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G10 FX Weekly

04 February 2016

Weak US data weigh on USD

Weak US data weigh on the US dollar

Yesterday, there were two interesting market reactions. The stronger-than-expected

ADP report failed to support the US dollar. This is because currency markets are

currently biased towards negative news from the US, because this would decrease

the possibility of Fed rate hikes this year. As a result, stronger data are ignored and

weaker data have a more substantial negative impact on the US dollar. The weaker-

than-expected Markit services PMI and ISM non-manufacturing caused a dramatic

sell-off in the US dollar yesterday. EUR/USD broke the physiological level of 1.10

again and rallied to a high of 1.1146 while USD/JPY dropped to a low of 117.06

thereby fully erasing the gains after the BoJ decision last week. This morning the US

dollar has remained under pressure. The ball is now back in the court of the ECB and

the BoJ (see below). We expect the ECB cut its deposit rate in two steps (March and

June) to -0.5% and to increase its asset purchase program by 10bn in March. This is

not fully priced in by financial market.

FX Performance since last 28 January 2016

% with US dollar as basis

Source: Bloomberg

0

1

2

3

4

NZD CAD EUR GBP AUD NOK SEK CHF JPY

Group EconomicsMacro & Financial MarketsResearch

Georgette Boele

Co-ordinator FX & Precious Metals

Strategy

Tel: +31 20 629 7789

georgette.boele@nl.abnamro.com

Roy Teo

Senior FX Strategist

Tel: +65 6597 8616

roy.teo@sg.abnamro.com

• Weak US data weigh on the US dollar

• JPY resume gains – over to you Kuroda

• New Zealand dollar outperformer

2 G10 FX Weekly - Weak US data weigh on USD - 04 February 2016

It is likely that in the near-term, currency markets remain biased towards softer US

economic data and therefore the downward pressure on the dollar could continue.

However, improvement in investor sentiment and monetary policy divergence should

support the US dollar versus the euro and the yen during the course of this year.

JPY resume gains – over to you Kuroda

The Japanese yen (JPY) losses, after last Friday surprise move by the Bank of

Japan (BoJ) to introduce negative interest rates, were fully erased this week as safe

haven flows resumed and the US dollar fell on weak US data. Later this year, the BoJ

could increase monetary stimulus further if the yen remains resilient and continues to

weigh on the outlook for exports and inflation in Japan.

New Zealand dollar outperformer

The New Zealand dollar (NZD) was the strongest currency this week as the

unemployment rate in the last quarter of 2015 plunged from 6% to 5.3% and

employment grew 0.9% after falling 0.5% in the previous quarter. However,

weakness in the labour market remains as the labour force participation rate

recorded its third consecutive quarterly decline to its lowest level since 2013 Q2 and

there are no signs of a pick-up in wage growth. We maintain our view that the

Reserve Bank of New Zealand (RBNZ) is likely to lower the Official Cash Rate (OCR)

by 25bp to 2.25% as soon as March. Around 30% of this is priced in by financial

markets. Our year end NZD/USD forecast is 0.58.

ABN AMRO major currency forecasts

Changes in red/bold

Source: ABN AMRO Group Economics

04-Feb Close 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

EUR/USD 1.1160 1.0866 1.05 1.00 0.95 0.90 0.92 0.96 0.98 1.00

USD/JPY 117.62 120.20 121 125 130 135 132 130 128 125

EUR/JPY 131.26 130.61 127 125 124 122 121 125 125 125

GBP/USD 1.4649 1.4734 1.40 1.32 1.23 1.22 1.28 1.37 1.44 1.52

EUR/GBP 0.7618 0.7375 0.75 0.76 0.77 0.74 0.72 0.70 0.68 0.66

USD/CHF 1.0030 0.9998 1.05 1.12 1.20 1.28 1.25 1.20 1.22 1.20

EUR/CHF 1.1193 1.0863 1.10 1.12 1.14 1.15 1.15 1.15 1.20 1.20

AUD/USD 0.7219 0.7290 0.68 0.66 0.64 0.62 0.64 0.68 0.70 0.72

NZD/USD 0.6706 0.6839 0.62 0.60 0.58 0.58 0.60 0.62 0.64 0.66

USD/CAD 1.3682 1.3828 1.44 1.46 1.47 1.48 1.40 1.38 1.35 1.30

EUR/SEK 9.3703 9.1901 9.50 9.50 9.50 9.50 9.25 9.00 8.75 8.50

EUR/NOK 9.4805 9.6178 9.50 9.25 9.00 9.00 8.75 8.50 8.25 8.00

EUR/DKK 7.4632 7.4630 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46

3 G10 FX Weekly - Weak US data weigh on USD - 04 February 2016

Find out more about Group Economics at: https://insights.abnamro.nl/en/

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