CURRENCY FACT SHEETS GLOBAL ECONOMIC RESEARCH | 31 March 2017
JULIUS BAER CURRENCY STRATEGY G10 currencies Page
● USD: Growing competition in the bullish camp 2
● EUR: Warming up for a comeback 3
● JPY: Lasting headwind from zero interest rates 4
● GBP: Triggered Brexit may lead to pound volatility 5
● CHF: To remain strong against the euro 6
● NOK: Suffering from falling inflation and oil prices 7
● SEK: Near end to Riksbank QE supports bullish case 8
● CAD: Loonie floats between oil spills & a (lame?) duck 9
● AUD: Shrinking carry advantage 10
● NZD: Stronger USD to dominate over domestic strength 11
Emerging market currencies
● CNY: Steady and ready for the xi-trump meeting 12
● IDR: Balanced risks 13
● INR: Boost from election win 14
● KRW: Exposed to USD moves, risks from China 15
● SGD: Returning to a positive slope in October? 16
● BRL: On a stable path 17
● MXN: A brighter future for the mexico-us relationship? 18
● CZK: End to currency cap is nearing 19
● HUF: Unconventional policy easing is a headwind 20
● PLN: Growth picks up despite policy skirmish 21
● RUB: Carry me home 22
● TRY: Political risks intensify 23
● ZAR: Heavy burden from politics 24
Source: Bloomberg Finance L.P., Julius Baer
Frankfurt, +49 (0)69 9074 3580
Julius Baer Research | Please find important legal information at the end of this document.
CURRENCY FACT SHEETS
APRIL 2017
3-month and 12-month ranking relative to 24 currencies covered by JB economic research. Based on expected return over forward.
Arrows indicate change in bullish/neutral/bearish view vs. last month.
Global Economic Research
Zurich, +41 (0)58 888 8100
CZK
SEK
INR
USD
EUR
MXN
CHF
NZD
ZAR
SGD
PLN
NOK
KRW
BRL
IDR
RUB
CAD
CNY
TRY
AUD
JPY
HUF
GBP
bearish neutral bullish
12 months 3 monthsChange to previous
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▲
▼
▼
▲
▲
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▼
▼
1/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against EUR) Valuation (against JPY)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
EURUSD 1.07 1.07 1.07
●Consensus 1.05 1.05
USDJPY 111.7 115.0 120.0
Consensus 115.5 116.8
●USDCHF 1.00 1.00 1.00
Consensus 1.02 1.02
GBPUSD 1.25 1.20 1.16
Consensus 1.21 1.21
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals United States
spot v. EUR v. JPY 2016E 2017E 2015 2016E 2017E
3M Rate 1.15% 148bp 113bp Gross Domestic Product (GDP, %) 2.6 1.6 2.5 CA balance (% of GDP) -2.6 -2.7 -3.2
10Y Yield 2.41% 208bp 234bp Consumer Price Inflation (CPI, %) 0.1 1.3 2.4 Budget balance (% of GDP) -4.5 -5.0 -5.1
3M Fwrd 1.07 111.26 Fed Funds Target Rate (%, e. of per.) 0.50 0.75 1.50 Gross public debt (% of GDP) 126.0 127.6 127.3
12M Fwrd 1.09 109.64 10y bond yields (%, end of period) 2.24 2.49 2.65 Gross external debt (% of GDP) 96.4 98.3 98.1
3M Vola 9.04 9.55 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Positive interest-rate differential
versus EUR and JPY.
USD: GROWING COMPETITION IN THE BULLISH CAMPThe USD still enjoys support from the inflationary impact of Trump's policy agenda and higher interest rates,
but gets some competition from EUR and CHF. We share a softened bullish consensus view.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
The USD is a structural safe-
haven currency.
Prospect of additional Fed rate
hikes.
US President Donald Trump’s main policy initiatives are fiscal spending, protectionism and tighter
immigration. The inflationary impact of these initiatives drives markets and policy interest rates higher,
supporting the USD.
Trump's failure to repeal Obamacare has raised questions about his ability to realise policy initiatives.
We are reluctant to generalise this failure to the remaining policy agenda.
The USD remains fundamentally overvalued, limiting the dollar’s longer-term upside potential.
A stronger USD is a headwind
for US company profits.
Current-account balance, basic
balance and trade balance are
negative.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Monetary policy framework: inflation targeting (close below
2%)
Risk appetite promotes
investments outside the USD.
bearish neutral bullish
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
10 11 12 13 14 15 16 17 18
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
EUR/USD EUR/USD
Standard deviation Fair Value*
EUR/USD Spot, Forecast
70
80
90
100
110
120
130
10 11 12 13 14 15 16 17 18
70
80
90
100
110
120
130
USD/JPY USD/JPY
Standard deviation Fair Value*
USD/JPY Spot, Forecast
-7
-6
-5
-4
-3
-2
-1
0
1
06 07 08 09 10 11 12 13 14 15 16 17
-7
-6
-5
-4
-3
-2
-1
0
1
% of GDP % of GDP
Trade FDI CA Basic
2/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against JPY)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
EURUSD 1.07 1.07 1.07
●Consensus 1.05 1.05
●EURJPY 119.3 123.1 128.4
Consensus 121.1 123.0
EURCHF 1.07 1.07 1.07
Consensus 1.07 1.08
EURGBP 0.86 0.89 0.92
Consensus 0.87 0.87
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Eurozone
spot v. USD v. JPY 2016E 2017E 2015 2016E 2017E
3M Rate -0.33% -148bp -34bp Gross Domestic Product (GDP, %) 1.9 1.7 1.6 CA balance (% of GDP) 3.1 3.4 2.7
10Y Yield 0.33% -208bp 26bp Consumer Price Inflation (CPI, %) 0.0 0.2 1.6 Budget balance (% of GDP) -2.1 -1.7 -1.4
3M Fwrd 1.07 119.35 ECB main refi rate (%, end of period) 0.05 0.00 0.00 Gross public debt (% of GDP) 90.4 90.0 89.0
12M Fwrd 1.09 119.44 10y bond yields (%, end of period) 0.60 0.20 0.80 Gross external debt (% of GDP) 121.2
3M Vola 9.04 10.94 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Monetary policy framework: inflation targeting (close below
2%)
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Money outflows.
Very attractive as a financing
currency.
EUR: WARMING UP FOR A COMEBACKThe unpopularity among speculators and investors continues to recede. Speculation about an end to negative
deposit rates makes the euro almost as appealing as the US dollar.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Efforts by the ECB to weaken
the currency.
Unwinding of large euro short
positions in times of rising risk
aversion could push up the euro.
The trade surplus ensures
money inflows.
The ECB’s commitment to price
stability protects the value of
the euro.
Very low inflation means that the euro’s purchasing power remains very solid, which, together with a solid
balance-of-payments situation, is the major tailwind for the euro.
The outlook for the eurozone is improving, with very solid growth trends in industrial activity and retail
sales and leading indicators pointing to further acceleration. The European Central Bank (ECB) allows
some speculations about the phasing out of unconventional policy given the solid backdrop.
Money outflows have slowed and announced M&A flows are turning in favour of the EUR.
bearish neutral bullish
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
10 11 12 13 14 15 16 17 18
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
EUR/USD EUR/USD
Standard deviation Fair Value*
EUR/USD Spot, Forecast
90
100
110
120
130
140
150
10 11 12 13 14 15 16 17 18
90
100
110
120
130
140
150
EUR/JPY EUR/JPY
Standard deviation Fair Value*
EUR/JPY Spot, Forecast
-4
-3
-2
-1
0
1
2
3
4
05 06 07 08 09 10 11 12 13 14 15 16 17
-4
-3
-2
-1
0
1
2
3
4
% of GDP % of GDP
Trade FDI CA Basic
3/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDJPY 111.7 115.0 120.0
●Consensus 115.5 116.8
EURJPY 119.3 123.1 128.4
●Consensus 121.1 123.0
JPYCHF 0.90 0.87 0.83
Consensus 0.88 0.88
GBPJPY 139.3 138.3 139.6
Consensus 139.3 141.2
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Japan
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.01% -113bp 34bp Gross Domestic Product (GDP, %) 0.0 0.0 0.0 CA balance (% of GDP) 3.1 3.8 4.1
10Y Yield 0.07% -234bp -26bp Consumer Price Inflation (CPI, %) 0.8 -0.1 0.4 Budget balance (% of GDP) -5.1 -5.0 -6.1
3M Fwrd 111.26 119.35 BoJ O/N Rate (%, end of period) 0.10 -0.10 -0.10 Gross public debt (% of GDP) 216.4 219.5 222.4
12M Fwrd 109.64 119.44 10y bond yields (%, end of period) 0.30 0.06 0.00 Gross external debt (% of GDP) 66.8 73.9 71.6
3M Vola 9.55 10.94 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
JPY: LASTING HEADWIND FROM ZERO INTEREST RATESThe BoJ policy of a 0% yield target and overshooting inflation result in deeply negative rates, which will lead to
a weaker JPY. We hold on to a bearish view in line with consensus view.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
The current policy of the Bank of Japan (BoJ) of a 0% yield target is becoming effective as bond yields
face global upwards pressure. A widening yield differential drives the JPY lower.
Negative yen positioning and bearish views remain in place but money outflows are easing.
The unsustainable fiscal positions justify caution over the longer term as debt monetisation is starting.
True success of Abe’s reform
agenda would strengthen the
JPY.
The interest-rate differential
could turn even more negative.
Use of the JPY as a carry-trade
financing vehicle.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
The JPY is undervalued.
Japan’s net-creditor position
results in inflows during times of
trouble.
Japan's authorities favour a
weak currency to achieve their
ambitious growth and inflation
targets.
bearish neutral bullish
-4
-3
-2
-1
0
1
2
3
4
5
05 06 07 08 09 10 11 12 13 14 15 16 17
-4
-3
-2
-1
0
1
2
3
4
5
% of GDP % of GDP
Trade FDI CA Basic
70
80
90
100
110
120
130
10 11 12 13 14 15 16 17 18
70
80
90
100
110
120
130
USD/JPY USD/JPY
Standard deviation Fair Value*USD/JPY Spot, Forecast
90
100
110
120
130
140
150
10 11 12 13 14 15 16 17 18
90
100
110
120
130
140
150
EUR/JPY EUR/JPY
Standard deviation Fair Value*
EUR/JPY Spot, Forecast
4/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
GBPUSD 1.25 1.20 1.16
●Consensus 1.21 1.21
EURGPB 0.86 0.89 0.92
Consensus 0.87 0.87
●GBPCHF 1.25 1.20 1.16
Consensus 1.23 1.24
GBPJPY 139.3 138.3 139.6
Consensus 139.3 141.2
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals UK
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.34% -81bp 67bp Gross Domestic Product (GDP, %) 2.2 1.8 1.4 CA balance (% of GDP) -4.3 -4.5 -3.3
10Y Yield 1.11% -130bp 79bp Consumer Price Inflation (CPI, %) 0.1 0.6 2.0 Budget balance (% of GDP) -4.3 -3.4 -2.9
3M Fwrd 1.25 0.86 BoE base rate (%, end of period) 0.5 0.3 0.3 Gross public debt (% of GDP) 89.0 89.2 88.8
12M Fwrd 1.26 0.86 10y bond yields (%, end of period) 1.9 1.4 1.2 Gross external debt (% of GDP) 293.2 303.5 306.8
3M Vola 8.82 8.79 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
GBP: TRIGGERED BREXIT MAY LEAD TO POUND VOLATILITYWith the Brexit process triggered, short-term volatility can be expected, depending on the political news flow.
Negative Brexit-related drivers will kick in, justifying our bearish overall GBP outlook.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward. Shortfalls in foreign-direct investments, expected to accelerate once Brexit negotiations create more
economic uncertainty, are the main reason for our overall bearish pound outlook.
Markets react calmly to triggering of Article 50. Key for GBP-volatility will be whether both parties can
converge towards more common and compatible views on the Brexit process and deal.
Macro data are ambiguous: softer leading indicators, pointing to first Brexit-related softening of
momentum are offset by overshooting inflation, raising speculation on a near BoE rate hike.
Loss of EU single-market access
('hard Brexit' scenario).
Political risks, alongside the
Brexit process, may lead to
spikes in volatility.
Preservation of EU single-
market access ('soft Brexit'
scenario).
Great repeal bill' offers hopes of
continuity and less disruptions
after Brexit.
Resilience of growth and GBP
weakness to fully cancel any
further BoE response to Brexit.
Reversal of fiscal austerity
efforts due to Brexit could scale
back fiscal consolidation plans.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (2%±1%
y/y)
Contacts
David A. Meier, Zurich, +41 (0)58 886 2388, [email protected]
bearish neutral bullish
-10
-5
0
5
10
05 06 07 08 09 10 11 12 13 14 15 16 17
-10
-5
0
5
10
% of GDP % of GDP
Trade FDI CA Basic
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
10 11 12 13 14 15 16 17 18
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
EUR/GBP EUR/GBP
Standard deviation Fair Value*
EUR/GBP Spot, Forecast
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
10 11 12 13 14 15 16 17 18
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
GBP/USD GBP/USD
Standard deviation Fair Value*
GBP/USD Spot, Forecast
5/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against EUR) Valuation (against USD)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USD/CHF 1.00 1.00 1.00
Consensus 1.02 1.02
●EUR/CHF 1.07 1.07 1.07
Consensus 1.07 1.08
JPY/CHF 0.90 0.87 0.83
●Consensus 0.88 0.88
GBP/CHF 1.25 1.20 1.16
Consensus 1.23 1.24
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Switzerland
Spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate -0.73% -188bp -40bp Gross Domestic Product (GDP, %) 0.8 1.3 1.4 CA balance (% of GDP) 11.0 10.1 11.2
10Y Yield -0.09% -250bp -42bp Consumer Price Inflation (CPI, %) -1.1 -0.4 0.8 Budget balance (% of GDP) 1.1 0.2 0.3
3M Fwrd 1.00 1.07 SNB 3M Libor Target (%, end of per.) -0.8 -0.8 -0.8 Gross public debt (% of GDP) 34.2 33.8 32.8
12M Fwrd 0.98 1.06 10y bond yields (%, end of period) -0.2 -0.1 0.1 Gross external debt (% of GDP) 230.9 230.9 231.5
3M Volatility 7.47 5.32 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
A loss of market appeal or a
general surge in risk appetite
can cause a CHF drop.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla
Contacts
Janwillem C. Acket, Zurich, +41 (0)58 888 8100, [email protected]
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
2015
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
Monetary policy framework: inflation and growth
Negative interest rates hardly
deter panicky safe-haven flows
and hurt domestic depositors.
The Swiss economy is vulnerable
to shocks, keeping the SNB at
the ECB’s mercy.
CHF: TO REMAIN STRONG AGAINST THE EURO
The CHF is traditionally a safe-
haven currency.
The Swiss National Bank (SNB) can currently tolerate a stronger, even significantly overvalued currency
against the euro, as the CHF is undervalued against the USD.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
SNB currency interventions since May 2016 showed limitations in stabilising the CHF: the only currency
to profit from policy risks in Europe, where overall market volatility is low.
Continued strong fundamental EUR/CHF overvaluation keeps deflation and recession risks in
Switzerland alive, forcing the SNB to strive for a weaker CHF and to prevent further appreciation.
Current loose ECB policy at best allows only modest CHF weakening potential. We expect the SNB to fire
its negative interest rate 'bazooka' IF EUR/CHF goes rapidly below 1.05 and approaches parity.
The SNB alone is not able to
weaken the CHF with ease: it
needs tailwinds from markets.
International debt and
geopolitical market tensions
could escalate anytime and
strengthen the CHF.
bearish neutral bullish
-20
-15
-10
-5
0
5
10
15
20
06 07 08 09 10 11 12 13 14 15 16 17
-20
-15
-10
-5
0
5
10
15
20
% of GDP % of GDP
Trade FDI CA Basic*
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
10 11 12 13 14 15 16 17 18
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
EUR/CHF EUR/CHF
Standard deviation Fair Value*EUR/CHF Spot, Forecast
0.7
0.8
0.9
1.0
1.1
1.2
1.3
10 11 12 13 14 15 16 17 18
0.7
0.8
0.9
1.0
1.1
1.2
1.3
USD/CHF USD/CHF
Standard deviation Fair Value*
USD/CHF Spot, Forecast
6/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
●USDNOK 8.60 8.69 8.74
Consensus 8.45 8.28
EURNOK 9.18 9.30 9.35
Consensus 8.86 8.72
GBPNOK 10.72 10.45 10.16
●Consensus 10.19 10.01
CHFNOK 8.59 8.69 8.74
Consensus 8.31 8.09
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Norway
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.97% -18bp 130bp Gross Domestic Product (GDP, %) 1.6 1.0 1.5 CA balance (% of GDP) 8.7 4.9 9.2
10Y Yield 1.64% -77bp 132bp Consumer Price Inflation (CPI, %) 2.0 3.9 2.5 Budget balance (% of GDP) 7.6 5.0 4.0
3M Fwrd 8.59 9.21 Repo Rate (%, end of period) 0.75 0.50 0.50 Gross public debt (% of GDP) 39.1 41.5 43.6
12M Fwrd 8.55 9.31 10y bond yields (%, end of period) 1.55 1.76 0.50 Gross external debt (% of GDP) 171.7 165.3 158.4
3M Vola 9.47 7.18 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Norges Bank to reconsider rate
cuts due to dropping inflation
and continued European Central
Bank (ECB) monetary policy
easing.
Vulnerability to swings in risk
aversion/global growth risks.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius
Baer
bla
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (2.5%±1%
y/y)
Contacts
David A. Meier, Zurich, +41 (0)58 886 2388, [email protected]
NOK: SUFFERING FROM FALLING INFLATION AND OIL PRICESInflation disappointment keeps the downside risk on rates alive, while sluggish oil prices do not offer much
resistance. We stick to a neutral outlook and wait for better times.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
With mainland growth still struggling to gain traction, recent data disappointments contrast with
now more optimistic leading indicators. Dependence of overall output from the oil sector remains
large.
A renewed setback in oil prices.
Inflation is disappointing and will likely be pushed lower going forward. The Norges Bank sees larger
downside risks to rates, which justifies maintaining a cautious long-term NOK outlook.
The oil price and downside risks on interest rates remain the main reasons for our belief that the
krone will not benefit from its otherwise solid fundamentals (current-account surplus).
An upside surprise in oil prices.
A convincing bottoming-out of
the offshore (oil-producing)
economy.
The NOK enjoys continuous
structural support from a
current-account surplus.
bearish neutral bullish
5.05.56.06.57.07.58.08.59.0
10 11 12 13 14 15 16 17 18
5.05.56.06.57.07.58.08.59.0
USD/ NOK
USD/ NOK
Standard deviation Fair Value*USD/NOK Spot, Forecast
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
10 11 12 13 14 15 16 17 18
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
EUR/NOK EUR/NOK
Standard deviation Fair Value*
EUR/NOK Spot, Forecast
-15
-10
-5
0
5
10
15
20
05 06 07 08 09 10 11 12 13 14 15 16 17
-15
-10
-5
0
5
10
15
20
% of GDP % of GDP
Trade FDI CA Basic
7/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDSEK 8.93 8.79 8.60
●Consensus 8.98 8.69
EURSEK 9.54 9.40 9.20
Consensus 9.41 9.15●
GBPSEK 11.14 10.56 10.00
Consensus 10.83 10.50
CHFSEK 8.93 8.79 8.60
Consensus 8.82 8.49
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Sweden
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate -0.44% -159bp -12bp Gross Domestic Product (GDP, %) 3.8 3.1 2.5 CA balance (% of GDP) 4.7 4.7 5.1
10Y Yield 0.60% -181bp 28bp Consumer Price Inflation (CPI, %) 0.7 1.1 1.7 Budget balance (% of GDP) 0.2 0.6 0.5
3M Fwrd 8.89 9.54 Riksbank Repo Rate (%, end of per.) -0.35 -0.50 -0.50 Gross public debt (% of GDP) 53.8 50.8 48.3
12M Fwrd 8.76 9.54 10y bond yields (%, end of period) 0.93 0.61 0.25 Gross external debt (% of GDP) 174.8 172.1 171.4
3M Vola 9.21 5.95 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Limitations to the rise of
inflation beyond base effects.
Riksbank’s unpredictability in
monetary policy easing with
focus on currency weakening.
Vulnerability to swings in risk
aversion.
More upside surprises in cyclical
data.
Risk of Riksbank falling behind
the curve, prompting near-term
monetary policy tightening.
Healthy fundamentals such as
current-account surplus and
sustainable public-debt level.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius
Baer
bla
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Contacts
David A. Meier, Zurich, +41 (0)58 886 2388, [email protected]
Monetary policy framework: inflation targeting (2%±1% y/y)
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
SEK: NEAR END TO RIKSBANK QE SUPPORTS BULLISH CASEThe foreseeable end to Riksbank asset purchases lifts the burden of monetary policy off the krona. We
maintain our bullish SEK outlook and recommend using setbacks as entry points.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward. The burden of monetary policy on the krona is receding, and its fundamental strength is finally coming
through. Eventual setbacks on the road offer entry points.
Some temporal sluggishness, leading to data disappointments, interrupted the krona's recovery.
Nevertheless, robust consumption data and buoyant leading indicators suggest acceleration ahead.
The SEK30bn extension of asset purchases was a nice try to weaken the krona but could not deter
market's conviction that a continuation of stimulus beyond mid-2017 has become unlikely.
bearish neutral bullish
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10 11 12 13 14 15 16 17 18
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
USD/SEK USD/SEK
Standard deviation Fair Value*
USD/SEK Spot, Forecast
8.0
8.5
9.0
9.5
10.0
10.5
10 11 12 13 14 15 16 17 18
8.0
8.5
9.0
9.5
10.0
10.5
EUR/SEK EUR/SEK
Standard deviation Fair Value*
EUR/SEK Spot, Forecast
-6
-1
4
9
14
05 06 07 08 09 10 11 12 13 14 15 16 17
-6
-1
4
9
14
% of GDP % of GDP
Trade FDI CA Basic
8/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDCAD 1.33 1.35 1.36
Consensus 1.35 1.35
●EURCAD 1.42 1.44 1.46
Consensus 1.42 1.42
GBPCAD 1.66 1.62 1.58
●Consensus 1.63 1.63
CHFCAD 1.33 1.35 1.36
Consensus 1.33 1.32
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Canada
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.93% -22bp 126bp Gross Domestic Product (GDP, %) 0.9 1.4 2.0 CA balance (% of GDP) -3.4 -3.4 -3.0
10Y Yield 1.64% -77bp 132bp Consumer Price Inflation (CPI, %) 1.1 1.4 2.0 Budget balance (% of GDP) -0.1 -0.7 -2.0
3M Fwrd 1.33 1.43 BoC O/N Rate (%, end of period) 0.50 0.50 0.50 Gross public debt (% of GDP) 98.4 99.9 98.1
12M Fwrd 1.32 1.44 10y bond yields (%, end of period) 1.46 1.73 1.05 Gross external debt (% of GDP) 147.6 142.0 139.1
3M Vola 6.82 8.01 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
US protectionism 'light', with no
major consequences for
Canada.
CAD-relevant commodity prices
to strengthen further.
Interest-rate normalisation
coming into sight for mid-2018.
US protectionism 'hard', with
negative consequences for
Canada.
CAD: LOONIE FLOATS BETWEEN OIL SPILLS & A (LAME?) DUCKFading conviction in US President Trump's protectionism weakens concern about impact on the CAD but
remains a risk factor. A stable Bank of Canada policy supports our neutral stance.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Economic data continues to surprise, with leading indicators suggesting an accelerating economic
momentum ahead. With inflation looking solid at 2%, the Bank of Canada is now set firmly on a hold.
US President Trump's struggles in Washington further weaken concerns over disruptions to Canadian
exports. Proceeding rate normalisation in the US, however, could hold back the CAD.
Persistent undervaluation (vs. USD) offers potential. Higher oil prices and prospects of Bank of Canada
rate normalisation are the necessary catalysts for a more optimistic CAD outlook.
Liberal government’s public
spending plans worsen public-
sector indebtedness.
High current-account deficit and
large household debt are
structural burdens.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (2%±1%
y/y)
Contacts
David A. Meier, Zurich, +41 (0)58 886 2388, [email protected]
bearish neutral bullish
0.9
1.0
1.1
1.2
1.3
1.4
1.5
10 11 12 13 14 15 16 17 18
0.9
1.0
1.1
1.2
1.3
1.4
1.5
USD/CAD USD/CAD
Standard deviation Fair Value*USD/CAD Spot, Forecast
1.0
1.2
1.4
1.6
1.8
2.0
2.2
10 11 12 13 14 15 16 17 18
1.0
1.2
1.4
1.6
1.8
2.0
2.2
EUR/CAD EUR/CAD
Standard deviation Fair Value*
EUR/CAD Spot, Forecast
-6
-4
-2
0
2
4
05 06 07 08 09 10 11 12 13 14 15 16 17
-6
-4
-2
0
2
4
% of GDP % of GDP
Trade FDI CA Basic
9/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against JPY)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
AUDUSD 0.76 0.74 0.72
Consensus 0.74 0.72
EURAUD 1.40 1.45 1.49
●Consensus 1.42 1.46
●AUDJPY 85.3 85.1 86.4
Consensus 85.3 84.5
AUDCHF 0.76 0.74 0.72
Consensus 0.75 0.74
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Australia
spot v. USD v. JPY 2016E 2017E 2015 2016E 2017E
3M Rate 1.79% 64bp 178bp Gross Domestic Product (GDP, %) 2.4 2.5 2.2 CA balance (% of GDP) -4.7 -2.7 -0.6
10Y Yield 2.70% 29bp 263bp Consumer Price Inflation (CPI, %) 1.5 1.3 2.2 Budget balance (% of GDP) -3.1 -2.8 -1.8
3M Fwrd 0.76 84.79 RBA Cash Rate (%, end of period) 2.00 1.50 1.50 Gross public debt (% of GDP) 43.5 47.4 47.2
12M Fwrd 0.76 83.25 10y bond yields (%, end of period) 2.85 2.79 2.40 Gross external debt (% of GDP) 117.1 110.6 112.0
3M Vola 8.54 10.69 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (2-3% y/y)
Contacts
Susan Joho, Zurich, +41 (0)58 886 2493, [email protected]
Renewed problems in the
Chinese housing market and a
slowing of the Chinese
economy.
Current-account deficit.
Interest-rate cut.
AUD: SHRINKING CARRY ADVANTAGEOur bearish stance on the AUD is based on a topping out of commodity prices both in the energy and metals
space and shrinking USD-AUD yield advantage.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
A resumption of a China slowdown will likely hurt steel prices and the AUD over the short to mid term.
Moreover, rising trade risks with the USA and China put the AUD at risk of collateral damage.
The Reserve Bank of Australia sends strong signals that it will hold interest rates stable over the next
year. The low level of 1.5% will erode yield advantage vs. the USD rapidly in 2017.
Structurally lower demand for Australian commodities should keep the AUD at weaker levels in the
longer term.
Nominal interest rates still offer
some carry and are among the
highest in the G10.
There is demand for the AUD in
the diversification of reserve
currencies.
Monetary policy easing in Japan
could lead to renewed capital
inflows from Japan.
bearish neutral bullish
0.5
0.6
0.7
0.8
0.9
1.0
1.1
10 11 12 13 14 15 16 17 18
0.5
0.6
0.7
0.8
0.9
1.0
1.1
AUD/USD AUD/USD
Standard deviation Fair Value*
AUD/USD Spot, Forecast
40
50
60
70
80
90
100
110
10 11 12 13 14 15 16 17 18
40
50
60
70
80
90
100
110
AUD/JPY AUD/JPY
Standard deviation Fair Value*
AUD/JPY Spot, Forecast
-8
-6
-4
-2
0
2
4
6
05 06 07 08 09 10 11 12 13 14 15 16 17
-8
-6
-4
-2
0
2
4
6
% of GDP % of GDP
Trade FDI CA Basic
10/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against JPY)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
●NZDUSD 0.70 0.69 0.68
●Consensus 0.69 0.68
EURNZD 1.53 1.55 1.57
Consensus 1.51 1.54
AUDNZD 1.09 1.07 1.06
Consensus 1.06 1.06
NZDCHF 0.70 0.69 0.68
Consensus 0.71 0.70
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals New Zealand
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 2.01% 86bp 199bp Gross Domestic Product (GDP, %) 2.5 3.3 2.8 CA balance (% of GDP) -3.3 -2.9 -2.9
10Y Yield 3.19% 78bp 312bp Consumer Price Inflation (CPI, %) 0.3 0.7 1.8 Budget balance (% of GDP) 0.8 0.9 1.2
3M Fwrd 0.70 1.54 RBNZ Rate (%, end of period) 2.50 1.75 1.75 Gross public debt (% of GDP) 29.9 29.9 29.2
12M Fwrd 0.69 1.57 10y bond yields (%, end of period) 3.55 3.33 3.90 Gross external debt (% of GDP) 101.0
3M Vola 9.08 9.19 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
NZD: STRONGER USD TO DOMINATE OVER DOMESTIC STRENGTHWe are neutral on New Zealand's currency, which remains caught between a declining carry vs. USD and strong
domestic activity. With coming USD strength, a mild weakening is likely.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Q4 inflation led the Reserve Bank of New Zealand’s 1%-3% inflation target band to rise to 1.3% y/y.
Given an expected slower rise towards 2% over 2017, a cautious stance with stable rates is most likely.
Dairy prices continue to recover but are not likely to increase to old highs, thus not providing much
support to the NZD in the coming months.
The declining yield advantage vs. the USD will weigh on NZD, with a better economic outlook providing
some balancing support in the longer term.
Highest interest rates among
G10 countries.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Tourism sector to replace dairy
as the most important export
sector.
Resilient economic growth due
to additional demand and
supply from past strong net
immigration.
Overheating housing market.
Current-account deficit.
Reversal of past immigration.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (2%±1%
y/y)
Contacts
Susan Joho, Zurich, +41 (0)58 886 2493, [email protected]
bearish neutral bullish
0.5
0.6
0.7
0.8
0.9
1.0
1.1
10 11 12 13 14 15 16 17 18
0.5
0.6
0.7
0.8
0.9
1.0
1.1
NZD/USD NZD/USD
Standard deviation Fair Value*
NZD/USD Spot, Forecast
50
60
70
80
90
10 11 12 13 14 15 16 17 18
50
60
70
80
90
NZD/JPY NZD/JPY
Standard deviation Fair Value*
NZD/JPY Spot, Forecast
-10
-8
-6
-4
-2
0
2
4
05 06 07 08 09 10 11 12 13 14 15 16 17
-10
-8
-6
-4
-2
0
2
4
% of GDP % of GDP
Trade FDI CA Basic
11/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDCNY 6.88 7.05 7.20
●Consensus 7.03 7.23
●EURCNY 7.35 7.54 7.70
Consensus 7.37 7.62
CHFCNY 6.87 7.05 7.20
Consensus 6.91 7.07
JPYCNY 6.16 6.13 6.00
Consensus 6.09 6.19
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals China
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 4.39% 325bp 472bp Gross Domestic Product (GDP, %) 6.9 6.7 6.5 CA balance (% of GDP) 3.0 1.9 1.4
10Y Yield 3.29% 88bp 297bp Consumer Price Inflation (CPI, %) 1.4 2.0 2.0 Budget balance (% of GDP) -3.1 -3.6 -4.5
3M Fwrd 6.93 7.43 PBC Lending Rate (%, end of period) 4.35 Gross public debt (% of GDP) 15.5 18.3 20.8
12M Fwrd 7.06 7.64 10y bond yields (%, end of period) 2.84 Gross external debt (% of GDP) 11.8 9.3 9.6
3M Vola 3.89 7.41 Exchange rate regime: crawling peg (USD)
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Trade war with the US.
Depletion of FX reserves.
CNY: STEADY AND READY FOR THE XI-TRUMP MEETINGAfter a period of sideways movement owing to stabilisation efforts, the yuan will weaken further against the
USD during the next phase of USD strengthening. We remain constructive due to considerable carry.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Exacerbation of the economic
downturn.
Long-term potential and current-
account surplus.
Capital-account liberalisation in
the longer run.
Chinese leaders aim for overall stability in this important year of power change. For the yuan, that means
discouraging outflows and some reversal of the internationalisation to protect FX reserves.
Concerned about financial risks, the People's Bank of China is tightening monetary conditions slightly.
We expect this trend to stop in H2 together with softer economic growth.
Cyclical and structural pressures in the economy, its balance of payments and a widening US-China yield
differential in H2 lead us to expect a mild depreciation against the USD over the coming year.
A stronger CNY is consistent
with internal economic
rebalancing.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation and growth
Contacts
Susan Joho, Zurich, +41 (0)58 886 2493, [email protected]
bearish neutral bullish
5.5
6.0
6.5
7.0
7.5
8.0
8.5
10 11 12 13 14 15 16 17 18
5.5
6.0
6.5
7.0
7.5
8.0
8.5
USD/CNYUSD/CNY
Standard deviation Fair Value*USD/CNY Spot, Forecast
6
7
8
9
10
11
12
10 11 12 13 14 15 16 17 18
6
7
8
9
10
11
12
EUR/CNYEUR/CNY
Standard deviation Fair Value*
EUR/CNY Spot, Forecast
-20246810121416
05 06 07 08 09 10 11 12 13 14 15 16 17
-202468
10121416
% of GDP% of GDP
Trade FDI CA Basic
12/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDIDR 13322
●Consensus
EURIDR 14248
Consensus
CHFIDR 13309
Consensus
●JPYIDR 11929 12250
Consensus 11752
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Indonesia
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 6.85% 570bp 718bp Gross Domestic Product (GDP, %) 4.8 5.0 5.0 CA balance (% of GDP) -2.0 -1.8 -1.8
10Y Yield 7.04% 463bp 672bp Consumer Price Inflation (CPI, %) 6.4 3.5 4.0 Budget balance (% of GDP) -2.6 -2.5 -2.6
3M Fwrd 13431 14406 BI Reference Rate (%, end of period) 7.50 Gross public debt (% of GDP) 29.9 30.9 34.2
12M Fwrd 13933 15130 10y bond yields (%, end of period) 8.87 Gross external debt (% of GDP) 36.4 32.9 32.9
3M Vola 6.60 9.04 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
IDR: BALANCED RISKSWe maintain our neutral stance on the Indonesian rupiah and expect a mild depreciation of the currency along
with US dollar strength. The high yield and lower volatility make up for it.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
14700
13728
Slower Chinese growth; lower
commodity prices.
Bold reforms by the Jokowi
government could foster new
growth in the longer term.
Solid domestic demand growth.
Bank Indonesia signals stable interest rates in 2017, keeping a watchful eye on inflation. Energy prices
will rise as the government cuts energy subsidies to use these funds more productively.
Growth is likely to remain stable around 5%, while last year's 150pb of interest-rate cuts still fail to revive
rather muted credit growth.
The pass-through of important reforms has somewhat lifted investor confidence, but weak
fundamentals, such as a current-account deficit and overvaluation, should continue to weigh on IDR.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
14552
New measures supporting IDR
liquidity to reduce volatility.
14231
13349
Slow step-by-step reform
implementation, especially with
regard to infrastructure
investment, given budget
deficit.
Accumulation of FX reserves
when possible caps upside.
Julius Baer Research | Please find important legal information at the end of this document.
13600
13579
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Contacts
Susan Joho, Zurich, +41 (0)58 886 2493, [email protected]
13600
11755
Monetary policy framework: inflation targeting (4.5%±1%
y/y)
11826
13422
14456
14700
15729
bearish neutral bullish
-4
-2
0
2
4
6
05 06 07 08 09 10 11 12 13 14 15 16 17
-4
-2
0
2
4
6
% of GDP % of GDP
Trade FDI CA Basic
8000
10000
12000
14000
16000
18000
20000
22000
10 11 12 13 14 15 16 17 18
8000
10000
12000
14000
16000
18000
20000
22000
USD/IDR USD/IDR
Standard deviation Fair Value*USD/IDR Spot, Forecast
10000
15000
20000
25000
30000
10 11 12 13 14 15 16 17 18
10000
15000
20000
25000
30000
EUR/IDR EUR/IDR
Standard deviation Fair Value*
EUR/IDR Spot, Forecast
13/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDINR 64.85 65.00 66.00
●Consensus 68.11 68.96
EURINR 69.30 69.55 70.62
Consensus 71.38 72.62
●CHFINR 64.79 65.00 66.00
Consensus 66.96 67.42
JPYINR 58.07 56.52 55.00
Consensus 58.96 59.03
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals India
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.00% -115bp 33bp Gross Domestic Product (GDP, %) 7.4 7.5 6.0 CA balance (% of GDP) -1.1 -1.1 -2.7
10Y Yield 6.68% 427bp 635bp Consumer Price Inflation (CPI, %) 4.9 4.5 5.0 Budget balance (% of GDP) -3.5 -3.8 -3.3
3M Fwrd 65.39 70.39 Official Prime Rate (%, end of period) 6.75 Gross public debt (% of GDP) 47.3 48.9 50.3
12M Fwrd 67.56 74.04 10y bond yields (%, end of period) 7.91 Gross external debt (% of GDP) 22.9 21.8 20.1
3M Vola 5.52 8.78 Exchange rate regime: managed floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
INR: BOOST FROM ELECTION WINWe remain bullish, expecting a resilient rupee due to good currency management and improved fundamentals.
Moreover, low volatility makes the rupee our most attractive high-yielding currency.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
The Reserve Bank of India shifted from an accommodative to a neutral stance, committed to its inflation
target and ensuring high carry in 2017.
The election win of the ruling party in the important Uttar Pradesh boosted investor sentiment and INR.
Further gains, however, are unlikely with the coming tax avoidance rules acting as a headwind.
Steady flow of reforms should keep realistic expectations for fundamental change alive. Implementation
of the important goods-and-service tax reform will come next, probably in summer.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Ongoing reforms to enhance
productivity and supply.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Contacts
Susan Joho, Zurich, +41 (0)58 886 2493, [email protected]
Monetary policy framework: inflation targeting
Credible and ambitious
monetary policy to lower
inflation further towards 4% and
keep FX volatility low.
Attractive interest-rate carry
and improving balance-of-
payments fundamentals.
High rate of non-performing
loans
A rise in inflation due to GST
reform and implementation of
higher government wages.
Political gridlock.
bearish neutral bullish
-8
-6
-4
-2
0
2
05 06 07 08 09 10 11 12 13 14 15 16 17
-8
-6
-4
-2
0
2
% of GDP % of GDP
Trade FDI CA Basic
40
45
50
55
60
65
70
75
10 11 12 13 14 15 16 17 18
40
45
50
55
60
65
70
75
USD/INR USD/INR
Standard deviation Fair Value*USD/INR Spot, Forecast
50
60
70
80
90
100
10 11 12 13 14 15 16 17 18
50
60
70
80
90
100
EUR/INR EUR/INR
Standard deviation Fair Value*
EUR/INR Spot, Forecast
14/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
●USDKRW 1118 1130 1150
●Consensus 1181 1193
EURKRW 1195 1209 1231
Consensus 1238 1256
CHFKRW 1117 1130 1150
Consensus 1161 1166
JPYKRW 10.01 9.83 9.58
Consensus 10.23 10.21
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals South Korea
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 1.42% 27bp 175bp Gross Domestic Product (GDP, %) 2.6 2.7 2.5 CA balance (% of GDP) 7.7 7.1 6.4
10Y Yield 2.19% -22bp 186bp Consumer Price Inflation (CPI, %) 0.7 1.0 1.5 Budget balance (% of GDP) 0.0 0.6 0.1
3M Fwrd 1117 1198 BoK Rate (%, end of period) 1.50 Gross public debt (% of GDP) 48.1 49.7 50.4
12M Fwrd 1111 1210 10y bond yields (%, end of period) 2.09 Gross external debt (% of GDP) 29.2 26.8 26.7
3M Vola 9.86 10.46 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Increased global risk appetite.
KRW: EXPOSED TO USD MOVES, RISKS FROM CHINAWe remain cautious but neutral on the Korean won, which remains vulnerable to renewed USD appreciation.
Latest gains were domestically driven; considerable risks surrounding China, however, limit further KRW
strength.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Large current-account surplus.
The country maintains a solid
fiscal balance.
The Bank of Korea will hold policy rates stable in 2017, as inflation is going up and there are concerns
about large household debt. Growth to soften further, with fiscal support fading.
Negative effects from Chinese retaliation to hurt the Korean tourism sector and risks to weigh on KRW.
Fundamentals, i.e. a large current-account surplus, remain strong, but Korea would be very vulnerable to
a more hostile global trade environment with its strong export exposure to the US.
Capital outflow measures.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Contacts
Susan Joho, Zurich, +41 (0)58 886 2493, [email protected]
Monetary policy framework: inflation targeting (3%±0.5%
y/y)
Weakness in China.
The KRW is a high-beta
currency.
bearish neutral bullish
-1012345678910
05 06 07 08 09 10 11 12 13 14 15 16 17
-10123456789
10
% of GDP % of GDP
Trade FDI CA Basic
850
950
1050
1150
1250
10 11 12 13 14 15 16 17 18
850
950
1050
1150
1250
USD/KRW USD/KRW
Standard deviation Fair Value*USD/KRW Spot, Forecast
1100
1200
1300
1400
1500
1600
1700
10 11 12 13 14 15 16 17 18
1100
1200
1300
1400
1500
1600
1700
EUR/KRW EUR/KRW
Standard deviation Fair Value*
EUR/KRW Spot, Forecast
15/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
●USDSGD 1.40 1.41 1.43
Consensus 1.45 1.47
EURSGD 1.49 1.51 1.53
●Consensus 1.52 1.55
CHFSGD 1.40 1.41 1.43
Consensus 1.43 1.42
JPYSGD 1.25 1.23 1.19
Consensus 1.26 1.26
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Singapore
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.86% -29bp 119bp Gross Domestic Product (GDP, %) 1.9 2.0 2.0 CA balance (% of GDP) 18.1 19.1 17.0
10Y Yield 2.25% -16bp 192bp Consumer Price Inflation (CPI, %) -0.5 -0.5 1.0 Budget balance (% of GDP) 0.6 -1.2 -0.6
3M Fwrd 1.40 1.50 Singapore O/N rate (%, end of per.) 0.72 Gross public debt (% of GDP) 114.3 121.5 124.2
12M Fwrd 1.39 1.52 10y bond yields (%, end of period) 2.61 Gross external debt (% of GDP) 422.6 424.7 435.2
3M Vola 5.22 6.86 Exchange rate regime: managed floating (composite)
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: currency regulation only
Contacts
Susan Joho, Zurich, +41 (0)58 886 2493, [email protected]
Low global external demand.
Strong fundamentals make the
SGD a safe investment.
China’s slowdown.
Low yields make the SGD
increasingly attractive as a
regional carry-trade funder.
SGD: RETURNING TO A POSITIVE SLOPE IN OCTOBER? Due to its comparably higher liquidity in the region, the SGD is more sensitive to US rate normalisation. A still
neutral, but more constructive MAS could act as a support to SGD.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward. Despite the recovery in the industrial sector, low global external demand - in particular, a slowing China -
could continue to weigh on the highly export-dependent economy in the longer run.
Ongoing structural changes to
raise productivity in the longer
term.
Tends to profit from increased
risk appetite.
SGD remains more at risk from its sensitivity to US rate normalisation and trade protectionism.
The Monetary Authority of Singapore (MAS) will keep its monetary policy neutral at its semi-annual
meeting in April, but could become more constructive after strong economic data. Expectations for a
return to a positive slope of the band in which SGD is allowed to float by October support SGD.
bearish neutral bullish
1.0
1.1
1.2
1.3
1.4
1.5
1.6
10 11 12 13 14 15 16 17 18
1.0
1.1
1.2
1.3
1.4
1.5
1.6
USD/SGD USD/SGD
Standard deviation Fair Value*USD/SGD Spot, Forecast
1.4
1.5
1.6
1.7
1.81.9
2.0
2.1
2.2
10 11 12 13 14 15 16 17 18
1.4
1.5
1.6
1.7
1.81.9
2.0
2.1
2.2
EUR/SGD EUR/SGD
Standard deviation Fair Value*
EUR/SGD Spot, Forecast
-15
-5
5
15
25
35
05 06 07 08 09 10 11 12 13 14 15 16 17
-15
-5
5
15
25
35
% of GDP % of GDP
Trade FDI CA Basic
16/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDBRL 3.17 3.28 3.60
Consensus 3.18 3.33
●EURBRL 3.38 3.51 3.85
Consensus 3.34 3.51
GBPBRL 3.95 3.94 4.19
●Consensus 3.84 4.03
CHFBRL 3.17 3.28 3.60
Consensus 3.13 3.26
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Brazil
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 10.26% 912bp 1059bp Gross Domestic Product (GDP, %) -3.8 -3.6 0.0 CA balance (% of GDP) -3.2 -1.3 -1.2
10Y Yield 10.09% 768bp 977bp Consumer Price Inflation (CPI, %) 9.0 8.7 5.0 Budget balance (% of GDP) -10.2 -8.9 -8.1
3M Fwrd 3.23 3.47 SELIC Target Rate (%, end of period)14.25 Gross public debt (% of GDP) 65.5 69.9 74.7
12M Fwrd 3.39 3.70 10y bond yields (%, end of period) 16.49 Gross external debt (% of GDP) 20.9 16.2 15.0
3M Vola 13.37 14.69 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
High interest rates (though
declining) still make local
currency bonds attractive.
BRL: ON A STABLE PATHThe BRL continues on a stable path, reflecting the lack of major events. The Finance Minister has revised the
growth forecast for the year to 0.5%; emphasis is now on fiscal consolidation. We stay neutral on the BRL.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Since the beginning of 2017, news flows out of Brazil have been largely irrelevant for investors (except
the new corruption case in the protein sector), supporting the stability of the Brazilian real.
In terms of monetary policy, the story remains unchanged: the rapidly falling inflation (4.8% y/y in
February) and need to boost growth should lead to further easing (we expect 75bps rate cut in April).
On the fiscal front, authorities are making new efforts to reduce the deficit with the announcement of a
combination of spending freezes, fewer payroll tax breaks and a higher financial transaction tax.
Substantial change at the
political level is yet to translate
into higher economic growth.
Brazil has large international
reserves, which it has not used
to defend the currency.
This year's strong appreciation
may reflect excessively
optimistic views of investors.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius
Baer
bla
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (4.5%±2%
y/y)
Contacts
Alejandro Hardziej, Zurich, +41 (0)58 886 2383, [email protected]
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Weak macro fundamentals, with
only marginal positive growth
expected in 2017.
Fund flows are highly sensitive
to changes in US interest rates.
bearish neutral bullish
-5
-3
-1
1
3
5
05 06 07 08 09 10 11 12 13 14 15 16 17
-5
-3
-1
1
3
5
% of GDP % of GDP
Trade FDI CA Basic
1.5
2.0
2.5
3.0
3.5
4.0
4.5
10 11 12 13 14 15 16 17 18
1.5
2.0
2.5
3.0
3.5
4.0
4.5
USD/BRL USD/BRL
Standard deviation Fair Value*USD/BRL Spot, Forecast
1
2
3
4
5
6
7
10 11 12 13 14 15 16 17 18
1
2
3
4
5
6
7
EUR/BRL EUR/BRL
Standard deviation Fair Value*
EUR/BRL Spot, Forecast
17/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDMXN 18.8 19.1 20.0
Consensus 20.7 20.9
●EURMXN 20.1 20.4 21.4
Consensus 21.7 22.0
●GBPMXN 23.4 23.0 23.3
Consensus 25.0 25.3
CHFMXN 18.8 19.1 20.0
Consensus 20.4 20.4
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Mexico
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 6.60% 545bp 693bp Gross Domestic Product (GDP, %) 2.6 2.3 2.0 CA balance (% of GDP) -2.9 -2.7 -2.9
10Y Yield 7.02% 461bp 670bp Consumer Price Inflation (CPI, %) 2.7 2.8 4.5 Budget balance (% of GDP) -3.4 -2.5 -2.4
3M Fwrd 19.05 20.43 Banxico Rate (%, end of period) 3.3 Gross public debt (% of GDP) 51.4 55.7 55.0
12M Fwrd 19.82 21.59 10y bond yields (%, end of period) 6.2 Gross external debt (% of GDP) 38.4 45.0 44.4
3M Vola 13.09 14.12 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Residual policy risks given the
US president’s hostile agenda
regarding Mexican workers in
the US.
The MXN is closely associated
with emerging markets and
subject to higher volatility.
The central bank remains fully
focused on controlling inflation
and volatility in the MXN.
Oil prices are important for
government revenues.
Future of US-Mexico ties may
not be as negative as feared,
given the improving dialogue.
Large international reserves and
room for further rate hikes
should protect the currency.
MXN: A BRIGHTER FUTURE FOR THE MEXICO-US RELATIONSHIP?After an initially heated exchange, dialogue between the Trump and Peña Nieto administrations has recently
become a lot more conciliatory. The MXN has reacted positively and we think it can stabilise further.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
In March, the MXN appreciated another 6% against the USD, supported by the positive change in the
tone of dialogue between Mexico and the US. Trump's administration now seems to acknowledge the
need for mutual cooperation given the underlying complex and largely beneficial relationship.
The central bank hiked interest rates by another 25 basis points, to 6.5%, at the end of March. Though
smaller than the previous 50 bps increase, it reinforces the attractiveness of the MXN against other hard
currencies.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Contacts
Alejandro Hardziej, Zurich, +41 (0)58 886 2383, [email protected]
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Monetary policy framework: inflation targeting (3%±1%
y/y)
bearish neutral bullish
-3
-2
-1
0
1
2
3
05 06 07 08 09 10 11 12 13 14 15 16 17
-3
-2
-1
0
1
2
3
% of GDP % of GDP
Trade FDI CA Basic
111213141516171819202122
10 11 12 13 14 15 16 17 18
111213141516171819202122
USD/MXN USD/MXN
Standard deviation Fair Value*USD/MXN Spot, Forecast
12
14
16
18
20
22
24
26
10 11 12 13 14 15 16 17 18
12
14
16
18
20
22
24
26
EUR/MXN EUR/MXN
Standard deviation Fair Value*
EUR/MXN Spot, Forecast
18/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDCZK 25.30 24.77 24.30
Consensus 25.54 24.69
●EURCZK 27.02 26.50 26.00
Consensus 26.77 26.00
●GBPCZK 31.55 29.78 28.26
Consensus 30.81 29.85
CHFCZK 25.28 24.77 24.30
Consensus 25.11 24.14
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Czech Republic
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.28% -87bp 61bp Gross Domestic Product (GDP, %) 4.5 2.4 2.5 CA balance (% of GDP) 0.8 1.3 1.1
10Y Yield 0.92% -149bp 59bp Consumer Price Inflation (CPI, %) 0.3 0.7 2.0 Budget balance (% of GDP) -1.4 1.3 -0.8
3M Fwrd 25.00 26.81 CNB Repo Rate (%, end of period) 0.05 Gross public debt (% of GDP) 36.7 34.2 34.0
12M Fwrd 24.50 26.69 10y bond yields (%, end of period) 0.56 Gross external debt (% of GDP) 67.6 76.3 72.4
3M Vola 11.00 5.65 Exchange rate regime: pegged against EUR at CZK 27
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Political interference in
monetary policy is a headwind
for the currency.
Resistance against appreciating
exchange rates.
High outflows due to the
repatriation of profits from
foreign direct investments.
Low external debt level relative
to exports.
Trade surplus and solid fiscal
policy.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
The Czech economy has a
strong track record of balance-
sheet and price stability.
CZK: END TO CURRENCY CAP IS NEARINGThe exchange rate floor of EUR/CZK 27 becomes increasingly unsustainable and unnecessary. We expect the
floor to end soon and hold a bullish view.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Pressure to end the currency floor of EUR/CZK 27 is rising on the back of strong growth in currency
reserves, domestic liquidity, credit activity and real estate prices.
The imported loose monetary policy stance via the floor is in stark contrast to the healthy growth
backdrop and threatens to overheat the economy.
Speculation on lifting the EUR/CZK currency floor is well under way, with forward rates discounting a
stronger Czech koruna.
bearish neutral bullish
16
18
20
22
24
26
28
10 11 12 13 14 15 16 17 18
16
18
20
22
24
26
28
USD/CZK USD/CZK
Standard deviation Fair Value*USD/CZK Spot, Forecast
22
24
26
28
30
32
34
10 11 12 13 14 15 16 17 18
22
24
26
28
30
32
34
EUR/CZK EUR/CZK
Standard deviation Fair Value*
EUR/CZK Spot, Forecast
-6
-4
-2
0
2
4
6
8
10
05 06 07 08 09 10 11 12 13 14 15 16 17
-6
-4
-2
0
2
4
6
8
10
% of GDP % of GDP
Trade FDI CA Basic
19/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDHUF 288.3 298.1 294.4
●Consensus 297.9 297.0
●EURHUF 307.9 319.0 315.0
Consensus 312.2 312.7
GBPHUF 359.4 358.4 342.4
Consensus 359.3 359.1
CHFHUF 288.0 298.1 294.4
Consensus 292.9 290.4
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Hungary
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 0.18% -97bp 51bp Gross Domestic Product (GDP, %) 3.1 2.0 2.5 CA balance (% of GDP) 3.4 4.3 3.3
10Y Yield 3.29% 88bp 296bp Consumer Price Inflation (CPI, %) -0.1 0.4 2.5 Budget balance (% of GDP) -1.6 -0.6 -2.0
3M Fwrd 287.36 308.26 MNB Base Rate (%, end of period) 1.35 Gross public debt (% of GDP) 74.7 71.3 73.5
12M Fwrd 283.99 309.35 10y bond yields (%, end of period) 3.32 Gross external debt (% of GDP) 104.3 98.9 99.3
3M Vola 10.60 5.43 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
The central bank has a dovish
bias.
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (3% y/y)
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Some external indebtedness.
HUF: UNCONVENTIONAL POLICY EASING IS A HEADWINDHungary’s National Bank pushes ahead with more unconventional policy loosening – a headwind for the
currency. We stick to our bearish stance in line with consensus.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Government interference in
central bank policy.
Core inflation still signals solid
price stability.
Solid current-account surplus.
Strong exports suggest that
Hungary can easily live with a
stronger currency.
Disagreement between Hungary and the EU about the refugee issue burdens sentiment and appetite for
foreign investments.
Despite inflation picking up, the National Bank of Hungary continues to signal more easing ahead.
Monetary policy divergence among the Fed and a less dovish European Central Bank (ECB) and central
banks from Poland and Czech Republic is a headwind for the forint.
A solid trade surplus helps limit the forint downside.
bearish neutral bullish
160
180
200
220
240
260
280
300
320
10 11 12 13 14 15 16 17 18
160
180
200
220
240
260
280
300
320
USD/HUF USD/HUF
Standard deviation Fair Value*USD/HUF Spot, Forecast
250
260
270
280
290
300
310
320
10 11 12 13 14 15 16 17 18
250
260
270
280
290
300
310
320
EUR/HUF EUR/HUF
Standard deviation Fair Value*
EUR/HUF Spot, Forecast
-10
-5
0
5
10
05 06 07 08 09 10 11 12 13 14 15 16 17
-10
-5
0
5
10
% of GDP % of GDP
Trade FDI CA Basic
20/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDPLN 3.97 4.02 4.11
●Consensus 4.13 4.09
EURPLN 4.24 4.30 4.40
●Consensus 4.33 4.31
GBPPLN 4.94 4.83 4.78
Consensus 4.98 4.95
CHFPLN 3.96 4.02 4.11
Consensus 4.06 4.00
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Poland
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 1.63% 48bp 196bp Gross Domestic Product (GDP, %) 3.9 2.8 3.0 CA balance (% of GDP) -0.6 -0.5 0.0
10Y Yield 3.49% 108bp 316bp Consumer Price Inflation (CPI, %) -0.9 -0.6 1.5 Budget balance (% of GDP) -2.6 -2.3 -2.9
3M Fwrd 3.97 4.26 NBP Rate (%, end of period) 1.50 Gross public debt (% of GDP) 52.8 53.9 53.1
12M Fwrd 3.97 4.32 10y bond yields (%, end of period) 2.94 Gross external debt (% of GDP) 69.7 77.1 82.7
3M Vola 11.19 6.46 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (2.5%±1%
y/y)
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Populist fiscal policy.
PLN: GROWTH PICKS UP DESPITE POLICY SKIRMISHWe maintain a neutral stance and upgrade our short-term forecast as indicators for economic growth pick up,
reducing the headwind from monetary policy for the zloty.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Solid price-stability backdrop.
Improving balance-of-payments
situation thanks to a trade
surplus.
Yield and interest-rate
advantage.
Rate cuts are still on the central
bank's agenda.
Sizeable foreign indebtedness in
Swiss francs.
The Polish economy continues to profit from robust consumption and industrial activity.
Softening wage growth and stronger economic activity help stabilise profitability as a tailwind for the
currency.
The PLN is fairly valued against the EUR and close to fair value on a trade-weighted basis, preventing us
from forming a strong conviction in either direction.
bearish neutral bullish
2.6
3.1
3.6
4.1
10 11 12 13 14 15 16 17 18
2.6
3.1
3.6
4.1
USD/PLN USD/PLN
Standard deviation Fair Value*USD/PLN Spot, Forecast
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
10 11 12 13 14 15 16 17 18
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
EUR/PLN EUR/PLN
Standard deviation Fair Value*
EUR/PLN Spot, Forecast
-8
-6
-4
-2
0
2
4
6
06 07 08 09 10 11 12 13 14 15 16 17
-8
-6
-4
-2
0
2
4
6
% of GDP % of GDP
Trade FDI C/A Basic
21/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDRUB 56.3 58.5 64.0
●Consensus 60.1 59.9
EURRUB 60.1 62.6 68.5
Consensus 63.0 63.1
●GBPRUB 70.2 70.3 74.4
Consensus 72.5 72.5
CHFRUB 56.3 58.5 64.0
Consensus 59.1 58.6
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Russia
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 10.21% 906bp 1054bp Gross Domestic Product (GDP, %) -2.8 -0.2 0.5 CA balance (% of GDP) 5.4 1.9 4.2
10Y Yield 8.07% 566bp 774bp Consumer Price Inflation (CPI, %) 15.6 6.9 5.0 Budget balance (% of GDP) -3.4 -3.6 -2.3
3M Fwrd 57.50 61.69 CBR Refi. Rate (%, end of period) 11.00 Gross public debt (% of GDP) 10.1 10.9 12.1
12M Fwrd 60.41 65.82 10y bond yields (%, end of period) 9.74 Gross external debt (% of GDP) 38.8 34.6 31.3
3M Vola 12.60 13.00 Exchange rate regime: fixed peg (composite)
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
RUB: CARRY ME HOMEWe acknowledge some improvements in fundamentals and like the attractive carry. We hold our neutral view
but are more cautious as tailwinds might fade.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Tailwinds from higher oil prices, an improving economic outlook and speculations over a closer
relationship with the US are gradually receding.
At current levels, the RUB is no bargain but 10% carry provide plenty of cushion for possible shortfalls.
The RUB remains a highly event-driven and volatile currency; however, it will be less affected by US dollar
strength than other emerging market currencies as oil companies keep US dollars flowing in.
The currency is backed by
decent current-account
surpluses.
Higher oil prices should play out
positively for the RUB.
2015
Contacts
The RUB offers an attractive
carry.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla
High inflation erodes the value
of the RUB.
Russia’s downgrade to junk bond
status aggravates capital flight
risk.
The Russian central bank can
intervene pragmatically in the
currency market.
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Julius Baer Research | Please find important legal information at the end of this document.
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
Monetary policy framework: inflation targeting ( 5% in
2014)
bearish neutral bullish
-2
0
2
4
6
8
10
12
14
16
06 07 08 09 10 11 12 13 14 15 16 17
-2
0
2
4
6
8
10
12
14
16
% of GDP % of GDP
Trade FDI CA Basic
20
30
40
50
60
70
80
90
10 11 12 13 14 15 16 17 18
20
30
40
50
60
70
80
90
USD/RUB USD/RUB
Standard deviation Fair Value*USD/RUB Spot, Forecast
30
40
50
60
7080
90
100
110
10 11 12 13 14 15 16 17 18
30
40
50
60
7080
90
100
110
EUR/RUB EUR/RUB
Standard deviation Fair Value*
EUR/RUB Spot, Forecast
22/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDTRY 3.63 3.85 4.15
●Consensus 3.77 3.87
EURTRY 3.90 4.12 4.44
●Consensus 3.95 4.07
GBPTRY 4.52 4.63 4.83
Consensus 4.55 4.68
CHFTRY 3.63 3.85 4.15
Consensus 3.71 3.78
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals Turkey
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 12.12% 1097bp 1245bp Gross Domestic Product (GDP, %) 6.0 2.0 1.5 CA balance (% of GDP) -3.8 -3.9 -5.0
10Y Yield 10.65% 824bp 1032bp Consumer Price Inflation (CPI, %) 7.7 7.8 9.0 Budget balance (% of GDP) -1.0 -1.2 -1.9
3M Fwrd 3.74 4.01 CBRT O/N Rate (%, end of period) 7.50 Gross public debt (% of GDP) 29.0 29.8 33.3
12M Fwrd 4.02 4.38 10y bond yields (%, end of period) 10.47 Gross external debt (% of GDP) 44.8 48.2 53.7
3M Vola 14.94 14.23 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Economic growth faces threats
from low domestic savings, large
existing debt and weaker policy
support.
Julius Baer Research | Please find important legal information at the end of this document.
* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla
The lira remains prone to acute
external imbalances.
The lira offers an attractive
interest-rate carry.
High inflation erodes the value
of the lira.
A weaker currency improves the
trade deficits via weaker
exports.
Profitability of companies show
signs of improvement despite
challenging domestic backdrop.
TRY: POLITICAL RISKS INTENSIFYMonetary tightening has stabilised the lira so far, but political risks and deteriorating fundamentals point to
another upcoming currency slump. We hold our bearish below consensus view despite an attractive carry.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
The currency has been fairly stable under the given circumstances; however, with president Erdogan
likely to receive totalitarian power in April investors' confidence may take a serious blow.
Economic indicators have fallen in recent months and with the hands of the central bank tied to the
government, the case for the lira has become less conclusive.
The lira is one of the most vulnerable emerging market currencies when it comes to growing bets for rate
increases by the US Fed, leading to a stronger USD and higher borrowing costs.
bearish neutral bullish
-10
-8
-6
-4
-2
0
2
4
6
05 06 07 08 09 10 11 12 13 14 15 16 17
-10
-8
-6
-4
-2
0
2
4
6
% of GDP % of GDP
Trade FDI CA Basic
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
10 11 12 13 14 15 16 17 18
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
USD/TRY USD/TRY
Standard deviation Fair Value*USD/TRY Spot, Forecast
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
10 11 12 13 14 15 16 17 18
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
EUR/TRY EUR/TRY
Standard deviation Fair Value*
EUR/TRY Spot, Forecast
23/27
CURRENCY FACT SHEETS - April 2017 GLOBAL ECONOMIC RESEARCH | 31 March 2017
JB CURRENCY STRATEGY CURRENCY OUTLOOK
●
●
●
OPPORTUNITIES Valuation (against USD) Valuation (against EUR)
●
●
* Weighted average of various models * Weighted average of various models
Source: Datastream, Goldman Sachs, Julius Baer Source: Datastream, Goldman Sachs, Julius Baer
RISKS Forecasts Current and capital account balances*
● 31.3.17 +3M (Jul 17) +1Y (Apr 18)
USDZAR 13.3 13.7 14.0
Consensus 13.5 13.8
●EURZAR 14.2 14.7 15.0
Consensus 14.2 14.5
●GBPZAR 16.6 16.5 16.3
Consensus 16.3 16.7
CHFZAR 13.3 13.7 14.0
Consensus 13.3 13.5
Source: Datastream, Julius Baer
Market backdrop Economic fundamentals South Africa
spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E
3M Rate 7.36% 621bp 769bp Gross Domestic Product (GDP, %) 1.3 0.3 1.0 CA balance (% of GDP) -6.4 -5.9 -5.8
10Y Yield 8.85% 644bp 852bp Consumer Price Inflation (CPI, %) 4.6 6.3 5.5 Budget balance (% of GDP) -3.7 -3.3 -3.2
3M Fwrd 13.53 14.52 SARB Repo Rate (%, end of period) 6.3 Gross public debt (% of GDP) 49.8 51.8 51.6
12M Fwrd 14.16 15.42 10y bond yields (%, end of period) 10.0 Gross external debt (% of GDP) 47.5 45.4 45.6
3M Vola 18.22 17.02 Exchange rate regime: independently free-floating
Source: Bloomberg Finance L.P., Julius Baer Source: Bloomberg Finance L.P., Oxford Economics, Julius Baer
Julius Baer Research | Please find important legal information at the end of this document.
Source: Bloomberg Finance L.P., Consensus Economics, Julius Baer
bla* Trade: goods and services balance; FDI: foreign direct investment;
CA : current account balance; Basic: CA plus FDI
2015
Monetary policy framework: inflation targeting (3-6%)
Contacts
David Kohl, Frankfurt, +49 (0) 69 9074 3580, [email protected]
ZAR: HEAVY BURDEN FROM POLITICS Political worries become a burden for the currency again. Improved fundamentals and reasonable carry still
justify a neutral view against a bearish consensus.
3-month and 12-month ranking relative to 24
currencies covered by JB economic research.
Based on expected return over forward.
Firing of Finance Minister Pravin Gordhan raised concerns about the country’s fiscal path and its
investment-grade credit rating.
Leading indicator points to some improvement of the growth backdrop but it is rather the global risk-on
environment and the attractive carry supporting the currency.
Monetary policy outside of South Africa, especially Fed policy, is going to be a key factor in influencing
forex markets and the ZAR is likely to be rather vulnerable.
South Africa may lose its
investment-grade sovereign
rating.
Return of global risk appetite
and search for yield create
support.
The nominal carry is appealing.
High interest rates are a risk for
the growth outlook, which could
trigger money outflows.
Domestic policy is not investor-
friendly.
bearish neutral bullish
-8
-6
-4
-2
0
2
4
6
05 06 07 08 09 10 11 12 13 14 15 16 17
-8
-6
-4
-2
0
2
4
6
% of GDP % of GDP
Trade FDI CA Basic
6
8
10
12
14
16
18
10 11 12 13 14 15 16 17 18
6
8
10
12
14
16
18
USD/ZAR USD/ZAR
Standard deviation Fair Value*USD/ZAR Spot, Forecast
9101112131415161718192021
10 11 12 13 14 15 16 17 18
9101112131415161718192021
EUR/ZAR EUR/ZAR
Standard deviation Fair Value*
EUR/ZAR Spot, Forecast
24/27
IMPORTANT LEGAL INFORMATION
This publication constitutes investment research and has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). This publication series is issued regularly. Information on financial instruments and issuers is updated irregularly or in response to important events.
IMPRINT Authors Janwillem Acket, Chief Economist, [email protected] 1) David Kohl, Chief Currency Strategist, [email protected] 2) David A. Meier, Macro Research, [email protected] 1) Susan Joho, Macro Research, [email protected] 1) Stephanie Lindeck, Macro Research, [email protected] 2) Alejandro Hardziej, Fixed Income Research, [email protected] 1) 1) This analyst is employed by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). 2) This analyst is employed by Bank Julius Bär Europe AG, which is authorised and regulated by the German Federal Supervisory Authority (BaFin).
APPENDIX Methodology Please refer to the following link for more information on the research methodology used by Julius Baer analysts: www.juliusbaer.com/research-methodology
Structure
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Important distribution information
25/27
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