currency fact sheets - julius baer group€¦ · pln: growth picks up despite policy skirmish ......

CURRENCY FACT SHEETS GLOBAL ECONOMIC RESEARCH | 28 February 2017

JULIUS BAER CURRENCY STRATEGY G10 currencies Page

● USD: Breather on the way up 2● EUR: A kinder assessment is spreading 3● JPY: Lasting headwind from zero interest rates 4● GBP: Post-brexit ease extends, but the break-up is nigh 5● CHF: To remain strong against the euro 6● NOK: Oil price outlook overshadows recent gains 7● SEK: Pushed up by foreseeable end to Riksbank QE 8● CAD: Loonie unaffected by trumponomics, so far 9● AUD: Shrinking carry-advantage 10● NZD: Stronger USD to dominate over domestic strength 11

Emerging market currencies

121314151617181920212223

● CNY: Outflow pressure still around● IDR: Balanced risks● INR: Recovery from demonetisation damage● KRW: Highly exposed to new US dollar strength● SGD: Neutral FX policy setting to be maintained● BRL: Lower inflation, new rate cuts, same story● MXN: New hedging mechanism adds to the recovery● CZK: End of the currency cap is nearing● HUF: Unconventional policy easing is a headwind● PLN: Growth picks up despite policy skirmish● RUB: Carry me home● TRY: Back to bearish● ZAR: No reason to get excited 24

Source: Bloomberg Finance L.P., Julius Baer

Frankfurt, +49 (0)69 9074 3580Julius Baer Research | Please find important legal information at the end of this document.

CURRENCY FACT SHEETSMARCH 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 ResearchZurich, +41 (0)58 888 8100

USDSEKINR

CZKCHFMXNRUB

CADEURNZDGBPPLNCNYBRL

NOKIDR

ZARTRYSGDHUFAUDKRW

JPY

bearish neutral bullish

12 months 3 monthsChange to previous

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1/27

CURRENCY FACT SHEETS - March 2017 GLOBAL ECONOMIC RESEARCH | 28 February 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*

● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

EURUSD 1.06 1.04 1.05

●Consensus 1.05 1.05

USDJPY 111.8 118.0 120.0

Consensus 115.5 117.2

●USDCHF 1.00 1.01 1.00

Consensus 1.02 1.02

GBPUSD 1.25 1.21 1.14

Consensus 1.21 1.20

Source: Datastream, Julius Baer

Market backdrop Economic fundamentals United States

spot v. EUR v. JPY 2016E 2017E 2015 2016E 2017E

3M Rate 1.05% 138bp 106bp Gross Domestic Product (GDP, %) 2.6 1.6 2.5 CA balance (% of GDP) -2.6 -2.7 -2.9

10Y Yield 2.34% 215bp 229bp Consumer Price Inflation (CPI, %) 0.1 1.3 2.4 Budget balance (% of GDP) -4.5 -5.0 -5.0

3M Fwrd 1.07 111.41 Fed Funds Target Rate (%, e. of per.) 0.50 0.75 1.50 Gross public debt (% of GDP) 125.9 127.1 126.8

12M Fwrd 1.08 109.71 10y bond yields (%, end of period) 2.24 2.49 2.65 Gross external debt (% of GDP) 96.4 98.2 98.0

3M Vola 10.37 11.19 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.

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.

USD: BREATHER ON THE WAY UPThe inflationary impact of the new president’s policy proposals and higher interest rates are powerful support

factors for the USD. We share the 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 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,

pushing up the USD.

Signs of group thinking have forced the US dollar to take a breather in the first few months of the year

but a less crowded positioning backdrop frees the way for additional gains.

The USD remains fundamentally overvalued, limiting the dollar’s longer-term upside potential.


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


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



●

●

●

OPPORTUNITIES Valuation (against USD) Valuation (against JPY)

●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

EURUSD 1.06 1.04 1.05


●EURJPY 118.8 122.7 126.0


EURCHF 1.07 1.05 1.05

Consensus 1.07 1.08

EURGBP 0.85 0.86 0.92

Consensus 0.87 0.88


Market backdrop Economic fundamentals Eurozone

spot v. USD v. JPY 2016E 2017E 2015 2016E 2017E

3M Rate -0.33% -138bp -32bp Gross Domestic Product (GDP, %) 1.9 1.7 1.6 CA balance (% of GDP) 3.1 3.2 2.5

10Y Yield 0.20% -215bp 14bp Consumer Price Inflation (CPI, %) 0.0 0.2 1.8 Budget balance (% of GDP) -2.1 -1.7 -1.6

3M Fwrd 1.07 118.84 ECB main refi rate (%, end of period) 0.05 0.00 0.00 Gross public debt (% of GDP) 90.4 90.1 89.3

12M Fwrd 1.08 118.91 10y bond yields (%, end of period) 0.60 0.20 0.45 Gross external debt (% of GDP) 121.3



Monetary policy framework: inflation targeting (close below

2%)



bla



2015

Contacts


Money outflows.

Very attractive as a financing

currency.

EUR: A KINDER ASSESSMENT IS SPREADING The unpopularity among speculators and investors is receding somewhat as capital outflows peter out. Policy

divergence ensures that undervaluation persists. We hold a neutral view in a strong US dollar world.




More 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) promised

not to taper its asset purchases despite the solid growth outlook.

Money outflows have slowed and announced M&A flows are turning in favour of the EUR.


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


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


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



●

●

●

OPPORTUNITIES Valuation (against USD) Valuation (against EUR)

●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDJPY 111.8 118.0 120.0


EURJPY 118.8 122.7 126.0


JPYCHF 0.90 0.86 0.83

Consensus 0.89 0.87

GBPJPY 139.3 142.7 137.0



Market backdrop Economic fundamentals Japan

spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E

3M Rate -0.01% -106bp 32bp Gross Domestic Product (GDP, %) 0.0 0.0 0.0 CA balance (% of GDP) 3.1 3.8 4.1

10Y Yield 0.06% -229bp -14bp Consumer Price Inflation (CPI, %) 0.8 -0.1 0.5 Budget balance (% of GDP) -5.1 -5.0 -6.2

3M Fwrd 111.41 118.84 BoJ O/N Rate (%, end of period) 0.10 -0.10 -0.10 Gross public debt (% of GDP) 216.4 219.7 223.3




JPY: LASTING HEADWIND FROM ZERO INTEREST RATESThe BoJ policy of a 0% yield target and overshooting inflation results in deeply negative rates, which will result

in a weaker JPY. We hold on to a bearish view against a neutral consensus view.




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 are gaining in significance in line with continued money

outflows.

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.



bla* Trade: goods and services balance; FDI: foreign direct investment;


2015

Monetary policy framework: inflation targeting

Contacts


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.


-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


EUR/JPY Spot, Forecast

4/27



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

GBPUSD 1.25 1.21 1.14


EURGPB 0.85 0.86 0.92

Consensus 0.87 0.88

●GBPCHF 1.25 1.22 1.14

Consensus 1.23 1.23

GBPJPY 139.3 142.7 137.0



Market backdrop Economic fundamentals UK


3M Rate 0.35% -70bp 68bp Gross Domestic Product (GDP, %) 2.2 1.8 1.4 CA balance (% of GDP) -4.3 -4.8 -3.5


3M Fwrd 1.25 0.85 BoE base rate (%, end of period) 0.5 0.3 0.3 Gross public debt (% of GDP) 89.0 89.2 89.2




GBP: POST-BREXIT EASE EXTENDS, BUT THE BREAK-UP IS NIGHRobust growth and a stable monetary policy offer short-term GBP stability despite the push for a 'hard Brexit'.

Negative Brexit-related drivers should kick in in the long term.



Based on expected return over forward. Outflows of foreign-direct investments, which should accelerate next year once Brexit negotiations

create uncertainty, are the dominating factor for our long-term bearish pound outlook.

With PM May's bill to invoke "Article 50" under scrutiny of the House of Lords, following fast readings in

the Commons, plans to kick-off Brexit before end of March 2017 are still realistic.

Economic momentum continues to hold up in the post-referendum phase. Further Bank of England

action is cancelled until the Brexit begins to take shape, offering short-term GBP stability.

Loss of EU single-market access

('hard Brexit' scenario).

Political risks, alongside the

Brexit process, to lead to spikes

in volatility.

Preservation of EU single-

market access ('soft Brexit'

scenario).

Parliament's decision on final

deal raises chances of 'checks

and balances' on Brexit.

Resilience of growth and GBP

weakness to fully cancel off any

further BoE response to Brexit.

Reversal of fiscal austerity

efforts due to Brexit could scale

back improvements in public

indebtedness.






2015

Monetary policy framework: inflation targeting (2%±1%

y/y)

Contacts

David A. Meier, Zurich, +41 (0)58 886 2388, [email protected]


-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


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


GBP/USD Spot, Forecast

5/27



●

●

●

OPPORTUNITIES Valuation (against EUR) Valuation (against USD)

●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USD/CHF 1.00 1.01 1.00

Consensus 1.02 1.02

●EUR/CHF 1.07 1.05 1.05

Consensus 1.07 1.08

JPY/CHF 0.90 0.86 0.83


GBP/CHF 1.25 1.22 1.14

Consensus 1.23 1.23


Market backdrop Economic fundamentals Switzerland

Spot v. USD v. EUR 2016E 2017E 2015 2016E 2017E


10Y Yield -0.23% -257bp -43bp Consumer Price Inflation (CPI, %) -1.1 -0.4 0.6 Budget balance (% of GDP) 1.1 0.1 0.1

3M Fwrd 1.00 1.06 SNB 3M Libor Target (%, end of per.) -0.8 -0.8 -0.8 Gross public debt (% of GDP) 34.2 33.8 33.1

12M Fwrd 0.98 1.06 10y bond yields (%, end of period) -0.2 -0.1 0.1 Gross external debt (% of GDP) 230.9 230.9 231.7

3M Volatility 8.26 8.09 Exchange rate regime: independently free-floating


A loss of market appeal or a

general surge in risk appetite

can cause a CHF drop.



bla

Contacts

Janwillem C. Acket, Zurich, +41 (0)58 888 8100, [email protected]


2015



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.




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.


-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


USD/CHF Spot, Forecast

6/27



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

●USDNOK 8.36 8.65 8.86

Consensus 8.47 8.31

EURNOK 8.88 9.00 9.30

Consensus 8.87 8.73

GBPNOK 10.42 10.47 10.11


CHFNOK 8.34 8.57 8.86

Consensus 8.28 8.11


Market backdrop Economic fundamentals Norway


3M Rate 1.04% -1bp 137bp Gross Domestic Product (GDP, %) 1.6 1.0 1.5 CA balance (% of GDP) 8.7 5.2 9.1

10Y Yield 1.71% -64bp 151bp Consumer Price Inflation (CPI, %) 2.0 3.9 2.5 Budget balance (% of GDP) 8.0 5.2 5.0

3M Fwrd 8.36 8.92 Repo Rate (%, end of period) 0.75 0.50 0.50 Gross public debt (% of GDP) 39.1 43.1 44.3




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.



Source: Bloomberg Finance L.P., Consensus Economics, Julius

Baer

bla



2015

Monetary policy framework: inflation targeting (2.5%±1%

y/y)

Contacts


NOK: OIL PRICE OUTLOOK OVERSHADOWS RECENT GAINSA stable monetary policy for the next months is the foundation for our neutral short-term stance. The long-

term outlook is at risk due to a sluggish oil price outlook and potential inflation disappointments.




Recently higher oil prices, responsible for a stronger krona, seem not sustainable from a supply

perspective. An outlook for softer oil prices suggests that recent krone gains were only temporary.

A renewed setback in oil prices.

Inflation is disappointing and will be pushed lower next year by a recently stronger currency. The

Norges Bank sees larger downside risks to rates, which suggests a cautious long-term NOK outlook.

The oil price and downside risks on interest rates remain the main reason for us to believe 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.


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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDSEK 9.02 8.99 8.76


EURSEK 9.58 9.35 9.20

Consensus 9.45 9.25●

GBPSEK 11.23 10.87 10.00


CHFSEK 8.99 8.90 8.76

Consensus 8.81 8.59


Market backdrop Economic fundamentals Sweden




3M Fwrd 8.98 9.58 Riksbank Repo Rate (%, end of per.) -0.35 -0.50 -0.50 Gross public debt (% of GDP) 53.8 51.0 48.5




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.



Baer

bla



2015

Contacts


Monetary policy framework: inflation targeting (2%±1% y/y)


SEK: PUSHED UP BY FORESEEABLE END TO RIKSBANK QEFacing strong growth momentum and rising inflation, the Riksbank's last extension to its asset purchases

failed to weaken the currency - to the contrary. We maintain our bullish SEK outlook.



Based on expected return over forward. The burden of monetary policy on the krona is receding, its fundamental strength is finally coming

through.

The SEK30bn extension of asset purchases was a nice try to weaken the krona but could not deter

market's conviction that monetary policy stimulus is coming to an end.

Leading indicators promise stronger growth ahead, while inflation moves closer towards the Riksbank's

target. A continuation of stimulus beyond mid-2017 has become unlikely.


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


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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDCAD 1.32 1.35 1.36


EURCAD 1.40 1.40 1.43

Consensus 1.42 1.42

●GBPCAD 1.65 1.63 1.55

Consensus 1.64 1.62

CHFCAD 1.32 1.34 1.36

Consensus 1.32 1.32


Market backdrop Economic fundamentals Canada




3M Fwrd 1.32 1.41 BoC O/N Rate (%, end of period) 0.50 0.50 0.50 Gross public debt (% of GDP) 98.4 99.4 97.7




High current-account deficit and

large household debt are

structural burdens.

CAD: LOONIE UNAFFECTED BY TRUMPONOMICS, SO FARUS president Trump's protectionist drumfire has not impressed the CAD so far, but remains a risk factor. A

stable Bank of Canada policy supports our neutral stance.




Economic data continues to surprise as leading indicators suggest accelerating economic momentum

ahead. With inflation on a gradual rise, the Bank of Canada is now set firmly on a hold.

The Trump presidency’s announced protectionist policies have not (yet) caused fears over disruptions of

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 stronger CAD.

US protectionism 'light' with no

major impact for Canada.

CAD-relevant commodity prices

to strengthen further.

Interest-rate normalisation

coming into sight for mid-2018.

US protectionism 'hard' with

negative impact for Canada.

Liberal government’s public

spending plans worsen public-

sector indebtedness.






2015


y/y)

Contacts



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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

AUDUSD 0.77 0.73 0.72

Consensus 0.73 0.71

EURAUD 1.38 1.42 1.46


●AUDJPY 86.0 86.1 86.4

Consensus 84.1 82.9

AUDCHF 0.77 0.74 0.72

Consensus 0.75 0.73


Market backdrop Economic fundamentals Australia

spot v. USD v. JPY 2016E 2017E 2015 2016E 2017E



3M Fwrd 0.77 85.51 RBA Cash Rate (%, end of period) 2.00 1.50 1.50 Gross public debt (% of GDP) 43.5 47.2 49.3







bla



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-ADVANTAGEAUD, which had a good run lately due to higher commodity prices, is vulnerable to erosion of the carry against

USD and coming weakness in China.




A resumption of a China slowdown will likely hurt the AUD over the short to mid term. Rising trade policy

risks between the new US administration 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.


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


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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

●NZDUSD 0.72 0.70 0.68


EURNZD 1.47 1.49 1.54

Consensus 1.51 1.56

AUDNZD 1.06 1.04 1.06

Consensus 1.05 1.05

NZDCHF 0.72 0.71 0.68

Consensus 0.71 0.69


Market backdrop Economic fundamentals New Zealand



10Y Yield 3.23% 89bp 318bp Consumer Price Inflation (CPI, %) 0.3 0.7 1.8 Budget balance (% of GDP) 0.8 0.9 1.2

3M Fwrd 0.72 1.48 RBNZ Rate (%, end of period) 2.50 1.75 1.75 Gross public debt (% of GDP) 29.9 29.9 29.2

12M Fwrd 0.72 1.51 10y bond yields (%, end of period) 3.55 3.33 3.90 Gross external debt (% of GDP) 101.0





bla



2015


y/y)

Contacts


Highest interest rates among

G10 countries.


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.

NZD: STRONGER USD TO DOMINATE OVER DOMESTIC STRENGTHWe are neutral on the New Zealand currency, which remains caught between a declining carry vs. USD and

strong domestic activity. With coming USD strength, a mild weakening is likely.




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.


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


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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDCNY 6.85 7.10 7.20


●EURCNY 7.29 7.38 7.56

Consensus 7.40 7.63

CHFCNY 6.83 7.03 7.20

Consensus 6.90 7.08

JPYCNY 6.12 6.02 6.00

Consensus 6.12 6.19


Market backdrop Economic fundamentals China


3M Rate 4.28% 323bp 461bp Gross Domestic Product (GDP, %) 6.9 6.7 6.5 CA balance (% of GDP) 3.0 2.2 1.5


3M Fwrd 6.89 7.35 PBC Lending Rate (%, end of period) 4.35 Gross public debt (% of GDP) 15.5 18.3 20.8

12M Fwrd 7.05 7.57 10y bond yields (%, end of period) 2.84 Gross external debt (% of GDP) 11.8 9.3 9.7

3M Vola 4.50 8.53 Exchange rate regime: crawling peg (USD)


Trade war with the US.

Depletion of FX reserves.

CNY: OUTFLOW PRESSURE STILL AROUNDAfter a period of sideways movement owing to Chinese leader's stabilisation efforts, the yuan will weaken

further against the USD during the next phase of USD strengthening. We remain neutral due to considerable

carry.




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 tightened monetary conditions slightly. We

expect growth to soften mildly later in the year towards 6.5%.

Cyclical and structural pressures in China’s economy and its balance of payments lead us to expect a

mild depreciation against the USD over the coming year.

A stronger CNY is consistent

with internal economic

rebalancing.






2015

Monetary policy framework: inflation and growth

Contacts



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/CNY USD/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/CNY EUR/CNY


EUR/CNY Spot, Forecast

-2

0

2

4

6

8

10

12

14

16

05 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

12/27



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDIDR 13338

●Consensus

EURIDR 14120

Consensus

CHFIDR 13302

Consensus

●JPYIDR 11927 12250

Consensus 11709


Market backdrop Economic fundamentals Indonesia




3M Fwrd 13454 14341 BI Reference Rate (%, end of period) 7.50 Gross public debt (% of GDP) 29.9 34.1 34.7

12M Fwrd 14043 15105 10y bond yields (%, end of period) 8.87 Gross external debt (% of GDP) 36.2 34.2 33.4




13940

13564




2015

Contacts


13807

11742


y/y)

11814

13392

14423

14700

15435


14498

New measures supporting IDR

liquidity to reduce volatility.

14202

13248

Slow step-by-step reform

implementation, especially with

regard to infrastructure

investment, given budget

deficit.

Accumulation of FX reserves

when possible caps upside.

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.




14700

13723

Slower Chinese growth; lower

commodity prices.

Bold reforms by the Jokowi

government could foster new

growth in the longer term.

Solid domestic demand growth.

The tax amnesty bill still has the potential to bring some more short-term inflows in the third and last

phase, with two thirds of the declared amount repatriated so far.

Bank Indonesia refrained from cutting interest rates further and signalled stable interest rates in the

coming months. Growth is also likely to remain stable, around 5%.

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.


-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


EUR/IDR Spot, Forecast

13/27



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDINR 66.69 67.50 69.00


●EURINR 70.69 70.20 72.45


CHFINR 66.51 66.86 69.00


JPYINR 59.64 57.20 57.50



Market backdrop Economic fundamentals India




3M Fwrd 67.32 71.86 Official Prime Rate (%, end of period) 6.75 Gross public debt (% of GDP) 47.7 49.3 50.8


3M Vola 5.35 9.60 Exchange rate regime: managed floating


INR: RECOVERY FROM DEMONETISATION DAMAGEWe 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.




Continuation of good central-bank management is ensured by new Governor Patel with rates on hold for

longer. Distress from the banknote reform has proven temporary, lifting investor sentiment.

Despite USD strength and expected negative short-term consequences on growth from the surprise

withdrawal of high-denominated notes, INR remained resilient and we expect more of it.

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.



Ongoing reforms to enhance

productivity and supply.




2015

Contacts



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.

Bigger growth slump from

demonetisation to cause

significant outflows.

A rise in inflation due to GST

reform and implementation of

higher government wages.

Political gridlock.


-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


EUR/INR Spot, Forecast

14/27



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

●USDKRW 1130 1190 1200

●Consensus 1195 1200

EURKRW 1198 1238 1260

Consensus 1251 1262

CHFKRW 1127 1179 1200

Consensus 1167 1171

JPYKRW 10.11 10.08 10.00



Market backdrop Economic fundamentals South Korea


3M Rate 1.41% 36bp 174bp Gross Domestic Product (GDP, %) 2.6 2.7 2.5 CA balance (% of GDP) 7.7 7.3 6.2


3M Fwrd 1129 1205 BoK Rate (%, end of period) 1.50 Gross public debt (% of GDP) 38.9 39.4 40.9

12M Fwrd 1123 1218 10y bond yields (%, end of period) 2.09 Gross external debt (% of GDP) 29.1 28.1 29.3



Capital outflow measures.






2015

Contacts


Monetary policy framework: inflation targeting (3%±0.5%

y/y)

Weakness in China.

The KRW is a high-beta

currency.

Increased global risk appetite.

KRW: HIGHLY EXPOSED TO NEW US DOLLAR STRENGTHThe Korean won, more vulnerable to US rate normalisation than peers, is also facing continued portfolio

outflows from domestic pensions and life insurances.




Large current-account surplus.

The country maintains a solid

fiscal balance.

Pension funds and life insurers are taking advantage of the widening US-Korea yield differentials and the

strong USD, visible in increased unhedged portfolio outflows.

The Bank of Korea will hold policy rates stable in 2017, as inflation is coming up and due to concerns

about large household debt. Growth to soften further, with additional fiscal support expected.

Fundamentals remain strong, i.e. a large current-account surplus, but Korea would be very vulnerable to

a more hostile global trade environment with its strong export exposure to the US.


-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


EUR/KRW Spot, Forecast

15/27



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

●USDSGD 1.40 1.45 1.45

Consensus 1.46 1.48

EURSGD 1.48 1.51 1.52


CHFSGD 1.39 1.44 1.45

Consensus 1.43 1.41

JPYSGD 1.25 1.23 1.21

Consensus 1.26 1.26


Market backdrop Economic fundamentals Singapore



10Y Yield 2.31% -4bp 211bp Consumer Price Inflation (CPI, %) -0.5 -0.5 1.0 Budget balance (% of GDP) 0.6 -0.9 -0.6

3M Fwrd 1.40 1.49 Singapore O/N rate (%, end of per.) 0.72 Gross public debt (% of GDP) 115.9 124.1 127.9


3M Vola 6.12 7.99 Exchange rate regime: managed floating (composite)


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: NEUTRAL FX POLICY SETTING TO BE MAINTAINEDDue to its comparably higher liquidity in the region, the SGD is more sensitive to US rate normalisation.

Moreover, the MAS signalled keeping the SGD at rather weak levels.




SGD remains at risk from its sensitivity to US rate normalisation, a weaker growth outlook and trade

protectionism.

The Monetary Authority of Singapore (MAS) will keep its monetary policy neutral, implying a flat trend

for SGD ahead.

Despite the recovery in the industrial sector, low global external demand could continue to weigh on the

highly export-dependent economy for longer, with a slowing China having a particular weight.

Ongoing structural changes to

raise productivity in the longer

term.

Tends to profit from increased

risk appetite.






2015

Monetary policy framework: currency regulation only

Contacts



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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDBRL 3.11 3.30 3.80

Consensus 3.34 3.46

●EURBRL 3.29 3.43 3.99

Consensus 3.49 3.64

GBPBRL 3.87 3.99 4.34


CHFBRL 3.10 3.27 3.80

Consensus 3.26 3.38


Market backdrop Economic fundamentals Brazil


3M Rate 10.72% 967bp 1105bp Gross Domestic Product (GDP, %) -3.8 -3.5 0.0 CA balance (% of GDP) -3.2 -1.3 -1.3


3M Fwrd 3.16 3.37 SELIC Target Rate (%, end of period)14.25 Gross public debt (% of GDP) 65.5 72.3 78.0




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.

The strong appreciation of this

year may reflect excessively

optimistic views of investors.



Baer

bla



2015


y/y)

Contacts

Alejandro Hardziej, Zurich, +41 (0)58 886 2383, [email protected]


Weak macro fundamentals, with

twin deficits and high inflation.

Fund flows are highly sensitive

to changes in US interest rates.

The still high interest rates make

local-currency bonds one of the

highest yielding globally.

BRL: LOWER INFLATION, NEW RATE CUTS, SAME STORYThe BRL has continued to strengthen as inflation fell further and the central bank cut rates again. The

improved outlook for Brazil justifies some but not all the strength we have seen in the last year. We stay

bearish.




Positive developments at the political level, including measures to control the fiscal deficit, have made

the BRL surprisingly resilient compared to other emerging market currencies.

Inflation continues to fall and has reached 5.4% y/y in January. The central bank has cut rates by

another 75 bps in its February meeting, to 12.25%, and we think the easing cycle will continue.

Brazil is one of the preferred EM countries by investors. Expectations that the economy will return to

positive growth, together with still-high carry, have supported its stability.


-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


EUR/BRL Spot, Forecast

17/27



●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDMXN 19.9 20.5 21.0

Consensus 21.6 21.7

●EURMXN 21.2 21.3 22.1

Consensus 22.6 22.8

●GBPMXN 24.8 24.8 24.0

Consensus 26.0 26.0

CHFMXN 19.9 20.3 21.0

Consensus 21.0 21.2


Market backdrop Economic fundamentals Mexico




3M Fwrd 20.19 21.54 Banxico Rate (%, end of period) 3.3 Gross public debt (% of GDP) 51.4 55.5 55.8








2015

Contacts

Alejandro Hardziej, Zurich, +41 (0)58 886 2383, [email protected]



y/y)

MXN: NEW HEDGING MECHANISM ADDS TO THE RECOVERYDespite some ups and downs, the peso has continued to strengthen, supported by the newly introduced FX

hedging mechanism. We believe that the latter is an efficient tool that could further stabilise the MXN.




In February, the MXN appreciated another 4.5% against the USD to reach the strongest level since

Trump's election. The newly announced hedging mechanism could meet the hedging needs of local

banks without draining Mexico's FX reserves.

The macroeconomic picture continues to show a certain stability. The latest data from the labour market

came better than market consensus, with unemployment at a still very low 3.6%. Despite the short-term

resilience; however, we are cautious on the long-term outlook.

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 seems highly

committed to controlling the

volatility of the MXN.

Inflation and unemployment are

at very healthy levels.

Large international reserves and

room for further rate hikes

should protect the currency.

Oil prices are important for

government revenues.


-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


EUR/MXN Spot, Forecast

18/27



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDCZK 25.44 25.48 24.76


●EURCZK 27.02 26.50 26.00


●GBPCZK 31.69 30.81 28.26


CHFCZK 25.37 25.24 24.76



Market backdrop Economic fundamentals Czech Republic



10Y Yield 0.61% -173bp 42bp Consumer Price Inflation (CPI, %) 0.3 0.7 2.0 Budget balance (% of GDP) -1.4 1.3 -0.8

3M Fwrd 25.24 26.92 CNB Repo Rate (%, end of period) 0.05 Gross public debt (% of GDP) 36.7 36.1 36.1


3M Vola 11.60 3.77 Exchange rate regime: pegged against EUR at CZK 27


The Czech economy has a

strong track record of balance-

sheet and price stability.

CZK: END OF THE CURRENCY CAP IS NEARINGThe exchange rate floor of EUR/CZK 27 becomes increasingly unsustainable and unnecessary. We expect the

floor to end sooner rather than later and hold a bullish view.




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.





2015


Contacts


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.


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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDHUF 290.3 303.8 300.0


●EURHUF 308.4 316.0 315.0


GBPHUF 361.6 367.4 342.4


CHFHUF 289.6 301.0 300.0



Market backdrop Economic fundamentals Hungary



10Y Yield 3.41% 107bp 321bp Consumer Price Inflation (CPI, %) -0.1 0.4 2.5 Budget balance (% of GDP) -1.6 -0.6 -2.0

3M Fwrd 289.42 308.72 MNB Base Rate (%, end of period) 1.35 Gross public debt (% of GDP) 74.7 71.3 74.0




Some external indebtedness.

HUF: UNCONVENTIONAL POLICY EASING IS A HEADWINDHungary’s national bank pushes ahead with more unconventional policy measures – a headwind for the

currency. We stick to our cautious stance in contrast to a more benevolent consensus.




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.

The central bank has a dovish

bias.





2015

Monetary policy framework: inflation targeting (3% y/y)

Contacts



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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDPLN 4.06 4.21 4.24


EURPLN 4.31 4.38 4.45


GBPPLN 5.06 5.09 4.84

Consensus 5.04 4.97

CHFPLN 4.05 4.17 4.24

Consensus 4.08 4.05


Market backdrop Economic fundamentals Poland



10Y Yield 3.81% 147bp 361bp Consumer Price Inflation (CPI, %) -0.9 -0.6 1.5 Budget balance (% of GDP) -2.6 -2.6 -3.2

3M Fwrd 4.07 4.34 NBP Rate (%, end of period) 1.50 Gross public debt (% of GDP) 52.8 54.1 54.0




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.




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.





2015


y/y)

Contacts



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


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



●

●

●


●

●

●




● 28.2.17 +3M (Jun 17) +1Y (Mar 18)

USDRUB 58.3 61.0 66.0


EURRUB 61.9 63.4 69.3

Consensus 63.5 64.7

●GBPRUB 72.6 73.8 75.3

Consensus 73.2 73.7

CHFRUB 58.1 60.4 66.0

Consensus 59.2 60.1


Market backdrop Economic fundamentals Russia


3M Rate 10.47% 942bp 1080bp Gross Domestic Product (GDP, %) -2.8 -0.5 0.5 CA balance (% of GDP) 5.4 1.9 4.3


3M Fwrd 59.57 63.54 CBR Refi. Rate (%, end of period) 11.00 Gross public debt (% of GDP) 10.1 10.9 11.5


3M Vola 13.29 13.70 Exchange rate regime: fixed peg (composite)


RUB: CARRY ME HOMEWe acknowledge some improvements in fundamentals and like the attractive carry. We hold our neutral view

but get more cautious as tailwinds might fade.




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 a

currency fact sheets - julius baer group€¦ · pln: growth picks up despite policy skirmish ......

Documents