FX Forecast Update 23 September 2013 USD take-off postponed not cancelled Arne Lohmann Rasmussen Chief Analyst, Head of Rates, FX and Commodities Strategy Kasper Kirkegaard Stefan Mellin Stanislava Pravdová-Nielsen Senior Analyst Senior Analyst Analyst Morten Helt Lars Christensen Christin Tuxen Vladimir Miklashevsky Senior Analyst Chief Analyst Senior Analyst Analyst www.danskebank.com/research Bloomberg: DRFX <GO> Investment Research Important disclosures and certifications are contained from page 7 of this report.
Main forecast changes With Fed s tapering of its QE programme postponed now not likely until December in our view - the FX market has made a turn for a weaker USD. While the near-term support to USD has certainly waned since we published our September FX Forecast Update last week, we remain wary of calling off the 6-12M USD uptrend that we have been envisaging for a while. Indeed, we see the Fed surprise as mainly bringing out a level shift in USD crosses, merely postponing an eventual USD uptrend a few months but not reducing its pace materially. We emphasise though, that near-term USD risks are tilted to the downside. We have upped the level of our EUR/USD forecast but kept a downward profile as indicated below. Note, however, that we have left all other crosses unchanged albeit the risks to the level of some USD crosses are now clearly for more USD upside than we have currently pencilled in. We will address this in our monthly forecast update mid October. On a 1-3M horizon we acknowledge that delayed tapering provides a rather favourable backdrop for risk assets. With most markets having positioned for September tapering in recent months there is likely still room for some USD longs to be wiped out. Coupled with the fact that any geopolitical support to USD has waned, we now see EUR/USD at 1.33 (previously 1.31) in 3M time, but could see the pair reach 1.37 (1.31) in 1M should early October data out of the US prove disappointing. In 3M we will be just beyond the December FOMC meeting which, if our economic projections prove right, means that Fed has laid out a tapering plan. This should induce a shift back in focus to the fact that the Fed will still be a first-mover on reining in easing among major central banks as US outperformance is set become a focal point. Furthermore, this should pave the way for a move in relative rates weighing on EUR. Notably, while our rate strategists see Fed as fairly priced at present, ECB hikes are seen too early in our view. Thus, we now see the pair at 1.30 in 6M (1.28), heading lower towards 1.27 in 12M (1.25). Key risks for the autumn (more EUR/USD upside than we project): US data start to weaken Fed delays tapering beyond December and/or makes the tapering pace even more gradual Eurozone excess liquidity continues to drop at the currently rapid pace ECB fails to react with a new LTRO Rate rises Eurozone peripheral spreads tighten more than currently projected as the search for yield is reignited Capital to eurozone In an environment that has seen the emerging-markets (EM) sell-off calm down and which is now set to get another boost from Fed expanding its balance-sheet at a record pace still, carry currencies could receive a temporary boost. Notably AUD stands to benefit here with positioning significantly short and a Reserve Bank of Australia (RBA) that has recently shifted its stance from easing to on hold. We stress, however, that longer-term challenges for EM and commodity currencies remain in place. The Scandies are similarly expected to benefit from improved risk sentiment in the near term. 2
Danske Bank Markets FX forecasts Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs EUR USD 1.351 1.37 1.33 1.30 1.27 1.4-1.6-3.8-6.1 JPY 133.7 136 133 137 140 1.7-0.5 2.5 4.9 GBP 0.842 0.84 0.82 0.83 0.84-0.3-2.7-1.6-0.6 CHF 1.233 1.25 1.26 1.24 1.24 1.4 2.3 0.7 0.9 DKK 7.46 7.46 7.46 7.46 7.46 0.1 0.1 0.2 0.2 NOK 7.99 7.70 7.70 7.60 7.55-3.7-3.9-5.6-7.0 SEK 8.60 8.50 8.50 8.40 8.30-1.3-1.4-2.8-4.5 Exchange rates vs USD JPY 99.0 99 100 105 110 0.3 1.1 6.6 11.7 GBP 1.60 1.63 1.62 1.57 1.51 1.7 1.2-2.2-5.4 CHF 0.91 0.91 0.95 0.95 0.98 0.0 3.9 4.7 7.4 DKK 5.52 5.45 5.61 5.74 5.87-1.3 1.7 4.1 6.7 NOK 5.91 5.62 5.79 5.85 5.94-5.0-2.4-1.8-0.8 SEK 6.37 6.20 6.39 6.46 6.54-2.7 0.1 1.0 1.7 CAD 1.03 1.04 1.04 1.05 1.06 0.9 0.7 1.5 2.0 AUD 0.94 0.90 0.90 0.88 0.85-4.2-3.8-5.4-7.4 NZD 0.84 0.80 0.79 0.77 0.75-4.3-5.0-6.8-7.7 CNY 6.12 6.12 6.10 6.05-0.5-1.0-2.3 Note: GBP, AUD and NZD are denominated in local currency rather than USD Source: Danske Bank Markets 3
Danske Bank Markets FX forecasts vs DKK Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs DKK EUR 7.46 7.46 7.46 7.46 7.46 0.1 0.1 0.2 0.2 USD 5.52 5.45 5.61 5.74 5.87-1.3 1.7 4.1 6.7 JPY 5.58 5.49 5.61 5.45 5.33-1.6 0.6-2.3-4.5 GBP 8.85 8.88 9.10 8.99 8.88 0.4 2.9 1.8 0.9 CHF 6.05 5.97 5.92 6.02 6.02-1.3-2.1-0.5-0.6 NOK 0.93 0.97 0.97 0.98 0.99 3.9 4.2 6.0 7.5 SEK 0.87 0.88 0.88 0.89 0.90 1.3 1.5 3.1 4.9 CAD 5.36 5.24 5.39 5.47 5.54-2.2 1.0 2.6 4.6 AUD 5.20 4.90 5.05 5.05 4.99-5.5-2.2-1.5-1.3 NZD 4.62 4.36 4.43 4.42 4.41-5.5-3.4-3.0-1.7 PLN 1.76 1.77 1.75 1.73 0.9 0.5 0.8 CZK 0.29 0.29 0.29 0.29 0.5 0.9 1.2 HUF 0.25 0.25 0.25 0.25 0.5 2.8 4.1 RUB 0.17 0.17 0.18 0.17-0.7 6.5 2.6 Source: Danske Bank Markets 4
Danske Bank Markets FX forecasts vs SEK Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs SEK EUR 8.60 8.50 8.50 8.40 8.30-1.3-1.4-2.8-4.5 USD 6.37 6.20 6.39 6.46 6.54-2.7 0.1 1.0 1.7 JPY 6.43 6.25 6.39 6.13 5.93-2.9-0.9-5.2-9.0 GBP 10.21 10.12 10.37 10.12 9.88-1.0 1.3-1.2-3.9 CHF 6.98 6.80 6.75 6.77 6.69-2.7-3.6-3.5-5.3 NOK 1.08 1.10 1.10 1.11 1.10 2.5 2.6 2.9 2.5 DKK 1.15 1.14 1.14 1.13 1.11-1.3-1.5-3.0-4.7 CAD 6.18 5.97 6.15 6.15 6.17-3.5-0.6-0.4-0.3 AUD 6.00 5.58 5.75 5.69 5.56-6.8-3.7-4.5-6.0 NZD 5.33 4.96 5.05 4.98 4.90-6.8-4.9-5.9-6.4 PLN 2.03 2.01 1.97 1.93-0.7-2.5-3.9 CZK 0.33 0.33 0.33 0.32-1.0-2.1-3.5 HUF 0.29 0.28 0.28 0.28-1.0-0.2-0.7 RUB 0.20 0.19 0.20 0.19-2.2 3.5-2.1 Source: Danske Bank Markets 5
Danske Bank Markets FX forecasts vs NOK Forecast Forecast vs forward outright, % Spot +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs NOK EUR 7.99 7.70 7.70 7.60 7.55-3.7-3.9-5.6-7.0 USD 5.91 5.62 5.79 5.85 5.94-5.0-2.4-1.8-0.8 JPY 5.97 5.66 5.79 5.55 5.39-5.3 GBP 9.48 9.17 9.39 9.16 8.99-3.4-1.2-3.9-6.3 CHF 6.48 6.16 6.11 6.13 6.09-5.0-6.1-6.2-7.7 SEK 0.93 0.91 0.91 0.90 0.91-2.4-2.5-2.8-2.5 DKK 1.07 1.03 1.03 1.02 1.01-3.7-4.0-5.7-7.1 CAD 5.74 5.40 5.57 5.57 5.61-5.8-3.1-3.2-2.7 AUD 5.57 5.06 5.21 5.14 5.05-9.0-6.1-7.1-8.3 NZD 4.95 4.50 4.57 4.50 4.46-9.1-7.3-8.5-8.7 PLN 1.89 1.82 1.78 1.76-3.2-5.2-6.3 CZK 0.31 0.30 0.30 0.29-3.5-4.8-5.9 HUF 0.27 0.26 0.26 0.26-3.5-3.0-3.1 RUB 0.19 0.17 0.18 0.17-4.7 0.6-4.5 Source: Danske Bank Markets 6
Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The authors of this research report are Kasper Kirkegaard (Senior Analyst), Stefan Mellin (Senior Analyst), Stanislava Pravdová-Nielsen (Analyst), Morten Helt (Senior Analyst), Lars Christensen (Chief Analyst) Christin Tuxen (Senior Analyst) and Vladimir Miklashevsky (Analyst). Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors on request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the date of first publication. 7
General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ( Relevant Financial Instruments ). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank s prior written consent. Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to U.S. institutional investors as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to U.S. institutional investors. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements of a non-u.s. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-u.s. financial instruments may entail certain risks. Financial instruments of non-u.s. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission. 8