FX Forecast Update
16 December 2014
It’s the oil, stupid!
Thomas Harr
Global Head of FICC Research
Stefan Mellin
Senior Analyst
Jens Nærvig Pedersen
Senior Analyst
Kristoffer Lomholt
Analyst
Morten Helt
Senior Analyst
Lars Christensen
Chief Analyst
Christin Tuxen (on leave)
Senior Analyst
www.danskebank.com/research
Investment Research
www.danskebank.com/CI
Important disclosures and certifications are contained from page 11 of this report.
Vladimir Miklashevsky
Analyst
Main forecast changes part I
NOTE: This month’s FX Forecast Update is in a reduced form
• We are lifting our EUR/NOK forecasts as oil prices have collapsed and Norges Bank has cut interest rates,
which we did not expect. There is a significant risk of the oil price undershooting, which would weigh on the NOK.
In addition, the market is likely to price in two additional 25bp cuts from Norges Bank in the coming months, while
we expect ECB sovereign QE in Q1 to mitigate NOK losses. Medium term, we continue to see significant value in
the NOK due to strong internal and external balances and valuation. To sum up, we lift our EUR/NOK forecasts to
9.25 (from 8.80) in 1M, 9.40 (8.70) in 3M, 9.00 in 6M (8.50) and 8.50 (8.20) in 12M. See page 4 for details.
• We have kept our EUR/SEK forecast unchanged from 3 December where we raised our targets for EUR/SEK to
9.40 in 1M (from 9.20), 9.30 in 3M (9.10), 9.20 in 6M (9.00) and 9.00 in 12M (8.90) in the light of a weaker
outlook for the Swedish economy. See Scandi Strategy 2015: Converging growth, low for longer and carry (3
December) for details. EUR/SEK has edged higher in recent weeks towards our 1M target at 9.40 and we expect
the cross to trade around the 9.40 level in the coming months. Fundamental macro arguments unambiguously
suggest the SEK is undervalued, which in turn serves as an anchor for our medium- to long-term forecasts on
EUR/SEK. See page 5 for details.
• Recent months have confirmed our expectation of a continued uptrend in USD/JPY – albeit the recent risk-off
sentiment and year-end profit taking in the USD has temporarily slowed the move higher. We still expect relative
monetary policy and portfolio flows to be important drivers in 2015 and as a result we lift our USD/JPY profile.
We target the cross at 120 (previously 118) in 1M, 122 (120) in 3M, 124 (122) in 6M and 126 (124) in 12M.
• We are ‘rolling’ our 1M EUR/USD forecast to 1.23 from 1.24, keeping our 3M, 6M and 12M forecasts
unchanged. ECB easing in Q1 will weigh on EUR/USD near term.
www.danskebank.com/CI
2
Main forecast changes part II
• We revise our USD/RUB forecast substantially higher due to the weak oil price outlook and the challenging
situation in the Russian economy. Tightening monetary policy, capital outflows and western sanctions are keeping
fixed investment growth in negative territory, which will send the economy into a deep recession in 2015. We
expect accelerating inflation to hit double-digit levels in Q1 15, weighing further on the rouble's nominal exchange
rate. However, major external shocks will be mitigated due to the free floating rouble. We now target USD/RUB at
72 (previously 48) in 1M, 75 (49) in 3M, 78 (51) in 6M and 80 (51) in 12M.
• Last week, we modified our AUD/USD forecast, as we now believe that the Reserve Bank of Australia (RBA) will
make a single rate cut in Q1 15. The five main reasons for this are disappointing growth figures, low inflation, high
unemployment, macro prudential policy alerts and recent dovish RBA comments (for more information see
AUD/USD Forecast Update: RBA to cut the interest rate in Q1 15, 11 December). Specifically, we expect the RBA
to cut in March and governor Glenn Stevens to communicate an explicit easing bias at the RBA’s next meeting in
February. What is more, we still expect US growth outperformance, relative monetary policy and the USD’s role
as an asset currency to pull AUD/USD lower. In light of the above, we revised our targets and expect AUD/USD to
trade at 0.82 (previously 0.86) in 1M, 0.81 (0.85) in 3M, 0.80 (0.84) in 6M and 0.79 (0.83) in 12M.
• In the short term, we expect moderate depreciation pressure on the CNY on the back of both a stronger easing
bias in monetary policy and less favourable seasonal inflows from the trade balance. We have revised our onemonth and three-month forecasts for USD/CNY higher to 6.20 (previously 6.13) and 6.18 (6.15) respectively. In
the medium term, we expect the CNY to remain on a moderate appreciation path supported by an increasing
trade balance surplus and we target 6.02 for USD/CNY on a 12-month horizon.
www.danskebank.com/CI
3
EUR/NOK – It’s all about oil
• Growth. Norwegian growth has been mixed, with the sharp fall
in oil-related investments and activity counteracted by solid
performances in the housing market, domestic demand and
labour markets. Norges Bank forecasts mainland GDP of 1.5%
in 2015; we forecast 1.75%. However, there are significant
downside risks to both Norges Bank’s and our growth
forecasts. Norwegian growth is a negative for the NOK over
the coming three months.
• Monetary policy. Norges Bank cut interest rates by 25bp in
December and the market is likely to price in 50bp of
additional rate cuts near term. The market is currently pricing
in around 40bp of rate cuts from Norges Bank over the coming
12 months. We expect the ECB to enact sovereign QE in Q1
15. Relative monetary policy is mixed for the NOK versus the
EUR in 2015.
• Flows. Looking at the cumulative purchases for the past four
weeks, foreign banks have sold almost NOK14bn. This
suggests that positioning has reached stretched levels
and that EUR/NOK is vulnerable to the downside should
fundamentals improve.
• Valuation. Our PPP models put EUR/NOK at 8.17, suggesting
that the NOK is cheap.
• Risks. The risk is that oil prices continue to fall and that
Norway is hit by a substantial slowdown.
Thomas Harr, Chief Analyst, [email protected], +45 45 13 67 31
Forecast: 9.25 (1M), 9.40 (3M), 9.00 (6M), 8.50 (12M)
10.50
10.25
10.00
9.75
9.50
9.25
9.00
8.75
8.50
8.25
8.00
Dec-13
EUR/NOK
Mar-14
75% conf. int.
EUR/NOK
Jul-14
50% conf.int.
Oct-14
Jan-15
Forward
k
Apr-15
Aug-15
Danske fcst
Nov-15
Consensus fcst
1M
3M
6M
12M
Forecast (pct'ile)
9.25 (59%)
9.40 (69%)
9.00 (38%)
8.50 (17%)
Fwd. / Consensus
9.21 / 8.41
9.23 / 8.48
9.26 / 8.42
9.30 / 8.22
50% confidence int.
8.97 / 9.40
8.89 / 9.49
8.78 / 9.62
8.68 / 9.74
75% confidence int.
8.84 / 9.60
8.71 / 9.77
8.53 / 10.00
8.32 / 10.25
Source: Danske Bank Markets
Conclusion. We are lifting our EUR/NOK forecasts as oil
prices have collapsed and Norges Bank has cut interest
rates, which we did not expect. There is a significant risk of
the oil price undershooting, which would weigh on the NOK. In
addition, the market is likely to price in two additional cuts
from Norges Bank in coming months while ECB sovereign QE
in Q1 will mitigate NOK losses. Medium term, we continue to
see significant value in the NOK due to strong internal and
external balances and valuation. To sum up, we lift our
EUR/NOK forecasts to 9.25 (from 8.80) in 1M, 9.40 (8.70) in
3M, 9.00 in 6M (8.50) and 8.50 (8.20) in 12M.
www.danskebank.com/CI
4
EUR/SEK – the SEK expected to stay weak near term
• Growth. We have a more downbeat view on Swedish growth
for 2015 than consensus. Weak foreign demand continues to
be a headwind. In addition, we expect private consumption to
take a hit from new mandatory amortisation rules coming into
effect next year. This said, we still expect Sweden to
outperform euroland in terms of growth.
Forecast: 9.40 (1M), 9.30 (3M), 9.20 (6M), 9.00 (12M)
10.25
10.00
9.75
9.50
9.25
• Monetary policy. The Riksbank has reached the ZLB, meaning
9.00
rates are basically flat versus the ECB. The Riksbank will
probably need to delay future repo rate hikes further. If this is
not enough, it will have to dig deeper into the unconventional
toolbox; negative rates and QE are options, while currency floors
and direct FX measures are not in the pipeline. The ECB is likely
to do QE in Q1, which could send EUR/SEK lower.
8.75
• Flows. PPM payments (SEK36bn, of which a third is estimated
to affect the SEK) was due on 15 December. The SEK tends to
weaken ahead of, and appreciate after, the PPM date.
• Valuation. Fundamental macro arguments unambiguously
•
suggest the SEK is undervalued, which in turn serves as an
anchor for our medium- to long-term forecasts on EUR/SEK.
Risks. The SEK is sensitive to Riksbank/ECB measures and
spillover effects from the NOK. A sharp downturn in the Swedish
housing market is a more fundamental risk. The messy political
situation could affect foreign attitudes to Sweden, although, in
our view, significant financial ramifications are not warranted.
Stefan Mellin, Senior Analyst, [email protected], +46 8 568 805 92
EUR/SEK
8.50
Dec-13
Mar-14
75% conf. int.
EUR/SEK
Jul-14
50% conf.int.
Oct-14
Jan-15
Forward
k
Apr-15
Danske fcst
Aug-15
Nov-15
Consensus fcst
1M
3M
6M
12M
Forecast (pct'ile)
9.40 (53%)
9.30 (40%)
9.20 (35%)
9.00 (27%)
Fwd. / Consensus
9.40 / 9.24
9.41 / 9.21
9.41 / 9.16
9.42 / 9.02
50% confidence int.
9.24 / 9.54
9.17 / 9.60
9.08 / 9.67
8.97 / 9.76
75% confidence int.
9.14 / 9.67
9.03 / 9.79
8.88 / 9.94
8.69 / 10.14
Source: Danske Bank Markets
Conclusion. EUR/SEK has edged higher in recent weeks
towards our 1M target at 9.40. Basically, it is a natural
response to weaker growth signals given the procyclicality of
the SEK and year-end flows (PPM). Forecasters in general
may be too optimistic on Swedish growth, a potential
headwind for the SEK going into next year. The trend rise in
EUR/SEK also reflects relatively expansionary policy on behalf
of the Riksbank over the past year. However, short rates are
now at the same low level. The ECB and Riksbank may
elaborate further with unconventional measures next year but
from a relative stance the ECB is likely to be more aggressive
going forward.
www.danskebank.com/CI
5
Danske Bank Markets FX forecasts vs EUR and USD
+1m
Forecast
+3m
+6m
+12m
Forecast vs forward outright, %
+1m
+3m
+6m
+12m
1.23
148
0.79
1.205
1.22
149
0.77
1.210
1.20
149
0.76
1.220
1.23
155
0.79
1.240
-1.7
1.4
-1.1
0.4
-2.5
2.3
-3.7
0.8
-4.2
2.3
-5.1
1.7
-2.1
6.6
-1.7
3.5
7.4425
9.25
9.40
7.4425
9.40
9.30
7.4390
9.00
9.20
7.4390
8.50
9.00
0.0
-1.8
-1.1
0.1
-0.4
-2.2
0.0
-4.9
-3.3
0.0
-10.6
-5.4
Exchange rates vs USD
JPY
116.4
GBP
1.57
CHF
0.96
120
1.56
0.98
122
1.58
0.99
124
1.58
1.02
126
1.56
1.01
3.1
-0.6
2.1
4.9
1.2
3.4
6.7
1.0
6.2
8.9
-0.4
5.7
DKK
NOK
SEK
5.95
7.52
7.60
6.05
7.52
7.64
6.10
7.70
7.62
6.20
7.50
7.67
6.05
6.91
7.32
1.8
-0.1
0.6
2.6
2.2
0.4
4.4
-0.7
1.0
2.2
-8.7
-3.4
CAD
AUD
NZD
1.17
0.82
0.78
1.14
0.82
0.78
1.14
0.81
0.75
1.14
0.80
0.74
1.13
0.79
0.73
-2.2
-0.3
0.9
-2.4
-1.1
-2.5
-2.6
-1.8
-2.9
-3.8
-1.9
-2.6
7.2
-0.4
7.7
-1.3
6.7
-2.8
2.2
-5.3
Spot
Exchange rates vs EUR
USD
1.251
JPY
145.6
GBP
0.799
CHF
1.201
DKK
NOK
SEK
7.4396
9.41
9.50
RUB
65.91
72.00
75.00
78.00
80.00
CNY
6.19
6.20
6.18
6.12
6.02
Note: GBP, AUD and NZD are denominated in local currency rather than USD
Source: Danske Bank Markets
www.danskebank.com/CI
6
Danske Bank Markets FX forecasts vs DKK
Spot
+1m
Exchange rates vs DKK
EUR
7.4398
7.4425
USD
5.97
6.05
JPY
5.09
5.04
GBP
9.36
9.42
CHF
6.19
6.18
Forecast
+3m
+6m
+12m
Forecast vs forward outright, %
+1m
+3m
+6m
+12m
7.4425
6.10
5.00
9.67
6.15
7.4390
6.20
5.00
9.79
6.10
7.4390
6.05
4.80
9.42
6.00
0.0
1.3
-1.0
0.7
-0.3
0.0
2.2
-1.8
3.4
-0.7
0.0
3.9
-1.9
4.9
-1.6
0.0
1.8
-5.8
1.4
-3.3
NOK
SEK
0.80
0.78
0.80
0.79
0.79
0.80
0.83
0.81
0.88
0.83
0.5
1.1
-0.8
2.3
3.8
3.4
10.4
5.8
CAD
AUD
NZD
5.13
4.92
4.63
5.31
4.96
4.72
5.35
4.94
4.58
5.44
4.96
4.59
5.35
4.78
4.42
3.5
1.2
2.4
4.5
1.3
-0.2
6.5
2.4
1.1
5.6
0.0
-0.8
PLN
CZK
HUF
RUB
1.78
0.27
0.24
0.10
1.78
0.27
0.24
0.08
1.79
0.27
0.24
0.08
1.79
0.27
0.24
0.08
1.77
0.27
0.24
0.08
0.6
-1.6
0.4
-13.9
1.4
-1.5
-0.1
-14.2
1.7
-1.7
0.2
-12.2
1.4
-1.7
1.0
-11.5
CNY
0.96
0.98
0.99
1.01
1.00
1.8
3.6
7.1
7.6
Source: Danske Bank Markets
www.danskebank.com/CI
7
Danske Bank Markets FX forecasts vs SEK
Spot
Exchange rates vs SEK
EUR
9.50
USD
7.63
JPY
6.50
GBP
11.95
CHF
7.91
+1m
Forecast
+3m
+6m
+12m
Forecast vs forward outright, %
+1m
+3m
+6m
+12m
9.40
7.64
6.37
11.90
7.80
9.30
7.62
6.25
12.08
7.69
9.20
7.67
6.18
12.11
7.54
9.00
7.32
5.81
11.39
7.26
-1.1
0.2
-2.1
-0.4
-1.4
-2.2
-0.1
-4.0
1.2
-2.9
-3.2
0.6
-5.0
1.5
-4.8
-5.4
-3.8
-11.0
-4.2
-8.6
NOK
DKK
1.02
1.28
1.02
1.26
0.99
1.25
1.02
1.24
1.06
1.21
-0.6
-1.1
-3.0
-2.2
0.4
-3.3
4.4
-5.5
CAD
AUD
NZD
6.56
6.28
5.91
6.70
6.27
5.96
6.69
6.17
5.72
6.73
6.13
5.67
6.48
5.78
5.34
2.3
0.1
1.2
2.2
-1.0
-2.4
3.1
-1.0
-2.2
-0.2
-5.5
-6.2
PLN
CZK
HUF
RUB
2.27
0.34
0.31
0.13
2.25
0.34
0.31
0.11
2.24
0.33
0.30
0.10
2.22
0.33
0.30
0.10
2.14
0.32
0.29
0.09
-0.5
-2.7
-0.8
-14.9
-0.9
-3.7
-2.3
-16.1
-1.6
-4.8
-3.0
-15.0
-4.2
-7.1
-4.5
-16.4
CNY
1.23
1.23
1.23
1.25
1.22
0.7
1.3
3.6
1.7
Source: Danske Bank Markets
www.danskebank.com/CI
8
Danske Bank Markets FX forecasts vs NOK
Spot
Exchange rates vs NOK
EUR
9.28
USD
7.46
JPY
6.35
GBP
11.68
CHF
7.73
+1m
Forecast
+3m
+6m
+12m
Forecast vs forward outright, %
+1m
+3m
+6m
+12m
9.25
7.52
6.27
11.71
7.68
9.40
7.70
6.32
12.21
7.77
9.00
7.50
6.05
11.84
7.38
8.50
6.91
5.48
10.76
6.85
-0.5
0.8
-1.5
0.2
-0.8
0.9
3.1
-1.0
4.3
0.1
-3.6
0.1
-5.4
1.1
-5.2
-9.4
-7.9
-14.7
-8.2
-12.5
SEK
DKK
0.98
1.25
0.98
1.24
1.01
1.26
0.98
1.21
0.94
1.14
0.6
-0.5
3.1
0.9
-0.4
-3.7
-4.2
-9.5
CAD
AUD
NZD
6.41
6.13
5.77
6.60
6.17
5.87
6.76
6.24
5.78
6.58
6.00
5.55
6.12
5.46
5.04
2.9
0.7
1.8
5.4
2.1
0.7
2.6
-1.4
-2.6
-4.4
-9.5
-10.1
PLN
CZK
HUF
RUB
2.22
0.34
0.30
0.12
2.22
0.33
0.30
0.10
2.27
0.34
0.30
0.10
2.17
0.32
0.29
0.10
2.02
0.30
0.27
0.09
0.1
-2.1
-0.2
-14.4
2.2
-0.7
0.8
-13.4
-2.0
-5.2
-3.4
-15.4
-8.2
-11.0
-8.6
-19.9
CNY
1.20
1.21
1.25
1.23
1.15
1.3
4.5
3.2
-2.6
Source: Danske Bank Markets
www.danskebank.com/CI
9
Danske Bank EMEA FX forecasts
PLN
HUF
CZK
RUB
TRY
ZAR
16-Dec-14
+1M
+3M
+6M
+12M
16-Dec-14
+1M
+3M
+6M
+12M
16-Dec-14
+1M
+3M
+6M
+12M
16-Dec-14
+1M
+3M
+6M
+12M
16-Dec-14
+1M
+3M
+6M
+12M
16-Dec-14
+1M
+3M
+6M
Danske
4.19
4.17
4.15
4.15
4.20
309
308
310
310
310
27.6
28.0
28.0
28.0
28.0
75.0
88.6
91.5
93.6
98.4
2.93
2.79
2.80
2.78
2.95
14.6
14.3
14.2
14.2
+12M
14.9
EUR
Forward
14.7
14.8
15.1
Danske
3.36
3.39
3.40
3.46
3.41
248
250
254
258
252
22.1
22.8
23.0
23.3
22.8
64.9
72.0
75.0
78.0
80.0
2.35
2.27
2.30
2.32
2.40
11.7
11.63
11.60
11.80
15.6
12.15
4.19
4.20
4.22
4.25
309
310
311
313
27.6
27.6
27.5
27.5
76.2
78.5
82.2
87.0
2.96
3.00
3.06
3.20
USD
Forward
11.8
11.9
12.1
Danske
178
178
179
179
177
24.1
24.2
24.0
24.0
24.0
27.0
26.6
26.6
26.6
26.6
9.8
8.4
8.1
7.9
7.6
254
267
266
268
252
51.0
52.0
52.6
52.5
12.5
49.8
3.37
3.37
3.39
3.40
248
249
249
250
22.1
22.1
22.1
22.0
65.6
67.6
70.6
75.0
2.37
2.40
2.45
2.56
DKK
Forward
50.7
50.2
49.4
Danske
227
225
224
222
214
3.08
3.05
3.00
2.97
2.90
34.5
33.6
33.2
32.9
32.1
12.7
10.6
10.2
9.8
9.1
324
337
332
331
305
65.1
65.7
65.7
65.0
47.7
60.2
177
177
176
175
24.1
24.0
23.9
23.8
27.0
27.0
27.0
27.0
9.8
9.5
9.1
8.5
252
248
243
232
SEK
Forward
64.8
64.1
63.1
Danske
222
222
227
217
202
3.01
3.00
3.03
2.90
2.74
33.7
33.0
33.6
32.1
30.4
12.4
10.4
10.3
9.6
8.6
317
332
336
324
288
63.7
64.7
66.4
63.6
61.0
56.9
227
226
225
224
3.08
3.07
3.06
3.04
34.5
34.5
34.5
34.6
12.5
12.1
11.6
10.9
321
317
311
298
NOK
Forward
222
222
221
221
3.01
3.01
3.01
3.00
33.7
33.8
33.9
34.1
12.2
11.9
11.4
10.8
314
311
305
293
63.4
62.8
62.0
60.2
Source: Danske Bank Markets
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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 Thomas Harr (Chief Analyst),
Stefan Mellin (Senior Analyst), Stanislava Pravdová-Nielsen (Analyst), Morten Helt (Senior Analyst), Jens Naervig Pedersen (Analyst), Lars Christensen (Chief Analyst), Kristoffer
Lomholt (Analyst) and Vladimir Miklashevsky (Analyst).
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