outperformance; SGD, EUR and CHF underperformance


Global FX Strategy RBC Europe Limited Chief Currency Strategist Adam Cole Royal Bank of Canada – Hong Kong Branch Head of Asia FX Strategy Sue Trinh RBC Capital Markets LLC Global Head of FX Strategy Elsa Lignos Latam FX Strategist Tania Escobedo Jacob Associate Daria Parkhomenko RBC Dominion Securities Inc. Chief Technical Analyst George Davis All values in USD unless otherwise noted. Priced as of prior trading day’s market close, ET (unless otherwise stated).

-15

-10

-5

0

5

10

15

JPY

TR

Y

NZ

D

IDR

INR

SE

K

BR

L

CA

D

NO

K

MX

N

AU

D

GB

P

PLN

SG

D

CN

Y

HU

F

EU

R

KR

W

CH

F

Max

Min

End period

12 month forecast currency returns vs USD, quarterly, % including carry

For Required Conflicts Disclosures, please see page 23.For Required Conflicts Disclosures, please see page 23.Disseminated: March 3, 2017 15:02ET; Produced: March 3, 2017 15:02ET

March 3, 2017 2

Table of contents Majors

US Dollar .............................................................................................................................. 3 Euro ..................................................................................................................................... 4 Japanese Yen ....................................................................................................................... 5 Sterling ................................................................................................................................ 6 Swiss Franc .......................................................................................................................... 7

Scandis

Swedish Krona ..................................................................................................................... 8 Norwegian Krone ................................................................................................................ 9

Commodity Currencies

Canadian Dollar ................................................................................................................. 10 Australian Dollar ................................................................................................................ 11 New Zealand Dollar ........................................................................................................... 12

Asia

Chinese Yuan ..................................................................................................................... 13 Indian Rupee ..................................................................................................................... 14 South Korean Won ............................................................................................................ 15 Singaporean Dollar ............................................................................................................ 16 Indonesian Rupiah ............................................................................................................. 17

EMEA

Turkish Lira ........................................................................................................................ 18

Latin America

Mexican Peso .................................................................................................................... 19 Brazilian Real ..................................................................................................................... 20

Forecasts ......................................................................................................................21

Currency Report Card - March 2017

March 3, 2017 3

US Dollar Elsa Lignos

1-3 Month Outlook – Fiscal policy delays

Since the start of March, USD is up against almost every currency globally, as markets have shifted from near zero probability of a March hike in early Feb, to pricing it as a near certainty. Assuming the Fed delivers a hike as expected, the question is what comes next? Figure 1 shows that the big post-election rally in USD was driven by rate expectations. For all the talk of fiscal stimulus, it is monetary policy doing all of the work for now. That seems unlikely to change in the short-term. On Feb 9, Trump said there would be a “phenomenal” announcement on tax “over the next two or three weeks” but three weeks later nothing concrete has been presented. Ryan/Brady’s border-adjusted tax (BAT) idea faces very strong opposition in the Senate and so far Trump has sent mixed messages on the plan. Mnuchin has set the target of tax reform by the August recess but given the differences of opinion, and the work that needs to be done in parallel on healthcare, we think 2018 is a more likely prospect. If monetary policy is going to do the heavy lifting, the question is how much further can it run? Our equity colleagues have been highlighting the disconnect between survey data (some hitting decade highs) and ‘hard’ data – i.e. data reflecting actual economic activity. Our US economic surprise index, which is heavier on hard data, has been hovering around zero since late January. Coupled with fiscal policy uncertainty, we see no reason for the Fed to actively talk up 2018 rate expectations (currently pricing ~4.5 hikes by end 2018). That should keep a lid on USD gains. The mains risks are (1) Congress is able to deliver tax reform sooner than expected (USD-positive) or (2) US data weaken and markets start unpricing the Fed (USD-negative).

6-12 Month Outlook – Now or never for tax reform?

Looking forward, our forecasts incorporate further USD strength, but it takes time to fully play out. Corporate tax reform should be USD-positive on at least three fronts: (1) lowering headline rates is fiscal easing; in the case of corporate tax, it would raise US competitiveness and reverse the trend of corporate inversions, (2) a tax break on repatriated earnings would have a similar effect to the 2005 HIA which the evidence shows was USD-positive, despite many arguing that overseas earnings are already held in USD (see Total FX, Jan 27), and (3) a border-adjusted tax would mean considerable USD-strength (albeit unlikely to perfectly offset the impact of the tax on importers, see Total FX, Jan 20). We think markets are underpriced for (2) and (3) – where CHF and CAD should be the biggest losers respectively. Again the largest downside risk to USD comes from policy paralysis.

Indicators

Current (Previous)* Official cash rate 0.50% (0.50%) Trend interest rates (10yr average) 1.9% Bias in interest rate market Higher Core PCE Inflation %Y/Y Dec (Nov) 1.7% (1.7%) Inflation target Price stability Budget balance % GDP FY15 (FY14) -2.6% (-2.8%) Budget balance target % GDP - GDP Growth % q/q SAAR Q4 (Q3) 1.7% (1.7%) Trend GDP %y/y 2.5% Purchasing Power Parity Value - Spot - PPP Valuation - Current account balance % GDP Q3 (Q4) -2.6% (-2.6%) Trend current account balance % GDP -3.3% Moody's Foreign Currency Rating Aaa Outlook Stable * Current is latest month, quarter or year

Source: RBC Capital Markets; Bloomberg

1. USD has been driven by rates since US election

2. Evidence shows repatriated earnings support USD


Forecasts

Source: RBC Capital Markets estimates

Q1f Q2f Q3f Q4f Q1f Q2f Q3f Q4f

EUR/USD 1.02 1.00 0.98 0.96 0.98 1.00 1.02 1.04

USD/JPY 112 110 107 103 100 102 104 106

USD/CAD 1.35 1.38 1.38 1.38 1.37 1.36 1.35 1.33

2017 2018

90

100

110

120

130

140

150

160

170

94

95

96

97

98

99

100

101

102

103

104

01-Sep 01-Oct 01-Nov 01-Dec 01-Jan 01-Feb 01-Mar

DXY (lhs)

DXY-weighted10y rate diff(rhs)

bps

0

20

40

60

80

100

120

140

99 00 01 02 03 04 05 06 07 08 09 10 11

70

80

90

100

110

120

130US repatriation flow s, USDbn, LHS

DXY, RHSHIA w indow


https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_3EB929186095416EFDC8057EF45FA740

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_2F0661C8971C6C2192658BC13E7899AF

March 3, 2017 4

Euro Elsa Lignos 1-3 Month Outlook – Evolving political risk

There is not much new to say on European elections. France is still the focus point (April 23 & May 7). Le Pen is expected to win the first round though polls point to her struggling in the second. Markets are less convinced than the pollsters. Having been burnt by the US election and UK referendum, both bookies’ odds and EUR vol are pricing in a significant chance of a Le Pen victory (~25% on Betfair odds, though note the odds quoted by Bloomberg overstate Le Pen’s probability by 5-7%). We discussed the French election in more detail in Total FX, 17 Feb. In a nutshell we argued markets were overpricing Le Pen’s chances of victory (though that has come down in the last week) but underestimating how damaging it would be to EUR if she were to win. Using our synthetic-EUR framework, we estimate EUR/USD could trade as low as 0.70 if France were to hold a referendum on EUR membership. French voters tend to support the EU/EUR but the probability of voting to leave conditional on Le Pen having won the election is a lot higher. Figure 2 shows that support is not high enough to guarantee the outcome of a referendum and while it may be unconstitutional to pose the question without National Assembly support, there is precedent for that dating back to De Gaulle (see Total FX, 17 Feb). Political risk does not go away after the French election either. The German election is much less likely to lead to dramatic currency outcomes but Italian political risk is not going away any time soon.

6-12 Month Outlook – Careful what you wish for

Beyond elections, focus is on the ECB. As discussed last month, headline inflation continues to rise (hitting 2% for the first time since 2013 on the Feb flash estimate). But core inflation is still below 1%y/y. That should give the ECB cover to extend its asset purchase programme into 2018, albeit at a slower pace. Drilling into the country detail, Germany is contributing up to 40% of the Euro area’s core inflation, while Italy’s contribution remains particularly weak relative to its size (~10%). In many ways, the ECB’s greatest problems will come when it starts hitting its inflation target. Underneath the convergence brought about by QE, the problem of fragmentation persists across the Euro area. We expect that to keep the ECB in easy policy mode for longer than would otherwise be expected, and we stand by our call for EUR/USD to drift lower through 2017.

Indicators

Current (Previous)* Official cash rate 0.00% (0.05%) Trend interest rates 10y average 1.9% Bias in interest rate market Lower HICP core Inflation %Y/Y Jan (Dec) 0.9% (0.9%) Inflation target Close to but less than 2.0% Budget balance % GDP FY15 (FY14) -2.1% (-2.6%) Budget balance target % GDP 3% of GDP-Unless special circumstances GDP Growth %Y/Y Q4 (Q3) 1.8% (1.8%) Trend GDP %y/y 1.1% Purchasing Power Parity Value Jan 1.2739 Spot end-Feb 1.0576 PPP Valuation EUR/USD is undervalued Current account % GDP Q3 (Q2) 3.2% (3.3%) Trend current account balance % GDP 0.3% Moody's Foreign Currency Rating Aaa (Germany) Outlook Stable * Current is latest month, quarter or year

Source: RBC Capital Markets; Betfair

1. Le Pen’s odds of victory are drifting lower

2. There is no majority for or against the EU in France

Source: RBC Capital Markets; YouGov

Forecasts



EUR/USD 1.02 1.00 0.98 0.96 0.98 1.00 1.02 1.04

EUR/JPY 114 110 105 99 98 102 106 110

EUR/CAD 1.38 1.38 1.35 1.32 1.34 1.36 1.38 1.38

20182017

10

15

20

25

30

35

40

45

50

55

60

14 Feb 19 Feb 24 Feb 01 Mar

Le Pen

Macron

Fillon

Betfair bookies odds on next French President

0%

10%

20%

30%

40%

50%

60%

12 13 14 15 16

Remain in the EULeave the EUWould not voteDon't know

% respondents for/against EU


https://rbcnew.bluematrix.com/docs/pdf/ee40d109-fc07-4256-ad2a-57e04a9aab93.pdf

https://rbcnew.bluematrix.com/docs/pdf/ee40d109-fc07-4256-ad2a-57e04a9aab93.pdf

March 3, 2017 5

Japanese Yen Adam Cole

1-3 Month Outlook – Downtrend re-established

Our previous forecasts for USD/JPY had a long-term downtrend interrupted by a retest of the highs around 120 in the short-term. Our revised forecasts remove most of the short-term hump and shift the longer-term profile lower in parallel taking the trough to 100 (see Total FX, 3 March). Beyond the pricing in of a March Fed hike – which now appears almost complete – money markets would need to price in a much steeper pace of tightening for 2018 in order to drive USD/JPY higher. As post-US election capital flows data continue to accumulate, Japanese investors are still unloading foreign bond holdings rather than adding to them as the rise in yields would suggest and as many had expected as a mechanism for JPY weakness (Figure 1). The post US-election USD/JPY rally (two thirds of which is still intact) is therefore largely a speculative phenomenon (Figure 2). This measure of positioning is at its highest level for more than two years and managers appear to have added to long USD/JPY exposure during the seven big figure pullback in spot. Speculative investors have probably built positions partly on the expectation that rising global yields and capped yields in Japan will pull capital out of Japan, driving JPY down. The longer this fails to happen, the greater the risk that positions unwind driving USD/JPY lower. We also note the risk that even if capital does start to flow out of Japan, much of it will likely be FX hedged, given the big rise in FX hedged yields in all foreign bond markets in the last six months. Finally, liquidation of Japan’s gargantuan holdings of French bonds is another upside risk for JPY heading into the French election, though we think the hurdle for panic selling is high.

6-12 Month Outlook – USD/JPY target 100

Longer-term, the BoJ’s tacit admission that it can’t hit its 2% inflation target for three years or more could be taken as either positive or negative for JPY. The failure to lift nominal GDP through either prices or volumes should bring the unsustainability of Japan’s budget imbalance back into focus and for many this is JPY-bearish, not bullish. But the public sector deficit is the counterpart to a large private sector surplus and so long as excess private sector savings fund public sector borrowing, Japan’s imbalances are a purely domestic issue. Absent a specific flow to drive it up, our “default” position in that USD/JPY will naturally drift lower. With domestic investors’ hedge ratios still more likely to rise than fall on 12 month horizon, large sustainable long-term capital outflows are unlikely.

Indicators

Current (Previous)* Official cash rate -0.1% (-0.1%) Trend interest rates 10y average 0.15% Bias in interest rate market Flat CPI Inflation %Y/Y Jan (Dec) 0.4% (0.4%) Inflation target 2.0% Budget balance % GDP FY15 (FY14) -6.7% (-7.7%) Budget balance target % GDP n/a GDP Growth %Y/Y Q4 (Q3) 1.6% (1.1%) Trend GDP %Y/Y 1.0% Purchasing Power Parity Value Jan 88.53 Spot end-Feb 112.77 PPP Valuation USD/JPY is overvalued Current a/c balance % GDP Q4 (Q3) 3.8% (3.8%) Trend current account balance % GDP 2.7% Moody's Foreign Currency Rating A1 Outlook Stable * Current is latest month, quarter or year


1. Japanese investors still selling foreign bonds…

2. …but FX managers very short JPY


Forecasts



USD/JPY 112 110 107 103 100 102 104 106

EUR/JPY 114 110 105 99 98 102 106 110

CAD/JPY 83 80 78 75 73 75 77 80

20182017

1.3

1.5

1.7

1.9

2.1

2.3

2.5

2.7

-1.6

-1.2

-0.8

-0.4

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17

Japan net foreign bond buying, JPYtrn, LHS

US 10yr yield, RHS

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

06 07 08 09 10 11 12 13 14 15 16 17

Parker global currency manager index 3m correlation with USD/JPY, daily % changes

Managers long

USD/JPY

Managers short

USD/JPY


https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_FFA7C168EB13D643B18CAE9F0A5B67F5

March 3, 2017 6

Sterling Adam Cole 1-3 Month Outlook – Another leg down

After two post-referendum legs of independent weakness, GBP has become little more than a range trade for the last three months or more, caught between increasingly independent moves in USD and EUR. Although still in a minority, a growing number of forecasters have begun calling GBP higher against EUR and USD in 2017. Whilst recognising some of the risks to our long-standing targets (1.15 for GBP/USD; 0.89 for EUR/GBP) we still think the outlook favours another leg lower. A multitude of factors have acted as a prop under GBP in recent months, but going forward, most look more fragile. Firstly, persistent positive data “news”, upward growth revisions and diminishing expectations of further BoE easing (see Figure 1). Going forward, however, rising growth expectations will eventually sow the seeds of their own demise and expectations will overshoot to the upside. Secondly, expectations that the easing of policy through previous GBP weakness will support activity. Recent trade data, however, are consistent with the failure of export volumes to respond to GBP weakness, which will become an important theme in the UK as it has in Canada. Prices have risen strongly, volumes are little better than flat (Figure 2). Finally we would note an underappreciated prop for GBP in recent months has been the outperformance of financial equities globally, to which GBP has been historically very sensitive. Again this may have limited GBP downside, particularly in the post-US election period, when the outperformance of financials has accelerated. This may or may not continue going forward, but we would not count on it continuing to hold GBP up in the way it has recently. So, taking all of this together, we think there have been a number of factors working in GBP’s favour that can’t be counted on to hold it up going forward. We maintain a target of 1.15 for the low in GBP/USD, though we have pushed forward the timing to Q2 from Q1.

6-12 Month Outlook – Tentative bottom at 1.15 Our 1.15 GBP/USD target is based on an orderly adjustment process, not a funding/balance of payments crisis scenario. With the UK’s twin deficits running around 5% of GDP, such a crisis cannot be ruled out. In this scenario, we would expect to see GBP through parity against both USD and EUR. Gilt yields and spreads show no signs of real funding stress yet, however. In a more orderly adjustment, we tentatively put the trough in GBP at mid-2017, but with only a gentle recovery thereafter.

Indicators

Current (Previous)* Official cash rate 0.25% (0.25%) Trend interest rates 10y average 3.3% Bias in interest rate market Stable CPI Inflation %Y/Y Jan (Dec) 1.8% (1.6%) Inflation target (HICP) 2.0% Budget balance % GDP FY15 (FY14) -4.3% (-5.7%) Budget balance target % GDP Budget surplus as soon as possible GDP Growth %Y/Y Q4 (Q3) 2.1% (2.0%) Trend GDP %Y/Y 1.5% Purchasing Power Parity Value Jan 1.5118 Spot end-Feb 1.2381 PPP Valuation GBP/USD is undervalued Current a/c balance % GDP Q3 (Q2) -5.0% (-4.6%) Trend current account balance % GDP -3.3% Moody's Foreign Currency Rating Aa1 Outlook Stable * Current is latest month, quarter or year

Source: RBC Capital Markets, Bloomberg

1. UK growth forecasts revised higher

2. Export prices rising, volumes flat

Source: RBC Capital Markets, ONS

Forecasts



GBP/USD 1.20 1.15 1.16 1.16 1.18 1.20 1.23 1.25

EUR/GBP 0.85 0.87 0.85 0.83 0.83 0.83 0.83 0.83

GBP/JPY 134 126 124 119 118 123 128 133

GBP/CAD 1.62 1.59 1.60 1.60 1.62 1.64 1.66 1.67

20182017

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

-100

-80

-60

-40

-20

0

20

40

60

80

100

Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17

UK ESI, LHS

Consesus 2017 UK GDP forecast, RHS

-12

-9

-6

-3

0

3

6

9

12

15

18

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Export volumes

Export prices

% yr


March 3, 2017 7

Swiss Franc Elsa Lignos 1-3 Month Outlook – Political risk vs. intervention

On the face of it little has changed in the last month; but underneath the surface, the SNB has likely been selling substantial quantities of CHF as European political risk has grabbed market attention globally and investors still see long CHF as the obvious hedge. Unlike the UK referendum or US election, we think French election risk is overpriced (though most disagree) and we still have a longer-term bearish CHF view (see below). Last month we discussed whether there is a risk of Switzerland being labelled a currency manipulator by the US, but its bilateral trade surplus is too small to qualify for the Treasury’s criteria (and based on the evidence of the past month, the risk does not seem to have stopped the SNB from selling CHF). If the US did decide to formally label Switzerland a currency manipulator, it would come in the next semi-annual report in April. The kneejerk reaction would be EUR/CHF and USD/CHF lower. But the longer-term direction for CHF is more likely to be determined by other US policies (see below). Our CHF forecasts are unchanged this month.

6-12 Month Outlook – USD/CHF higher

We think the probability of a US tax break on overseas earnings is highly likely though the timing is uncertain. The Trump administration has said it wants to get tax reform done by the August recess. But with the Senate and some in the administration disagreeing with key parts of the House proposal, the timeline looks overly ambitious. As we said before, a tax break on overseas earnings is likely to be held up by the goal of doing major tax reform in one go. Nevertheless the experience of the Homeland Investment Act suggests when it eventually comes, USD/CHF could be one of the biggest beneficiaries (see Total FX, 27 Jan 2017). This time around, the flow out of Switzerland could be compounded by Swiss corporate tax reform. Though the govt’s proposal was rejected in a popular referendum, Switzerland is under international pressure to change the special tax breaks it offers multinationals. That raises the incentives for US companies to repatriate earnings from Switzerland. Besides tax changes, our long-term forecast is driven by (the lack of) inflation. Inflation in January reached a five year high though this is almost wholly down to energy and base effects (Figure 2). Extrapolating the SNB’s December forecasts, it will take until mid-2020 to reach its 2% target. Our end-2017 EUR/CHF forecast is unchanged.

Indicators

Current (Previous)* Official cash rate -0.25 to -1.25% (0.25 to -0.75%) Trend interest rates 10y average 1.70% Bias in interest rate market Neutral CPI Inflation %Y/Y Jan (Dec) 0.3% (0.0%) Inflation target less than 2.0% Budget balance % GDP FY16 (FY15) -0.28% (-0.24%) Budget balance target % GDP Balanced over the business cycle GDP Growth %Y/Y Q4 (Q3) 0.6% (1.4%) Trend GDP %Y/Y 1.80% EUR Purchasing Power Parity Value Jan 1.2301 EUR/CHF spot end-Feb 1.0637 EUR/CHF PPP Valuation EUR/CHF is undervalued Current a/c balance % GDP Q3 (Q2) 10.3% (10.0%) Trend current account balance % GDP 8.0% Moody's Foreign Currency Rating Aaa Outlook Stable * Current is latest month, quarter or year

Source: RBC Capital Markets; US Census Bureau

1. Swiss trade surplus with US is small in absolute terms

2. CPI ex energy is still in deflationary territory

Source: RBC Capital Markets; Haver

Forecasts



USD/CHF 1.05 1.06 1.09 1.13 1.12 1.11 1.09 1.08

EUR/CHF 1.07 1.06 1.07 1.08 1.10 1.11 1.11 1.12

CHF/JPY 107 104 98 92 89 92 96 98

CAD/CHF 0.78 0.77 0.79 0.82 0.82 0.82 0.81 0.81

2017 2018

0

10

20

30

40

50

60

70

80

90

100

CH JP GE MX IR VT KO IT IN MY TH FR SZ TW

319bn

Jan-Nov 2016 goods trade surplus with the US (in USD bn)

-1.5

-1.0

-0.5

0.0

0.5

1.0

11 12 13 14 15 16 17

CPI ex energy %y/y

Headline CPI %y/y


https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_3EB929186095416EFDC8057EF45FA740

March 3, 2017 8

Swedish Krona Adam Cole 1-3 Month Outlook – EUR/SEK to retest 10

The EUR/SEK sell off in late-2016 extended through January, taking the pair as low as 9.40. February has seen a sharp reversal, however, and EUR/SEK now appears to be settling into an uptrend again. We have little in the way of hard data on positioning for SEK, though we strongly suspect that long SEK is both a strong consensus view and, after the November to January price action, an overcrowded trade. Consensus forecasts have SEK by far the best-performing currency over the next 12 months (up 9% against USD; NOK is the only other G10 currency that is materially positive at 7%). On the face of it, it is easy to see why analysts are so bullish. Swedish GDP growth, at 2.3% y/y in Q4, is amongst the strongest in G10 and at 1.0% q/q quarterly growth was the strongest for a year. Underlying inflation continues to trend higher and market-based measures of expectations are at a five year high (Figure 1). Against this positive growth and inflation background, the stance of domestic policy is extremely loose – looser than any other G10 economy relative to simple Taylor Rule neutral rates. So the case for eventual normalisation is very strong. We see two flies in the bullish SEK ointment. The first is that the Riksbank shows no sign of responding to improving domestic data. At its February 15 policy announcement, it maintained an easing bias, forecasting average repo rates below the current -0.5% until mid-2018. In contrast, RIBA futures already price in a material risk of higher rates on the same time horizon. Secondly, SEK remains blighted by its status as an efficient funding currency for G10 carry trades and the ongoing attractiveness of carry as investment strategy. We would also note that most of the positive dynamic factors noted above held in 2016, when SEK was the second worst-performer in G10. We retain an off-consensus bearish view on SEK, though we have pushed the EUR/SEK target peak (10.00) to Q2 from Q1.

6-12 Month Outlook – Eventual SEK recovery

Barring a major shock to risk appetite, it is hard to see global yields rising fast enough to terminate the carry trade, or the Riksbank hiking fast enough to stop SEK’s role as funder; given SEK’s risk-on status, it would take 4-5 hikes for it to drop from the top two funding currencies. Eventually, carry will stop working as a global FX theme and the Riksbank will finally start to raise rates. We expect that to happen by the back end of our forecast horizon, so we eventually look for SEK to rebound from deeply undervalued levels.

Indicators

Current (Previous)* Official cash rate -0.50% (-0.50%) Trend interest rates 10y average 3.0% Bias in interest rate market Flat CPIF Inflation %Y/Y Jan (Dec) 1.6% (1.9%) Inflation target (UND1X) 2.0% Budget balance % GDP FY15 (FY14) 0.2% (-1.6%) Budget balance target % GDP Cyclical average surplus of 1% GDP Growth %Y/Y Q4 (Q3) 2.3% (2.8%) Trend GDP %Y/Y 2.0% EUR Purchasing Power Parity Value Jan 8.7342 Spot end-Feb 9.5582 PPP Valuation EUR/SEK is overvalued Current a/c balance % GDP Q3 (Q2) 4.5% (4.6%) Trend current account balance % GDP 6.0% Moody's Foreign Currency Rating Aaa Outlook Stable * Current is latest month, quarter or year


1. Inflation dynamic slowly trending higher

2. Carry remains an attractive strategy


Forecasts



USD/SEK 9.51 10.00 9.69 9.48 8.98 8.70 8.53 8.37

EUR/SEK 9.70 10.00 9.50 9.10 8.80 8.70 8.70 8.70

NOK/SEK 1.09 1.14 1.09 1.06 1.04 1.04 1.04 1.04

CAD/SEK 7.04 7.25 7.02 6.87 6.55 6.40 6.32 6.29

20182017

0.0

0.5

1.0

1.5

2.0

2.5

3.0

09 10 11 12 13 14 15 16 17

10yr breakeven inflation

Underlying CPI

Sweden CPI, % y/y

-1

0

1

2

3

4

5

6

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Average G10 2yr swap, %

FX carry basket yield, %

Difference


March 3, 2017 9

Norwegian Krone Elsa Lignos 1-3 Month Outlook – Consolidation phase

Having outperformed most of G10 since crude bottomed a year ago, NOK gains stalled in February. We have hit our end-quarter target for EUR/NOK (8.90) and expect consolidation around current levels. Crude prices have also stalled, with WTI struggling to reach USD55/bl and Brent unable to visit the January highs of USD58/bl. Figure 1 shows that the most significant correlations for NOK at the moment are 2yr swaps and Brent (general risk appetite has fallen off the radar). The key event for the oil market is OPEC’s annual meeting on May 25. OPEC will have to decide whether to extend December’s production cuts or not. But though OPEC has made it clear it wants to run down global inventories, it is not clear to what extent. Our oil analyst argues the decision to extend the cuts will be price-dependent – establishing a floor for crude rather than driving it higher. That leaves oil offering limited further support for NOK from current levels. On the rates side, the forward curve is flat for 2017 with 1-2 hikes priced for 2018. Inflation is on a downtrend both on headline and core measures (Figure 2), one of the only countries in G10 where that is happening and Norges Bank is comfortable sitting on hold. Having repriced over the last couple of months (for the first time in three years, the FRA curve is upward sloping), the gains will be much harder for NOK from here. We still look for some modest NOK appreciation in Q2/Q3 as the time until the first hike decays, but the pace should be slower than late 2016.

6-12 Month Outlook – Closer to normalisation

Longer-term, we still expect EUR/NOK to grind lower and our end-2017 forecast is unchanged at 8.60. Fiscal policy is set to remain stimulative. Traditionally, the govt has been able to spend up to 4% of its oil fund. Norges Bank Governor Olsen has argued for some time that the 4% return assumption is no longer credible, and in mid-February, the Norwegian govt proposed changing the rule to 3%. But in practice this should make little difference immediately as the rule has not been a binding constraint. The 0.5% policy rate is amongst the highest in G10, but relative to estimates of neutral rates, monetary policy is amongst the loosest. Normalisation is likely to support NOK through 2018.

Indicators

Current (Previous)* Official cash rate 0.5% (0.5%) Trend interest rates 10y average 3.6% Bias in interest rate market Neutral CPI (ex energy and taxes) %Y/Y Jan (Dec) 2.8% (2.1%) Inflation target % 2.5% Budget balance % GDP FY15 (FY14) 6.9% (9.1%) Budget balance target % GDP Structural, non-oil deficit < 4% GDP Mainland Growth %q/q Q4 (Q3) 0.3% (0.1%) Trend GDP %q/q 0.6% EUR Purchasing Power Parity Value Jan 8.6829 Spot end-Feb 8.8770 PPP Valuation EUR/NOK is overvalued Current a/c balance % GDP Q3 (Q2) 4.9% (6.1%) Trend current account balance % GDP 11.3% Moody's Foreign Currency Rating Aaa Outlook Stable * Current is latest month, quarter or year


1. Rate differentials the primary driver for NOK

2. Norway: one of the few places where inflation is falling


Forecasts



USD/NOK 8.73 8.80 8.88 8.96 8.67 8.40 8.24 8.08

EUR/NOK 8.90 8.80 8.70 8.60 8.50 8.40 8.40 8.40

NOK/SEK 1.09 1.14 1.09 1.06 1.04 1.04 1.04 1.04

CAD/NOK 6.46 6.38 6.43 6.49 6.33 6.18 6.10 6.07

20182017

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

EUR/NOK vs 2yr swaps USD/NOK vs 2yr swaps

NOK/SEK vs 2yr swaps USD/NOK vs Brent

EUR/NOK vs Brent NOK/SEK vs Brent

Area of statistical insignificance

3m rolling correlations

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

06 07 08 09 10 11 12 13 14 15 16 17

Core CPI (ex energy & tax changes) %y/y

Headline CPI %y/y


March 3, 2017 10

Canadian Dollar George Davis 1-3 Month Outlook – Policy divergence

February was a very uneventful month for USD/CAD, with the pair largely confined to a narrow 1.3000-1.3200 range for most of the period. However, we continue to see topside risks remaining prevalent through Q1 and Q2 as policy divergence will lend support to the USD.

From a domestic perspective, the BoC has been steadfast in emphasizing that core inflation measures are pointing to “material excess capacity” in the economy. In addition, despite the creation of 239K jobs over the last seven months, slowing wage growth underpins the Bank’s contention that there remains significant slack in the labour market. To wit, average hourly earnings for permanent workers grew at just 1.0%y/y in January (Figure 1). Moreover, weak non-energy export growth and tepid private investment intentions continue to dent the Bank’s rotation thesis as these foundations for sustainable growth have proved elusive. Add to that the uncertainty and downside risks that revolve around US government policy (rising protectionism and tax reform) and it points to a central bank that will maintain a cautious stance and keep rates on hold through 2017. This contrasts with the US, where firm economic growth is expected to push the Fed to tighten policy further this year. This policy divergence is expected to serve as a bullish factor that pushes USD/CAD toward 1.35 in Q1 and 1.38 in Q2 (Figure 2).

Technically, the recent break above 1.3212 to begin the month of March favours additional gains toward 1.3461 initially, followed by the 1.3600 region.

6-12 Month Outlook – Known unknowns

Further out, we look for USD/CAD to stabilize around the 1.38 level for the remainder of 2017. We stress that this flat profile serves as more of a placeholder for the time being, as a greater degree of clarity and specificity around proposed measures for US tax reform and fiscal stimulus will be required in order to allow us to assess their impact on CAD with a higher degree of confidence. At one end of the spectrum, the implementation of some form of a border tax as part of a very comprehensive tax package would be expected to push USD/CAD above 1.40 with the potential to run to the 1.45 area as the USD broadly appreciates. At the other extreme, if the government’s tax reforms do not include a border adjustment tax and other aspects are watered down to a significant degree, some bullish underpinnings for the USD would be removed and USD/CAD would be expected to weaken toward 1.27.

Indicators

Current (Previous)* Official cash rate 0.50% (0.75%) Trend interest rates 10y average 1.30% Bias in interest rate market Neutral Core CPI Inflation (Trim) %Y/Y January (Dec) 1.7% (1.6%) CPI Inflation target range %Y/Y 1-3% Budget balance % GDP FY15 (FY14) 0.1% (-0.3%) Budget balance target % GDP Balanced over the business cycle GDP Growth %Q/Q saar Q4 (Q3) 2.6% (3.8%) Trend GDP %Q/Q 1.62% Purchasing Power Parity Value Jan 1.2403 Spot end-Feb 1.3301 PPP Valuation USD/CAD is overvalued Current account balance % GDP Q3 (Q2) -3.7% (-3.5%) Trend current account balance % GDP -2.07% Moody’s Foreign Currency Rating Aaa Outlook Stable * Current is latest month, quarter or year

Source: Haver Analytics, RBC Capital Markets

1. Declining wage growth points to labour market slack

2. Rate spreads are a key driver of USD/CAD

Source: Bloomberg, RBC Capital Markets

Forecasts



USD/CAD 1.35 1.38 1.38 1.38 1.37 1.36 1.35 1.33

EUR/CAD 1.38 1.38 1.35 1.32 1.34 1.36 1.38 1.38

CAD/JPY 83.0 79.7 77.5 74.6 73.0 75.0 77.0 79.7

20182017

0

1

2

3

4

5

6

Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16

Average Hourly Earnings -Permanent Workers

%

0

0.1

0.2

0.3

0.4

0.5

0.6

1.25

1.27

1.29

1.31

1.33

1.35

1.37

1.39

Jul-16 Oct-16 Jan-17

USD/CAD (LHS)

2yr US-CA Yield Spread (RHS)


March 3, 2017 11

Australian Dollar Elsa Lignos 1-3 Month Outlook – Three sources of AUD support

AUD/USD ran into resistance in late February just above 0.7740 and has come off 2% in early March, but it remains the top-performing G10 currency YTD, vying for global first place with ZAR. For those tracking rate dynamics, AUD/USD looks increasingly stretched. Figure 1 shows AUD/USD against 2 year AU-US rate differentials; while spreads have moved 30bps in the US’s favour since Jan 1, AUD/USD is still up nearly 5%. But as we have been arguing for a while, rate spreads are not the story. (1) Part of the explanation is outright yield (the return of the G10 carry trade means AUD benefits from its status as a relative high yielder in G10). But AUD is also up ~4% YTD against its higher-yielding cousin NZD, so that is clearly not the only driver. (2) AUD benefits from deeper asset markets relative to NZ and unhedged inflows. Capital from Japanese investors has continued flowing into AU bonds. December inflows (the last month for which we have data) were AUD1.6bn, more modest than the November inflow of AUD3.4bn but still showing remarkable resilience in the face of rallying AUD/JPY. As highlighted in Figure 2, Japanese buying only makes sense on an unhedged basis (AU is the highest-yielding liquid G10 market), which means AUD buying. (3) AUD is benefiting from the huge rally in iron ore (prices up 80% in six months, +22% YTD, though down 7% off the late Feb high). That has also supported other hard commodity exporters like ZAR and BRL.

For the rest of Q1, AUD may face some downside risk from the January reversal effect (see Total FX, 13 Jan 2017 for details). In a nutshell, we have found that January moves tend to reverse in AUD, CAD and NZD through Feb/March. But beyond that we remain constructive on AUD, at least on key crosses. We have revised our end-Q2 forecast marginally higher to reflect (0.75 from 0.74).

6-12 Month Outlook – Monetary policy remains easy

Longer-term, the balance of risks is skewed to the downside, but ongoing demand for yield should slow the decline. Australia needs fiscal consolidation over the longer-term, which is consistent with our AU rates strategists’ view that the RBA will need to do more of the work in supporting growth (they still see some risk of another rate cut taking the cash rate down to a historic low of 1.25%). AUD is overvalued on all the measures we track (see Total FX, 10 Feb 2017) which will weigh on it over the longer-term. Our 12m ahead target is 0.72.

Indicators

Current (Previous)* Official cash rate 1.5% (1.5%) Trend interest rates 10y average 4.4% Bias in interest rate market Flat CPI Inflation %Y/Y Q4 (Q3) 1.6% (1.3%) CPI Inflation target range %Y/Y 2.0-3.0% Budget balance % GDP FY15E/14 -2.7%/-3.2% Budget balance target % GDP Balanced over the business cycle GDP Growth %Y/Y Q3 (Q2) 1.8% (3.1%) Trend GDP %Y/Y 2.8% Purchasing Power Parity Value Q4 0.7260 Spot end-Feb 0.7656 PPP Valuation AUD/USD is overvalued Current account balance % GDP Q3 (Q1) -1.8% (-3.1) Trend current account balance % GDP -4.4% Moody’s Foreign Currency Rating Aaa Outlook Stable * Current is latest month, quarter or year


1. Gap between AUD/USD and rate spreads only widening

2. Japanese inflows into AUD: only make sense unhedged


Forecasts



AUD/USD 0.74 0.75 0.73 0.72 0.72 0.72 0.73 0.73

EUR/AUD 1.38 1.33 1.34 1.33 1.36 1.39 1.40 1.42

AUD/NZD 1.04 1.04 1.00 0.97 0.97 0.97 0.97 0.97

AUD/CAD 1.00 1.04 1.01 0.99 0.99 0.98 0.99 0.97

20182017

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

0.60

0.65

0.70

0.75

0.80

0.85

0.90

Oct-14 Apr-15 Oct-15 Apr-16 Oct-16

AUD/USD, LHS

AU-US 2yr swap spread, RHS

0.0

0.5

1.0

1.5

2.0

2.5

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

ES

AUNOCADE

CH

NZ

FR

GB

SE US

IT

JP

Unhedged 10-yr yield, %

Hed

ged

10-y

r yi

eld,

%

Hedged vs unhedged yield, JPY-based


https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_01DB56554868500F8E616479081D8C93

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_4144535A5D094BC8EC0A6BD3966B3617

March 3, 2017 12

New Zealand Dollar Adam Cole 1-3 Month Outlook – Broad range-trade

NZD has traded a very broad range in 2017 so far, but in net terms, is a middle-of-the-pack performer amongst G10 currencies after January’s strong rally reversed sharply in February (not an unusual trading pattern, as we noted in Total FX, January 13). NZD’s mixed performance continues to defy an unambiguously negative interest rate dynamic relative to the US (Figure 1), which we continue to rationalise through demand for yield in what, despite the slight back-up in rates since the US election, remains a very low global yield environment (see Figure 2 on page 8). Domestic news flow in recent weeks has been moderately negative. The RBNZ kept rates unchanged at its February policy meeting, but it also retained a mild easing bias, with the Governor noting “… policy may need to adjust accordingly” and it revised its inflation forecasts lower at the policy-relevant horizon. Subsequent data releases have been on the soft side. Despite these developments, the forward curve in New Zealand has been dragged higher by higher US rate expectations and attaches a negligible probability to a near-term rate cut and on a one year horizon is fully priced for a 25bp hike. This is far ahead of the late-2019 hike implied by the RBNZ’s forecast. Our economists remain of the view that the next move will be down as wage inflation remains weak and the resurgent NZD will continue to weigh on tradables inflation. As the housing market slows and takes headline growth with it, the RBNZ will be forced to cut. This development, counterbalanced by the recurring bid under NZD that results from its outright yield, will likely keep NZD within its recent range through Q2.

6-12 Month Outlook – When the carry story turns

While NZD is well above its long-term average real effective exchange rate, and overvalued on all four valuation measures we monitor (see Total FX, February 10), it can remain there for an extended period of time (see Total FX, 9 Sept 2016). So we are cautious not to turn too bearish on NZD as its outright yield is still supportive and global yields have not risen nearly enough to wipe out the advantages of the G10 carry trade. We think NZD/USD will be slow to head lower as US policy takes a while to result in meaningful policy divergence. Our end-2017 forecast is unchanged at 0.74.

Indicators

Current (Previous)* Official cash rate 1.75% (1.75%) Trend interest rates 10yr average 5.40% Bias in interest rate market Flat CPI Inflation %Y/Y Q4 (Q3) 1.3% (0.4%) Inflation target 1.0-3.0% Budget balance % GDP FY15E/FY14 -0.1%/-0.5% Budget balance target % GDP Balanced over business cycle GDP Growth %Y/Y Q3 (Q2) 3.5% (3.4%) Trend GDP %Y/Y 3.1% Purchasing Power Parity Value Q4 0.6571 NZD/USD end-Feb 0.7192 Valuation NZD/USD is overvalued Current account balance % GDP Q3 (Q2) -2.9% (-3.5%) Trend current account balance % GDP -4.2% Moody's Foreign Currency Rating Aaa Outlook Stable

* Current is latest month, quarter or year

Source: RBC Capital markets, Bloomberg

1. NZD breaks away from rate dynamics

2. NZD significantly overvalued


Forecasts



NZD/USD 0.71 0.72 0.73 0.74 0.74 0.74 0.75 0.75

EUR/NZD 1.44 1.39 1.34 1.30 1.32 1.35 1.36 1.39

AUD/NZD 1.04 1.04 1.00 0.97 0.97 0.97 0.97 0.97

NZD/CAD 0.96 0.99 1.01 1.02 1.01 1.01 1.01 1.00

20182017

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.55

0.60

0.65

0.70

0.75

0.80

Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17

NZD/USD, LHS

2yr swap differential, RHS

-30

-20

-10

0

10

20

30

94 96 98 00 02 04 06 08 10 12 14 16

NZD BIS real effective exchange rate deviation from LR average, %


https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_01DB56554868500F8E616479081D8C93

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_4144535A5D094BC8EC0A6BD3966B3617

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_810EB8E5229B5A03D41A33C9435860EB

March 3, 2017 13

Chinese Yuan Sue Trinh 1-3 Month Outlook – Tightening, slower growth to weigh on CNY

CNY and CNH were bottom of the pack in February as concerns have grown about China’s subtle shift in monetary policy stance toward tentative tightening amid a renewed increase in debt, particularly shadow banking. Shadow banking has increased 51.1%y/y (12m rolling sum basis) and its share of total social financing has risen from 24.2% to 31.9%. This statistic is all the more worrying since it does not include off-balance sheet wealth management products (WMPs), which increased by 30%y/y to USD3.8trn. In its Q4 Monetary Policy report, the PBC was notably more hawkish and abandoned its easing bias (“"stable and relatively loose”) in favour of “stable and neutral” monetary policy. The policy change signals a shift in focus away from growth at all costs to financial stability risks. In particular, PBC vowed to “strictly limit” the flow of credit into speculative housing purchases and turned its attention to reining in WMPs. The unexpected round of credit stimulus last year fuelled strong Chinese demand for hard commodities and supported RMB sentiment. The declining monetary and fiscal impulse presents downside risk for Chinese GDP growth and a reversal of positive RMB sentiment seen in the last 3 months. We await China’s macro targets at the 5 March NPC.

Meantime, US President Trump has yet to follow through on his pledge to label China a currency manipulator and slap 45% tariffs on imported Chinese goods. Depending on developments, in the next 1-3 months, the US Treasury Report on FX Policies of Major Trading Partners will be a key risk event.

6-12 Month Outlook – Employment outlook less rosy; Political risk crystalising

Of particular concern is the continued trend deterioration in key labour market indicators and other indicators pointing toward stalling in the economic rebalancing toward the services sector.

Our concerns about a widening political risk premium and the negative implications for structural reform are crystalising with President Xi being pronounced as the "core" of the Communist Party leadership, which is designed to convey his unquestioned authority. We remain comfortable targeting USD/CNY at 7.5 in 2017.

Indicators

Current (Previous)*

Official cash rate 1.5% - 4.35 % (1.75%-

4.60%) Trend interest rates (10yr average) 2.85%-6.07% Bias in interest rate market Lower CPI Inflation %Y/Y last (prev) 2.5% (2.1%) Inflation target 3.0% Budget balance % GDP last (prev) -3.5% (-1.80%) Budget balance trend % GDP -1.21 GDP Growth % y/y last (prev) 6.8% (6.7%) Trend GDP %y/y 9.9 RBC-POLAR misalignment 10% Spot end-February 6.8670 FX Valuation Overvalued Current account balance % GDP last (prev) 1.9% (2.4%) Trend current account balance % GDP 4.1 Moody's Foreign Currency Rating Aa3 Outlook Negative * Current is latest month, quarter or year

Source: RBC Capital Markets; PBC, Bloomberg

1. Aggressive fiscal stimulus supported growth

2. Aggressive monetary stimulus supported growth

Source: RBC Capital Markets; PBC, Bloomberg

Forecasts



USD/CNY 7.00 7.20 7.40 7.50 7.60 7.70 7.70 7.75

EUR/CNY 7.14 7.20 7.25 7.20 7.45 7.70 7.85 8.06

CNY/JPY 16.0 15.3 14.5 13.7 13.2 13.2 13.5 13.7

CAD/CNY 5.19 5.22 5.36 5.43 5.55 5.66 5.70 5.83

20182017

0

5000

10000

15000

20000

25000

Jan/FebMar Apr May Jun July Aug Sep Oct Nov Dec

State Fixed Asset Expenditure, RMBbn

2010

2011

2012

2013

2014

2015

2016

4.0%

6.0%

8.0%

10.0%

-1000

-500

0

500

1000

07 08 09 10 11 12 13 14 15 16 17

RRR liquidity 3m rolling average

PBC liquidity measures (incl OMOs), USDbn, 3mrolling averageAnnualised q/q GDP growth, %, adv 1q, reverse order,RHS


March 3, 2017 14

Indian Rupee Sue Trinh 1-3 Month Outlook – RBI is not done easing

INR was one of the best performers in Asia for the month of February, notching gains of 1.2% against the USD.

The main positive domestic news in the month was that the government maintained its pledge to narrow the budget deficit from an estimated 3.5% to 3.2% of GDP in FY17/18. The RBI also unexpectedly left the repurchase rate at 6.25% against consensus and our forecast for a 25bps cut. The decision was unanimous. In addition, the RBI shifted its policy stance to neutral from accommodative. The RBI sounded a cautious note on inflation and highlighted three upside risks to its inflation target (5% by March 2017 and 4% for next five years): 1) high oil prices; 2) heightened volatility in INR from global developments; and 3) house rent allowance increases under the pay commission. We are not convinced the RBI is done easing. Both urban and rural CPI inflation have been in a strong downtrend since August, driving real interest rates up through the upper end of the RBI’s stated target range. Though we agree the RBI is near the end of its easing cycle, we don’t think it is done. In particular, we think odds of a further rate cut are higher than current consensus. The market places a 20% probability on an April 6 rate cut and just a 40% probability of a 25bps rate cut by the end of 2017.

We have revised our USD/INR profile lower and now target 68.0 for end-March.

6-12 Month Outlook – Relatively insulated

We remain constructive on INR in the longer-term, particularly in periods of high market volatility. India’s balance of payments position provides a decent buffer from a rising USD and rising US interest rates. India is also relatively insulated from the vicissitudes of protectionist brinkmanship given exports contribute less than 20% of GDP. Continued progress on structural reform initiatives, e.g., the cleanup of bad debt, GST implementation, will also be critical for investor sentiment. Though the demonetization has been disruptive in the short-term, it is likely a case of short-term pain for long-term gain. Effective implementation would ultimately reduce the size of the informal sector, reduce corruption and increase the government’s tax base. We have revised our USD/INR profile lower and now target 69.5 for year-end. INR will continue enjoying relative gains on the crosses.

Indicators

Current (Previous)* Official cash rate (Repurchase Rate) 6.25% (6.25%) Trend interest rates (10yr average) 6.75% Bias in interest rate market Flat CPI Inflation %Y/Y last (prev) 3.17% (3.41%)

Inflation target 4% for next five years Budget balance % GDP last (prev) -3.7% (-4.2%)

Budget balance trend % GDP -5.15

GDP Growth % y/y last (prev) 7.0% (7.4%) Trend GDP %y/y 6.4 RBC-POLAR misalignment 2.9% Spot end-February 66.69 FX Valuation Overvalued

Current account balance % GDP last (prev) -0.5% (-0.8%)

Trend current account balance % GDP -1.35% Moody's Foreign Currency Rating Baa3 Outlook Positive * Current is latest month, quarter or year

Source: RBC Capital Markets; RBI, Bloomberg

1. Real interest rates up through RBI’s stated target range

2. INR stable on TWI basis, despite weakness versus USD


Forecasts



USD/INR 68.0 68.0 69.0 69.5 70.0 70.0 71.0 71.0

EUR/INR 69.4 68.0 67.6 66.7 68.6 70.0 72.4 73.8

INR/JPY 1.65 1.62 1.55 1.48 1.43 1.46 1.46 1.49

CAD/INR 50 49 50 50 51 51 53 53

2017 2018

-5

-4

-3

-2

-1

0

1

2

3

4

5

Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17

India-real interest rate, %

RBI's stated target for realinterest rate

80

85

90

95

100

105

Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17

INR TWI

INRUSD


March 3, 2017 15

South Korean Won Sue Trinh 1-3 Month Outlook –Inflation & export bounce shaky

KRW was the best performing Asian currency in February, gaining 2.5% against USD. Headline and core inflation surprised on the upside with the former accelerating to a 4.5 year high of 2% (cons: 1.5%). Export growth has also surprised on the upside with annual export growth accelerating from 11.2% to 20.2%. The BoK kept its 7-day repo rate at a record low of 1.25% for the eighth consecutive month on the back of the rise in inflation and exports, boosting market expectations it won’t be cutting rates much further from here; consensus attaches just a 40% probability of a rate cut by year end. However, headline inflation was driven by a sharp rise in egg and vegetable prices following the worst outbreak of avian flu and core consumer price inflation (1.5% y/y) remains well within the past year’s tepid range. Meantime, the value of exports is at the lowest since Q1 2011 (12m rolling sum basis) and the y/y rates have simply been flattered by base effects.

We think another factor supporting KRW in the past month is speculation that the BoK has been leaning against KRW weakness ahead of the US Treasury’s Report on the currency practices of the major US trading partners due in April, where S Korea is on the watchlist. Current legislation would suggest a low probability of S Korea being labeled a currency manipulator, but there is considerable uncertainty surrounding related legislation under US President Trump.

Given the lower than expected starting point for USD/KRW, we have revised down our end-March target from 1270 to 1160, which remains above spot.

6-12 Month Outlook – Still room to move lower

We think many of the longer-term issues for KRW remain in play. Political uncertainty is yet another factor to add to the list of reasons we are cautious on KRW, which includes record household debt, the restructuring of zombie companies, weak exports with an uncertain trade outlook and North Korea's growing nuclear and missile threat. We think there is scope for KRW to correct lower since it is relatively expensive to recent years on a real effective basis. KRW is especially vulnerable in the event of protectionist measures. We have tempered our USD/KRW profile in line with its lower starting point. Our forecast peak becomes 1250 at year-end (prior: peak of 1310 in Q2).

Indicators

Current (Previous)* Official cash rate 1.25% (1.25%) Trend interest rates (10yr average) 3.45% Bias in interest rate market Lower CPI Inflation %Y/Y last (prev) 2.0% (1.3%) Inflation target 2.0% (2016-2018) Budget balance % GDP last (prev) -0.03% (0.86) Budget balance trend % GDP 1.4 GDP Growth % y/y last (prev) 2.3% (2.6%) Trend GDP %y/y 4.1 RBC-POLAR misalignment 2.9% Spot end-February 1136.6 FX Valuation Overvalued Current account balance % GDP last (prev)

7.25% (7.9%)

Trend current account balance % GDP 3.0% Moody's Foreign Currency Rating Aa2 Outlook Stable * Current is latest month, quarter or year


1. Export trend not as rosy in value terms

2. Rise of the REER

Source: RBC Capital Markets; BIS, Bloomberg

Forecasts



USD/KRW 1170 1190 1210 1250 1260 1270 1280 1300

EUR/KRW 1193 1190 1186 1200 1235 1270 1306 1352

JPY/KRW 10.4 10.8 11.3 12.1 12.6 12.5 12.3 12.3

CAD/KRW 867 862 877 906 920 934 948 977

20182017

0

10,000

20,000

30,000

40,000

50,000

60,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

99 02 05 08 11 14 17

12m rolling sum, LHS

Korean exports, USDmn, RHS

55

65

75

85

95

105

115

125

135

145

94 96 98 00 02 04 06 08 10 12 14 16

KRW REER


March 3, 2017 16

Singaporean Dollar Sue Trinh 1-3 Month Outlook – Pressure off MAS for now

SGD gained 0.69% against the USD in February, a respectable performance that placed it top 5 in the region. The main domestic news in the month was a surprising rebound in GDP growth. Singapore’s economy expanded from -0.4% to 12.3%q/q saar in Q4, a 5-year high, taking annual GDP growth from 1.2% to 2.9%. The main growth drivers were the electronics and biomedical sectors. Importantly, the key services sector, which accounts for 2/3 of the economy, rebounded by 8.4%q/q saar. With GDP growth proving stronger than what we, consensus and MAS had expected, driven by a recovery in Chinese demand, the data takes some pressure off the MAS to ease monetary policy in April. This is especially the case with Budget 2017 projecting a smaller surplus for FY17/18 of 0.4% of GDP compared to 1.3% of GDP. Yet USD/SGD still trades cheap with respect to interest rate differentials. The government has also announced changes to diesel taxes and hiked the price of water, which will see headline CPI inflation increase this year. We expect MAS to look through this as a one-off policy driven effect, but faster growth momentum should keep inflation within the MAS’ forecast ranges this year (headline: 0.5-1.5% and core: 1-2%). We revise our USD/SGD profile lower and now target 1.43 for end-March. Our forecasts remain above spot and consensus.

6-12 Month Outlook – Not out of the woods

We don’t think SGD is out of the woods. The recent recovery in growth momentum is fragile given considerable uncertainty surrounding the global trade outlook stemming from weaker Chinese demand and US government policy. As an example, the latest SBF-DP SME Index, which measures the business sentiment of SMEs in the coming two quarters, shows SMEs expect their businesses to be worse off in the first six months of 2017 than they are now. The Overall Index fell by 0.80%pts to 49.8, the first time in the seven-year history of the Index that it has fallen below 50.0, indicating a pessimistic outlook. Five of six industries now have a negative outlook for the coming half year. SGD stands to bear the brunt of any negative downturn in global risk sentiment given the structure of its economy and despite revising down our USD/SGD profile we still see risks skewed toward underperformance within ASEAN. Our end-2017 target is now 1.50.

Indicators

Current (Previous)* Official S$NEER Target Zero percent appreciation Trend interest rates (10yr average) 1.85% Bias in interest rate market Flat CPI Inflation %Y/Y last (prev) 0.6% (0.2%) Inflation target 0.5–1.5% Budget balance % GDP last (prev) 0.4% (1.3%) Budget balance trend % GDP 0.6 GDP Growth % y/y last (prev) 2.9% (1.8%) Trend GDP %y/y 5.4 RBC-POLAR misalignment 0.9% Spot end-January 1.3991 FX Valuation Fairly valued Current account balance % GDP last (prev)

19.0% (19.5%)

Trend current account balance % GDP 20.1 Moody's Foreign Currency Rating Aaa Outlook Stable * Current is latest month, quarter or year

Source: RBC Capital Markets; Statistics Singapore, Bloomberg

1. USD/SGD still biased higher on rate differentials

2. GDP growth rebound fragile

Source: RBC Capital Markets; SBF/DP, Bloomberg

Forecasts



USD/SGD 1.43 1.45 1.48 1.50 1.51 1.53 1.55 1.56

EUR/SGD 1.46 1.45 1.45 1.44 1.48 1.53 1.58 1.62

SGD/JPY 78.3 75.9 72.3 68.7 66.2 66.7 67.1 67.9

CAD/SGD 1.06 1.05 1.07 1.09 1.10 1.13 1.15 1.17

20182017

1.15

1.25

1.35

1.45

1.55

1.65

-1.00

-0.50

0.00

0.50

1.00

1.50

09 10 11 12 13 14 15 16 17

US-SI rate differential (Yield on 3rd eurodollarcontract - SIBOR), %USDSGD, RHS

0

5

10

15

48

50

52

54

56

58

60

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Overall Business Confidence Index, LHS

GDP, %y/y, RHS


March 3, 2017 17

Indonesian Rupiah Sue Trinh 1-3 Month Outlook – A turn in the BI cycle to boost IDR

IDR was largely flat in February, and was a middle of the road performer relative to the rest of Asia.

USD/IDR has been hemmed into a narrowing range for the past three months with BI primarily focused on maintaining financial stability in the wake of uncertainty stemming from US government and Fed policy; Indonesia has been vulnerable to funding reversals given its twin deficits, strong reliance on external financing and foreign ownership of IDR-denominated government bonds.

For those reasons, BI has been reluctant to cut rates, preferring to wait for past easing to work its way into the system. BI will feel vindicated after core CPI inflation ticked higher from 3.1% in December to 3.4%y/y in February.

We think BI is at the end of its easing cycle. Rising inflationary pressures (and falling real interest rates), stronger investment growth and rising Fed rates may see BI considering normalising policy, though not until later this year.

Given the lower starting point, we are revising down our USD/IDR profile and we now expect 13500 by end-March.

6-12 Month Outlook – External vulnerability reduced and pays dividends

IDR has had a lackluster year-to-date, among the worst performers in the region, despite Moody's revising the outlook on Indonesia's government ratings to positive from stable.

With a turn in the BI cycle looking increasingly likely, there is scope for IDR to play “catch up”. The Indonesian export recovery may be vulnerable to a rise in protectionism, but the government has made great strides in improving the economy’s external vulnerability, increasing FX reserves by USD10bn in 2016 to USD 116.9bn in January, a 5.5 year high and lowering its current account deficit to a more manageable rate of 1.7%.

In line with the lower starting point, a turn in the BI cycle and reduced external vulnerability, we have revised down our USD/IDR profile and now expect 13800 by year-end.

Indicators

Current (Previous)* Official cash rate (7d Reverse repo rate) 4.75% (4.75%) Trend interest rates (10yr average) - Bias in interest rate market Flat CPI Inflation %Y/Y last (prev) 3.8% (3.5%) Inflation target 4%+/-1.0% Budget balance % GDP last (prev) -1.93% (-2.15%) Budget balance trend % GDP -2% GDP Growth % y/y last (prev) 4.94% (5.01%) Trend GDP %y/y 5.5 RBC-POLAR misalignment 4.9% Spot end-February 13, 338 FX Valuation Overvalued Current account balance % GDP last (prev) -1.7% (-2.1%) Trend current account balance % GDP -0.5 Moody's Foreign Currency Rating Baa3 Outlook Positive * Current is latest month, quarter or year


1. Banks reluctant to pass through cuts to lending rates

2. Building up of the FX reserve buffer


Forecasts



USD/IDR 13500 13700 13800 13800 14000 14200 14300 14400

EUR/IDR 13770 13700 13524 13248 13720 14200 14586 14976

JPY/IDR 120.5 124.5 129.0 134.0 140.0 139.2 137.5 135.8

CAD/IDR 10000 9928 10000 10000 10219 10441 10593 10827

2017 2018

-2

-1

0

1

2

3

4

5

12 13 14 15 16 17

Real interest rate, % - Indonesia

60

70

80

90

100

110

120

130

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17

BI FX reserves, USDbn


March 3, 2017 18

Turkish Lira Daria Parkhomenko 1-3 Month Outlook – Upside room for USD/TRY

Since CBRT’s last meeting on Jan 24, TRY has strengthened 1.7% against USD, after being the worst-performing currency from Dec 20 to Jan 24 (-6.8%). That is partly down to the CBRT keeping monetary policy tight by forcing local banks to use the more expensive Late Liquidity Window (LON) to meet their funding needs. CBRT’s weighted average cost of funding for local banks now stands at 10.42%, which is well above the upper-bound of the interest rate corridor and the levels reached back in Q1 2014. Foreign flows into Turkish govt debt and equities have also picked up. On Feb 17, CBRT announced exporters can repay rediscount credits to the central bank in TRY at an exchange rate below the market (applicable to credits lent before Jan 1 and expiring by May 31). Going forward, we still see room for USD/TRY to reach 3.85 by end of Q1 and Q2. We believe the uncertainty around the referendum on April 16 will place upward pressure on USD/TRY and keep Turkey vulnerable to capital outflows, while tight monetary policy will offset some of the TRY weakness. Our base case remains that CBRT will hike in H1 2017 (April 26 or June 15) as TRY weakens in the short-term; but CBRT is likely to remain on hold on March 16, unless there is a significant spike higher in USD/TRY causing the inflation outlook to deteriorate. Given the CBRT expected inflation to rise in the short-term, an above consensus figure for March is not likely to push CBRT into action. Meanwhile, inflation expectations for the year ahead rose only slightly in the Feb survey of expectations (8.21% from 8.19% in Jan) compared to the increases in prior months. Downside risks to growth may also keep CBRT sidelined in March. Eventually, we do expect CBRT to hike in April or June as TRY weakens. Given the CBRT is reluctant to hike and its long-term goal is simplification, CBRT is likely to hike just its LON lending rate and continue to force banks to borrow at this rate rather than make outright changes to its interest rate corridor. This will support TRY in H2 2017.

6-12 Month Outlook – USD/TRY at 3.75 in Q4 2017

We expect USD/TRY to gradually trend lower in H2 2017. Despite the market now pricing in ~2.5 Fed hikes for this year, Turkey still offers attractive yields and we believe this will support unhedged foreign flows into Turkey. Additionally, if US rates do not rise fast enough to match the market’s expectation, this will push USD/TRY further down. However, Turkey’s vulnerability to external headwinds (low FX reserves and current account deficit) is likely to constrain a significant reversal in USD/TRY.

Indicators

Current (Previous)*

Official cash rate 8.0 (8.0)

Trend interest rates (10yr average) 6.21

Bias in interest rate market Hiking

CPI Inflation %Y/Y Feb (Jan) 10.13 (9.22)

Inflation target 5.00%

Budget balance % GDP 2016 (2015) -3.1 (-1.2)

Budget balance trend % GDP -2.1

GDP Growth % y/y Q3 (Q2) -1.8 (4.5)

Trend GDP %y/y 5.2

RBC-POLAR misalignment -13.0%

Spot-end (February) 3.6462

FX Valuation Undervalued

Current account % GDP Q3 (Q2) -3.8 (-3.5)

Trend current account balance % GDP -5.4

Moody's Foreign Currency Rating Ba1

Outlook Stable * Current is latest month, quarter or year

Source: Bloomberg, Turkish Statistical Institute, RBC Capital Markets

1. Foreign flows into Turkey’s govt debt have picked up

2. Central Bank of Turkey is keeping monetary policy tight

Source: Central Bank of Turkey, Bloomberg, RBC Capital Markets

Forecasts



USD/TRY 3.85 3.85 3.80 3.75 3.73 3.70 3.65 3.65

EUR/TRY 3.93 3.85 3.72 3.60 3.66 3.70 3.72 3.80

TRY/JPY 29.1 28.6 28.2 27.5 26.8 27.6 28.5 29.0

2017 2018

-600

-400

-200

0

200

400

600

Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17

Weekly transactions(USD mn)

4-wk. moving avg.

net

net inflows

3

4

5

6

7

8

9

10

11

Jun-12 Jun-13 Jun-14 Jun-15 Jun-16

CBRT weighted avg.cost of funding for localbanks

Emergency rate hikes (Jan 2014)


http://www.tcmb.gov.tr/wps/wcm/connect/TCMB+EN/TCMB+EN/Main+Menu/Announcements/Press+Releases/2017/ANO2017-10

http://www.tcmb.gov.tr/wps/wcm/connect/a4beb8f0-8bd7-4b1b-8c21-6fb37aa4b9a3/ANO2017-08.pdf?MOD=AJPERES

March 3, 2017 19

Mexican Peso Tania Escobedo Jacob 1-3 Month Outlook – Banxico to sell USD hedges

After stabilizing around 20.40 by the end of Jan, USD/MXN took a leg lower to 19.65 on news that the Exchange Commission (Banxico) decided to sell USD hedges. Despite the large move, we do not see Banxico’s USD hedge supply as a structural change that will reverse the trend of the currency in a sustainable way. It is very different to Brazil, where the presence of an onshore market for USD with higher implied rates incentivized private sector participants to bring in USD from abroad (thus impacting spot BRL). Instead, we think that the size of the move was exaggerated by broad USD weakness and the unwinding of a significant number of long USD/MXN positions. More fundamentally, we still think the Mexican economy is facing some important external and internal risks. Trade and migration policies are still the main focus on foreign policy, while internally, leading indicators on the demand and supply side have deteriorated further. On monetary policy, we think Mexico’s economic downturn will limit Banxico’s space for aggressive hikes going forward and see it following the Fed’s pace for the rest of the year (conditional on stable price dynamics). The 1Y TIIE swap points to a 7% ON rate by the end of 2017, which is consistent with Banxico mirroring three 25bps hikes from the Fed. Against this background we expect USD/MXN to trend higher from current levels but to trade within tighter ranges. With cleaner positions, expensive carry and a reiterated promise by Banxico towards an orderly FX market, USD/MXN volatility could decline, in absence of a deterioration in broad risk sentiment

6-12 Month Outlook – All eyes on trade policy For the rest of the year, trade policies will remain the main driver for MXN. We see USD/MXN trending higher to 21.50 by the end of 2017, under the assumption that trade between Mexico and the US will take a hit from a new tax scheme in the US. The base case scenario for our US economic team is the implementation of a BAT of 20%. It is important however, to note that the timing is very unclear. So far, Secretary Mnuchin has stated that the aim of the govt is to pass the tax reform by August, though that timetable seems optimistic. Meanwhile Mexico’s Minister of Economy said that he expects negotiations on trade to start in spring. As details start to get unveiled, we see USD/MXN moving more in line with fundamental changes in policy, rather than by speculation around them.

Indicators

Current (Previous)* Official cash rate 6.25 (5.75) Trend interest rates (10yr average) 4.56 Bias in interest rate market Hiking CPI Inflation %Y/Y Dec (Nov) 4.72 (3.36) Inflation target 3.0 (+/-1%) Budget balance % GDP 3Q (2Q) -2.36 (-2.15) Budget balance trend % GDP -3.14 GDP Growth % y/y 4QP (3Q) 2.2 (2.0) Trend GDP %y/y 2.41 Purchasing Power Parity 17 Spot 19.81 FX Valuation Undervalued Current account balance % GDP Q4 (Q3) -3.33 (-3.21) Trend current account balance % GDP -2.54 Moody's Foreign Currency Rating A3 Outlook Negative

* Current is latest month, quarter or year

Source: Bloomberg, RBC Capital Markets

1. MXN shorts are down 16k since the beginning of 2017

2. Banxico’s balance of risks is complicated

Source: RBC Capital Markets, Bloomberg.

Forecasts



USD/MXN 20.75 20.95 21.15 21.45 21.50 21.20 20.90 20.50

EUR/MXN 21.17 20.95 20.73 20.59 21.07 21.20 21.32 21.32

MXN/JPY 5.40 5.25 5.06 4.80 4.65 4.81 4.98 5.17

CAD/MXN 15.37 15.18 15.33 15.54 15.69 15.59 15.48 15.41

20182017

-0.65

-0.55

-0.45

-0.35

-0.25

-0.15

-0.0514.5

15.5

16.5

17.5

18.5

19.5

20.5

21.5

22.5

Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17

%

USD/MXN

75

80

85

90

95

100

105

110

115

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17

Inflation y/y %Reference Rate, %Consumer Confidence index Jan 14=100 (RHS)


March 3, 2017 20

Brazilian Real Tania Escobedo Jacob 1-3 Month Outlook – BCB could accelerate cuts

In absence of key deadlines in the agenda on structural reforms, USD/BRL will likely trade in line with broad USD dynamics in the coming weeks. The main short-term domestic drivers for BRL are the monetary policy stance and the currency swap position of the BCB. On monetary policy, the central bank cut the SELIC rate 75 bps to 12.25% (in line with consensus) and took advantage of the recent developments in inflation to indicate the possibility of a 100 bps cut in April, conditional on the data. We think that a relatively slight deterioration in economic indicators could be enough for the BCB to engage in 1% cuts. After the decision, the BRL swap curve adjusted to discount 95 bps of cuts for April’s meeting (prev: 78 bps) and the median of economists’ forecasts for SELIC rate by Dec 17 went from 9.50% to 9.25%. A more aggressive easing cycle will further remove the yield advantage of BRL though it will encourage fixed income inflows. We look for USD/BRL to stabilise around current levels. An additional element that could put an anchor on BRL and stall its downtrend is a further unwind of the BCB swaps; the central bank had a USD 7bn position maturing in March and has already let USD 4.5bn of that mature in February. We still think that the market is underpricing the risks for BRL but will incorporate its 4.5% appreciation YTD by lowering our near-term USD/BRL forecasts (USD/BRL Q1 17: 3.2 from 3.4, Q2: 3.3 from 3.43).

6-12 Month Outlook – Politics back in the picture

As we move further into 2017, we think rising political noise will be the trigger for a correction towards our year-end target of USD/BRL 3.40. At this point, markets seem to be discounting a very optimistic scenario regarding the implementation of reforms, and political/corruption woes have not had much impact on the currency. Meanwhile, Temer is struggling to keep the political equilibrium in Brazil as the electorate is increasing pressure on him to stop covering up for his allies’ wrongdoings, which would mean losing congressional support for key economic reforms. Also, the timetable for pension reform proposed by the head of the Senate has been rejected, showing that there is resistance among members of the committee. Overall, we perceive risks to BRL to be asymmetric. We see material disruptions to the implementation of structural reforms taking USD/BRL towards 3.40 but think the space for further gains if everything goes as planned could be more limited (3.00-3.05).

Indicators

Current (Previous)* Official cash rate 12.25 (13.00) Trend interest rates (10yr average) 11.20 Bias in interest rate market Cutting CPI Inflation %Y/Y Dec (Nov) 5.35 (6.29) Inflation target 4.5% +/- 1.5% Budget balance % GDP 4Q (3Q) -8.98 (-9.43) Budget balance trend % GDP -7.53 GDP Growth % y/y 3Q (2Q) -2.9 (-3.6) Trend GDP %y/y -2.8 Purchasing Power Parity 3.35 Spot 3.09 FX Valuation Undervalued Current account balance % GDP 3Q (2Q) -1.4 (-1.81) Trend current account balance % GDP -3.29 Moody's Foreign Currency Rating Ba2 Outlook Negative * Current is latest month, quarter or year

Source: BCB, RBC Capital Markets

1. Inflation and inflation expectations continue to trend lower…

2. …While the economic recovery is still weak


Forecasts



USD/BRL 3.20 3.30 3.35 3.40 3.51 3.55 3.55 3.58

EUR/BRL 3.26 3.30 3.28 3.26 3.44 3.55 3.62 3.72

BRL/JPY 35.0 33.3 31.9 30.3 28.5 28.7 29.3 29.6

CAD/BRL 2.37 2.39 2.43 2.46 2.56 2.61 2.63 2.69

20182017

5.0

6.0

7.0

8.0

9.0

10.0

11.0

4.3

4.6

4.9

5.2

5.5

5.8

6.1

Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16

IPCA forecast 2017 (LHS, y/y %)

IPCA (RHS, y/y %)

4

5

6

7

8

9

10

11

12

13-15

-10

-5

0

5

10

15

20


Retail Sales (LHS,%y/y)

Unemployment (RHS,%)

4

5

6

7

8

9

10

11

12

13-15

-10

-5

0

5

10

15

20


Retail Sales (LHS, %y/y)

Unemployment (RHS, %)


March 3, 2017 21

Forecasts Spot forecasts



EUR/USD 1.02 1.00 0.98 0.96 0.98 1.00 1.02 1.04

USD/JPY 112 110 107 103 100 102 104 106

GBP/USD 1.20 1.15 1.16 1.16 1.18 1.20 1.23 1.25

USD/CHF 1.05 1.06 1.09 1.13 1.12 1.11 1.09 1.08

USD/SEK 9.51 10.00 9.69 9.48 8.98 8.70 8.53 8.37

USD/NOK 8.73 8.80 8.88 8.96 8.67 8.40 8.24 8.08

USD/CAD 1.35 1.38 1.38 1.38 1.37 1.36 1.35 1.33

AUD/USD 0.74 0.75 0.73 0.72 0.72 0.72 0.73 0.73

NZD/USD 0.71 0.72 0.73 0.74 0.74 0.74 0.75 0.75

USD/CNY 7.00 7.20 7.40 7.50 7.60 7.70 7.70 7.75

USD/CNH 7.03 7.23 7.43 7.53 7.63 7.73 7.73 7.78

USD/HKD 7.75 7.77 7.78 7.78 7.80 7.80 7.80 7.85

USD/INR 68.0 68.0 69.0 69.5 70.0 70.0 71.0 71.0

USD/KRW 1170 1190 1210 1250 1260 1270 1280 1300

USD/SGD 1.43 1.45 1.48 1.50 1.51 1.53 1.55 1.56

USD/MYR 4.50 4.60 4.70 4.70 4.72 4.74 4.76 4.80

USD/IDR 13500 13700 13800 13800 14000 14200 14300 14400

USD/TWD 32.0 33.0 34.0 35.0 35.0 36.0 37.0 37.0

USD/THB 36.0 36.5 37.0 37.0 37.5 38.0 38.5 39.0

USD/PHP 51.0 51.5 52.0 52.5 52.5 53.0 53.5 54.0

USD/TRY 3.85 3.85 3.80 3.75 3.73 3.70 3.65 3.65

USD/PLN 4.26 4.35 4.39 4.45 4.34 4.23 4.12 4.04

USD/HUF 308 312 316 321 313 306 299 293

USD/CZK 26.5 27.0 26.2 26.8 26.2 25.7 25.2 24.7

USD/MXN 20.75 20.95 21.15 21.45 21.50 21.20 20.90 20.50

USD/BRL 3.20 3.30 3.35 3.40 3.51 3.55 3.55 3.58

2017 2018


March 3, 2017 22

EUR Crosses



EUR/USD 1.02 1.00 0.98 0.96 0.98 1.00 1.02 1.04

EUR/JPY 114 110 105 99 98 102 106 110

EUR/GBP 0.85 0.87 0.85 0.83 0.83 0.83 0.83 0.83

EUR/CHF 1.07 1.06 1.07 1.08 1.10 1.11 1.11 1.12

EUR/SEK 9.70 10.00 9.50 9.10 8.80 8.70 8.70 8.70

EUR/NOK 8.90 8.80 8.70 8.60 8.50 8.40 8.40 8.40

EUR/CAD 1.38 1.38 1.35 1.32 1.34 1.36 1.38 1.38

EUR/AUD 1.38 1.33 1.34 1.33 1.36 1.39 1.40 1.42

EUR/NZD 1.44 1.39 1.34 1.30 1.32 1.35 1.36 1.39

EUR/CNY 7.14 7.20 7.25 7.20 7.45 7.70 7.85 8.06

EUR/CNH 7.34 7.17 7.23 7.28 7.23 7.48 7.73 7.88

EUR/HKD 7.91 7.77 7.62 7.47 7.64 7.80 7.96 8.16

EUR/INR 69 68 68 67 69 70 72 74

EUR/KRW 1193 1190 1186 1200 1235 1270 1306 1352

EUR/SGD 1.46 1.45 1.45 1.44 1.48 1.53 1.58 1.62

EUR/MYR 4.59 4.60 4.61 4.51 4.63 4.74 4.86 4.99

EUR/IDR 13770 13700 13524 13248 13720 14200 14586 14976

EUR/TWD 33 33 33 34 34 36 38 38

EUR/THB 36.7 36.5 36.3 35.5 36.8 38.0 39.3 40.6

EUR/PHP 52.0 51.5 51.0 50.4 51.5 53.0 54.6 56.2

EUR/TRY 3.93 3.85 3.72 3.60 3.66 3.70 3.72 3.80

EUR/PLN 4.35 4.35 4.30 4.27 4.25 4.23 4.20 4.20

EUR/HUF 314 312 310 308 307 306 305 305

EUR/CZK 27.0 27.0 25.7 25.7 25.7 25.7 25.7 25.7

EUR/MXN 21.2 21.0 20.7 20.6 21.1 21.2 21.3 21.3

EUR/BRL 3.26 3.30 3.28 3.26 3.44 3.55 3.62 3.72

2017 2018


March 3, 2017 23

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RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBCCapital Markets, LLC, RBC Europe Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained inthis report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is madeby Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimatescontained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided ingood faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. Thismaterial is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of personswho receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independentinvestment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offerto buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.


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Fixed Income & Currency Strategy Research Team

Europe

RBC Europe Limited:

Adam Cole Chief Currency Strategist +44‐20‐7029‐7078 [email protected]

Vatsala Datta UK Rates Strategist +44 20‐7029‐0184 [email protected]

Sam Hill, CFA Senior UK Economist +44‐20‐7029‐0092 [email protected]

Cathal Kennedy European Economist +44(0)20 7029 0133 [email protected]

Peter Schaffrik Global Macro Strategist +44‐20‐7029‐7076 [email protected]

Asia‐Pacific

Royal Bank of Canada – Sydney Branch:

Su‐Lin Ong Head of Australian and New Zealand FIC Strategy +612‐9033‐3088 su‐[email protected]

Michael Turner Fixed Income & Currency Strategist +612‐9033‐3088 [email protected]

Royal Bank of Canada – Hong Kong Branch:

Sue Trinh Head of Asia FX Strategy +852‐2848‐5135 [email protected]

North America

RBC Dominion Securities Inc.:

Mark Chandler Head of Canadian FIC Strategy (416) 842‐6388 [email protected]

George Davis Chief Technical Analyst (416) 842‐6633 [email protected]

Simon Deeley Fixed Income Strategist (416) 842‐6362 [email protected]

RBC Capital Markets, LLC:

Michael Cloherty Head of US Rates Strategy (212) 437‐2480 [email protected]

Tania Escobedo Jacob Latam FX Strategist (212) 618‐3535 [email protected]

Elsa Lignos Global Head of FX Strategy (212) 428‐6492 [email protected]

Jacob Oubina Senior US Economist (212) 618‐7795 [email protected]

Tom Porcelli Chief US Economist (212) 618‐7788 [email protected]

Daria Parkhomenko Associate (212) 618‐7857 [email protected]

Commodities Strategy Research Team

North America

RBC Capital Markets, LLC:

Helima Croft Global Head of Commodity Strategy (212) 618‐7798 [email protected]

Christopher Louney Commodity Strategist (212) 437‐1925 [email protected]

Michael Tran Commodity Strategist (212) 266‐4020 [email protected]

Adam Cole 10 Currency Report Card - RBC Wealth Management

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Transcript of Adam Cole 10 Currency Report Card - RBC Wealth Management