Currency
OUTLOOK
Macro
Currency Strategy
December 2014
2014 in review
2014 will be remembered as the year when USD strength became the
dominant theme in the FX market. The expected divergence in monetary
policy was at the heart of FX developments in G10 FX, with the Fed
ending QE ahead of likely interest rate hikes in 2015. By contrast, the
ECB and BoJ expanded their monetary easing in an effort to stave off
deflation, a threat which became more widespread as oil prices fell. The
USD’s surge expanded in scale and breath, encompassing EM FX,
especially those currencies vulnerable to the slide in commodity prices.
Disclosures and Disclaimer This report must be read with the disclosures and analyst
certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
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Macro
Currency Strategy
December 2014
Summary
2014 in review
(pg 3)
2014 will be remembered as the year when USD strength became the dominant theme in the FX market.
The expected divergence in monetary policy was at the heart of FX developments in G10 FX, with the
Fed ending QE ahead of likely interest rate hikes in 2015. By contrast, the ECB and BoJ expanded their
monetary easing in an effort to stave off deflation, a threat which became more widespread as oil prices
fell. The USD’s surge expanded in scale and breath, encompassing EM FX, especially those currencies
vulnerable to the slide in commodity prices.
Dollar Bloc
(pg 20)
CAD: still on the ropes: The CAD remains on the defensive, pressured by continued USD strength and
the sharp decline in oil prices. The latest Bank of Canada statement was modestly more upbeat on
Canadian growth, but cautious on the global growth outlook and the effects of lower oil prices. We expect
the firmer bias in USD-CAD to persist.
AUD: further falls in 2015: The AUD has been suffering at the hands of the stronger USD. As of 15
December, the AUD has fallen 7.9% against the USD year to date, but we believe there is more to come.
We have revised our AUD-USD forecast to 0.78 by year end 2015.
NZD: caught on the horns of the USD bull run: Compared to other G10 currencies, the NZD has
performed relatively well – ‘only’ falling 5.5% against the USD in 2014. In our revised forecasts, we see
NZD-USD at 0.73 by December 2015. This reflects the strong-USD view that we have, as opposed to a
weakening NZD.
1
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Macro
Currency Strategy
December 2014
Key events
Date
Event
17 December
17 December
19 December
24 December
FOMC rate announcement
BoE releases minutes of December meeting
BoJ rate announcement
BoJ releases minutes of November meeting
Source: HSBC
Central Bank policy rate forecasts
USD
EUR
JPY
GBP
Last
Q1 2015(f)
Q3 2015(f)
0-0.25
0.05
0-0.10
0.50
0-0.25
0.05
0-0.10
0.50
0.25-0.50
0.05
0-0.10
0.50
Source: HSBC forecasts for Fed funds, Refi rate, Overnight Call rate and Base rate
Consensus forecasts for key currencies vs USD
EUR
JPY
GBP
CAD
AUD
NZD
Source: Consensus Economics Foreign Exchange Forecasts November 2014
2
3 months
12 months
1.238
112.3
1.604
1.131
0.860
0.769
1.204
115.1
1.578
1.143
0.835
0.734
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Macro
Currency Strategy
December 2014
2014 in review
“Study the past if you would define the future”
Confucius
Deflation the worry
Falling inflation and inflation expectations have
been the most notable worries of 2014. In
developed nations such as the UK and Eurozone,
inflation has remained subdued with both Sweden
and the Eurozone fighting deflation. In the UK
CPI is at the bottom end of the Bank of England
target band.
The same can be seen in many parts of EM,
illustrated by prints out of India and China
coming in below market expectations. India has
seen WPI fall from 6.4% at the start of the year to
a 0.0% print in December. China has seen a less
pronounced but still significant drop as CPI fell
from 2.5% to 1.4%.
Chart 1 illustrates the breadth of the problem.
Both these CPI surprise indices have been rebased
so January 2014 = 100. As is shown, the CPI data
1. CPI has consistently come below expectations in 2014
Jan 14 = 100
101
G7
out of the G7 and Asia has been consistently
below expectations throughout 2014, with the rate
of decline accelerating in the latter part of the
year in Asia.
Unemployment has also continued to fall with the
rates in the UK and US dropping much faster than
the respective central banks had anticipated. What
is puzzling however is the weakness of wage
growth. Whilst unemployment has been falling
back towards its pre-crisis levels, wage growth
has remained very subdued, indicating an increase
in lower paid part-time jobs.
The year of the central bank
2014 has been the year of the central bank. The
market has been closely following the
announcements of every major central bank for any
hints as to when the rate rises will occur
2. The RUB has seen a sharp decline in 2014
Pan Asia inc. China
Jan 14 = 100
101
77.0
USD-RUB
77.0
72.0
72.0
99
67.0
67.0
97
62.0
62.0
95
95
57.0
57.0
93
93
52.0
52.0
91
91
47.0
47.0
42.0
42.0
89
89
37.0
37.0
87
Jan-14 Mar-14 May-14
87
32.0
Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14
32.0
99
97
Source: Bloomberg, HSBC
Jul-14
Sep-14 Nov-14
Source: Bloomberg, HSBC
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Macro
Currency Strategy
December 2014
3. There has been broad USD strength in 2014
FX performance against the USD so far in 2014, % change
0
0
-8
-16
-16
-24
-24
-32
-32
-40
-40
-48
-48
-56
-56
THB
PHP
VND
CNY
KRW
SGD
INR
TWD
GBP
NZD
IDR
PEN
MYR
CHF
AUD
CAD
EUR
JPY
TRY
CZK
ZAR
PLN
ILS
MXN
BRL
HUF
CLP
SEK
COP
NOK
ARS
RUB
-8
Source: Bloomberg, HSBC
(in the case of the Federal Reserve and Bank of
England) or further easing measures (in the
Eurozone and Japan). The Fed has finished tapering
and is getting ready for rate hikes next year. The
Bank of England has continued to keep rates at
historically low levels but, for the first time under
Governor Carney, we have seen dissenters in the
MPC, as Weale and McCafferty first voted for a
rate hike back in August. Both the ECB and the
Bank of Japan have gone the other way with the
announcement of further easing measures.
USD the currency of choice for 2014
The USD was the currency of choice for 2014
(chart 3), though this bull-run did not start until
later in the year. It started in July but didn’t gather
momentum until September when US data
continued to come in better than expected whilst
the UK and Eurozone saw weaker than expected
data with retreating rate hike expectations.
Additional BoJ easing in October continued the
dollar strength. Tapering continued through 2014,
with QE ending in October. The market is now
listening for any clues as to when the first rate
hike will occur.
4
Draghi the magician
Draghi worked his magic in 2014, leading the EUR
lower without announcing the implementation of
many additional measures. As the Fed ended
tapering in October, the market is preparing for
further ECB easing measures after the TLTRO
program was announced in June and the
announcement of ABS purchases (which started in
October). The size of the easing programme talked
about is minimal compared to the scale of the US
operation, with the ECB wanting to expand their
balance sheet back to their 2012 levels. However,
this has seen the EUR fall from 1.40 to its current
level of around 1.25 against the USD as Draghi
prepares the market early for future announcements
of additional easing.
Japan: BoJ tries again
The surprise announcement that the BoJ would
increase the level of quantitative easing caught
markets by surprise at the end of October, with
many expecting this further easing to be
announced sometime early 2015. This
announcement means that the BoJ will now
purchase JPY80trn of JGBs annually, which is
roughly JPY30trn more than in the past.
Macro
Currency Strategy
December 2014
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The currency continued to slide after the BoJ
announcement as Prime Minister Abe called a
snap election for December and planned to delay
the additional sales tax hike by 18 months. Abe
won these elections on 14 December with 291 out
of 475 seats.
Geopolitics has played its part
Geopolitics has played its part in 2014,
particularly in Eastern Europe. The ongoing
tension between Russia and Ukraine has been
accompanied by substantial RUB weakness (see
Chart 2). This tension started back in January and
has intensified. The Ukrainian president
Yanukovich was ousted in February and the US
implemented sanctions on Russia in July,
following the shooting down of Malaysian
Airlines plane MH17. In an attempt to control the
currency and inflation, the CBR has raised the key
rate from 5.50% at the start of the year to 17.00%
where it currently stands after a 650bp hike on
15 December in an unscheduled meeting
Oil plummets as gold remains
resilient
Oil saw a sharp sell-off in the second half of 2014.
After trading above $100bbl until the start of
September, Brent crude oil fell sharply to below
$70bbl, with a dramatic decline after OPEC
announced they would not be cutting supply. It
continued to grind lower through December and
through $60bbl.
Gold on the other hand has remained relatively
range-bound in 2014, trading between 1144 and
1337. The gold referendum in Switzerland caught
the attention of the gold market but ultimately it
continued its H2 2014 trend downwards.
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Macro
Currency Strategy
December 2014
January
Argentina: Large fall in ARS
EM starts on the back foot
January 10
US nonfarm payrolls much weaker
than expected (74K vs exp 197K)
January 14
US congress reaches an agreement
on the budget for 2014 fiscal year
January 23
The ARS falls 15% after the
central bank withdraws its offers
for 2 days
January 24
EM FX sees a sharp decline versus
the USD triggered by the sharp
decline in ARS
January 27
China Credit Trust avoids a default
by selling the trust product to third
party
January 28
Turkey: the CBRT holds an
extraordinary meeting and hikes
rates sharply
6
On 24 January, the ARS depreciated around 15%
after the central bank withdrew its offers from the
market. The central bank allowed the spot
USD-ARS rate to climb as high as 8.25 before
stepping in with USD offers around the 8.00 level.
The central bank continued to seek a balance
between preserving its dwindling FX reserves,
allowing the currency to be competitive, but while
preventing capital flight and causing an exacerbation
of already-high inflation via pass-through effects.
EM: contagion returns
The first country from the ‘fragile five’ group to
take action was India. The RBI surprised the
market with a 25bps hike on 28 January which
saw an immediate reversal in the upward trend of
USD-INR. In Turkey, the CBRT held its
extraordinary meeting on late 28 January with the
TRY having reached an all-time weak point of
just below 2.39 the day before. The central bank
sharply raised its interest rate corridor, the one
week repo rate was hiked by 550bps and the
overnight borrowing rate by 450bps. Despite
USD-TRY falling 4% following the
announcement, the TRY reversed all the gains.
China: trust issues
China came under increased scrutiny in January as
news on a potential high-profile default of China
Credit Trust (CCT), one of the country’s biggest
“shadow banks”, emerged. Chinese state media
reported that the CCT Co. would not repay
investors of the “Credit Equals Gold No.1” trust
product distributed by the Industrial and
Commercial Bank of China (ICBC). A possible
default on the RMB 3bn product created huge
uncertainty around the widespread assumption
that these wealth management products carry an
implicit guarantee from state banks and the
government. The last-minute resolution came on
27 January as the CCT reached an agreement with
a third party to sell the product.
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Macro
Currency Strategy
December 2014
February
China: sharp depreciation in RMB
RMB halts its appreciation
February 06 ECB: waiting for more clarity on
the direction of the economy
February 11 US House vote to suspend the debt
ceiling until 15 March 2015
February 16 Japan Q4 GDP lower than
expected (0.3% vs exp 0.7%)
February 18 BoJ extends its loan support
programme
Violent clashes erupt in Kiev with
at least 13 people killed
February 20 China HSBC flash PMI drops to
7-month low of 48.3 (vs exp 49.5)
February 21
Ukrainian Parliament votes 328:0
for impeaching president
Yanukovych
February 28 USD-CNY soars, breaking through
6.18
The second half of February saw a sharp
depreciation in both offshore and onshore RMB.
The move started on 19 February, after a two-day
PBoC conference, triggered by a launch of
forward repurchase operations by the PBoC in
their continued attempt to withdraw excess
liquidity. It was the onshore CNY spot, instead of
the offshore CNH, that was leading the sell-off
towards the end of the month. On 27 February,
news appeared that China’s foreign exchange
regulator launched an investigation into the
onshore participants’ RMB positions. This
triggered another extensive RMB sell-off with
USD-CNY breaking above 6.18.
Japan: less risk-off – lower JPY
The first setback for the currency came on 16
February as data showed that Japan’s GDP grew
on 0.3% in Q3 2013 (vs exp 0.7%). A further
setback came at the BoJ meeting two days later
where they decided to keep asset purchases
unchanged (as was widely expected) but also
decided to extend the loan support programme;
the latter seen as a dovish move.
Ukraine: rising default and devaluation risks
The crisis in Ukraine entered a new phase in
February. On 18 February, tensions between
protestors and police escalated in Kiev which led
to days of violent clashes with at least 82 people
killed. Following the repeated threats from
protesters and the opposition, the parliament voted
to oust President Yanukovich. The bad news
continued on 21 February with S&P downgrading
Ukraine’s debt to CCC, eight notches below
investment grade.
US: debt ceiling ‘solution’ finally reached
On 11 February, the House voted to suspend the
Treasury’s debt ceiling until 15 March 2015,
extending it beyond the midterm elections in
November.
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Macro
Currency Strategy
December 2014
March
US: hawks flying high
Hawkish FOMC fuels USD buying
March 03
Russia Central Bank raises rates
by 150 bp
March 06
ECB: no impression that a nearterm easing is on the cards
BoE: five year anniversary of the
start of QE and 0.5% rates
The hawkish FOMC meeting on 19 March
dropped the reference to the unemployment rate
as a determinant of rate moves, instead
emphasising labour market conditions, inflation
and readings on financial developments. The
hawkish sentiment came with an upward shift of
the Fed funds rate projections for both 2015 and
2016 and Yellen signalling that the gap between
the end of QE tapering and first interest rate hike
could be ‘around six months’.
Eurozone: EUR strength becoming a worry
March 12
The RBNZ raises cash rate by
25bp to 2.75%
In a speech in Vienna, Draghi said that the EUR
exchange rate was ‘becoming increasingly
relevant in our assessment of price stability’.
UK: restructuring in the BoE
March 16
Crimea Referendum: 97% vote in
favour of joining Russia
March 19
FOMC: rates could rise as soon as
6 months after the end of QE
March 25
S&P downgrades Brazil to BBB-,
outlook stable
The market’s attention was focused on
restructuring in the BoE on 18 March. Ben
Broadbent and Nemat Shafik were appointed
Deputy Governors for Monetary Policy and
Banking and Markets respectively. The big
surprise came with the announcement that there
would a job swap between Spencer Dale and
Andy Haldane, as it was thought that the loss of
Mr Dale, a known hawk, could change the
dynamics of the MPC.
TRY: elections TRY-positive
March 30
8
Turkey election: the ruling AKP is
a winner
Municipal elections on 30 March were the focus
of March in Turkey, testing the popularity of PM
Erdogan and his ruling AKP party after months of
scandals. The ruling AKP party won and this was
seen a positive outcome by the market. This was
attributable to the expectations of greater political
stability and the continuation of the current
economic and fiscal policies, as well as a greater
likelihood that the AKP would be able to form
another single-party government in 2015.
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Macro
Currency Strategy
December 2014
April
Eurozone: vocal ECB doesn’t stop the EUR
EUR carries on up
April 03
ECB: discussed unconventional
measures, but didn’t opt for any
April 09
FOMC minutes: earlier hawkish
Yellen comments downplayed
April 12
Draghi: strength of the euro ‘requires
further monetary stimulus’
April 16
Yellen: rates to remain low until the
recovery is on a more secure footing
April 23
China HSBC Flash PMI
manufacturing stabilises at low
of 48.3
The EUR again captured the attention of the ECB
in April with Draghi mentioning in a speech in
Washington that the strengthening of the euro
‘requires further monetary stimulus’. At the ECB
meeting, the opening statement made it clear that
the governing council had considered using
unconventional measures, including QE and is
committed to implementing them if risks of a too
prolonged period of low inflation persist.
Japan: sales tax hike implemented
With the increase in the sales tax introduced from
1 April creating concerns over the performance of
the domestic economy, the JPY only marginally
capitalized on the back of broader USD weakness.
Japan finance minister Aso said that so far the
effect of the tax hike was softer than expected.
However, the Nikkei newspaper disagreed,
highlighting that a few companies reported a
sharp decrease in demand and also that the side
effects of labour shortages are starting to be felt.
IMF World Bank Spring meeting
April 25
S&P downgrade Russia to BBB/Negative outlook
Central Bank of Russia
unexpectedly raises rates by 50bps
to 7.5%
April 28
US drugs giant Pfizer confirms bid
interest in UK’s AstraZeneca
At the IMF-World Bank Spring meeting on
11-13 April, there was much talk of conflict over
the US QE tapering effect on developing markets.
In the statement, the finance ministers called
scaling back of the asset purchases by the Fed
‘appropriate’, but also urged policymakers in the
US and other developed nations to pursue
‘coordinated actions to mitigate adverse spill over
effects of monetary policy, including through
effective communication’.
Russia: double surprise
S&P announced the downgrading of Russia’s
sovereign credit rating to BBB- and changed the
outlook to negative on 25 April. Large capital
outflows that undermine Russia's economic
growth prospects were the key trigger. The second
surprise came when the CBR hiked its policy rate
by another 50bp to 7.50% on concerns over
mounting inflation pressures.
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Macro
Currency Strategy
December 2014
May
Eurozone: on the defensive
Draghi signals further easing
May 02
US jobless rate falls to 6.3%, but
participation rate at 36-year low
May 06
RBNZ’s Wheeler: the NZD is
overvalued
May 08
ECB: the governing council is
‘comfortable with acting’ in June
May 16
Narendra Modi wins in the Indian
general election
May 19
ECB’s Mersch: probability of ECB
action in June rose
May 22
Turkish Central Bank unexpectedly
cuts the repo rate by 50bp
May 26
European elections: growing
support for more extreme parties
The EUR was on the back foot in May as the ECB
signalled likely action to ease policy further at
their June meeting. Draghi noted that the
governing council was ‘comfortable with acting
next time’, which saw the EUR down 0.7%
against the USD.
European Elections: anti-EU parties gain
The results of the European parliamentary elections
showed growing disillusionment with the traditional
pro-EU centrist parties and rising support for the
more extreme parties on the left and right which won
nearly 230 of the 751 seats. In particular, the
National Front took the largest share of the vote in
France, as did UKIP in the UK. Overall the results of
the elections were more-or-less in line with the final
polls. European People’s party (EPP) remained the
largest political group despite populist gains the
centre-right.
UK: housing market concerns grow
The momentum in growth and in particular the
rising pressures from the booming UK housing
market continued to fuel the debate for the first
rate hike. This saw GBP-USD reach its highest
level since August 2009 (just below 1.70). In
response to the booming housing market, Mark
Carney signalled that the BoE stands ready to take
targeted action to try to stop the housing market
from derailing the economic recovery.
India: election euphoria
Narendra Modi and the Bharatiya Janata Party
(BJP) won a decisive victory in the Indian general
election. The currency took this as a positive
outcome as USD-INR fell to its lowest level since
June 2013. From a macroeconomic perspective
the election outcome was also positive. The strong
mandate enabled the new government to be
formed relatively quickly and the mandate also
gave the government the political muscle to move
forward structural reforms.
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Macro
Currency Strategy
December 2014
June
Eurozone: the ECB acts
ECB acts but EUR doesn’t respond
June 05
ECB cuts deposit rate to -0.10%
and deliver further easing measures
June 10
ECB’s Mersch: prolonged low
inflation would require further easing
June 11
UK average weekly earnings
weaker than expected (0.7% vs exp
1.2% YoY
June 12
Carney: rate rise ‘could happen
sooner than the markets currently
expect’
June 18
FOMC: more dovish Yellen
emphasises rates to remain low
June 23
HSBC China Manufacturing PMI
higher than expected (50.8 vs
exp 49.7)
June 25
Large downward revision for Q1
US GDP (-2.9% vs exp -1.8%)
June 26
No immediate clamping down on
UK housing market by FPC
Inflation continued to remain weak in the
Eurozone and on 5 June, the ECB acted. They
delivered a broad package of further easing
measures, which included bringing the deposit
rate into the negative territory as well as lowering
other rates and announcing Targeted LTROs
(TLTROs). Despite the ECB delivering
everything that could feasibly have been asked of
them, the EUR remained resilient.
UK: hawkish BoE fuels GBP buying
Governor Carney surprised the market on 12 June
at the Mansion House Conference where he said
that rate rises ‘could happen sooner than markets
currently expect’. This saw GBP rally and break
above 1.70 against the USD. Furthermore, BoE’s
Haldane spoke on 18 June, commenting on rate
rises that ‘it is a close run thing, with the odds at
present slightly favouring the front foot’.
US: doves speak out
At the FOMC press conference on 18 June, Yellen
was decidedly dovish. The CPI data, which had
recently reached the Fed’s 2% target was
downplayed by chair as being ‘noise’. The
dovishness continued with Kocherlakota who
stated that the FOMC would only achieve its dual
mandate ‘if its actions are able to keep real
interest rates unusually low’.
New Zealand: another rate hike from the RBNZ
The RBNZ official cash rate announcement saw
them hike another 25bp to 3.25%. Despite this
being widely anticipated by the markets, the NZD
appreciated 0.6% against the USD. This price
action was attributed to the more hawkish
language. The RBNZ was still forecasting a cash
rate of 4.00% by the end of 2014, faster than the
market was expecting at the time.
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Macro
Currency Strategy
December 2014
July
Japan: less dovish BoJ
Weak wage growth puzzles the BoE
July 03
US nonfarm payrolls better than
expected (288K vs exp 215K)
Riksbank unexpectedly cut interest
rates 50bp (vs exp 25bp)
RBA’s Stevens jawbones
AUD lower
Poor data out of Japan started on the first day of the
month with the BoJ Tankan report. This showed a
large drop in manufacturing and non-manufacturing
sentiment. On the monetary policy front, the BoJ
announcement on the 15 July saw them provide no
additional stimulus with Governor Kuroda
suggesting that additional easing is not likely to
happen in the near-term and that the BoJ would
likely remain on hold for the remainder of 2014.
Russia: geopolitical tensions intensify
July 08
Fitch raises outlook for New
Zealand’s credit rating
July 15
UK CPI higher than expected
(1.9% vs exp 1.6% YoY)
Yellen Testimony – largely dovish
but upbeat about growth prospects
July 23
RBNZ hikes rates 25bp to 3.50%
but announce a pause
July 30
US Q2 GDP stronger than
expected (4.0%pa vs exp 3.0%pa)
Japan industrial production weaker
than expected (-3.3% vs exp 1.2% MoM)
Tensions between Russia and Ukraine intensified
on 17 July when Malaysian Airlines Flight 17 was
shot down near the Ukraine-Russia border. This
together with the US and EU sanctions
implemented on 29 July, weighed negatively on
the RUB.
UK: labour market disparity
The Bank of England continues to be puzzled by
the disparity between the faster than expected fall
in unemployment and average weekly earnings
coming in below expectations. This contrast has
led to the MPC seeing a greater level of
uncertainty about economic slack.
US: Yellen testimony: taming the bulls
At Chair Yellen’s testimony on 15 July, she
dampened the bullish trend of the USD, stating
‘we need to be careful to make sure that the
economy is on a solid trajectory before we
consider raising rates’.
Australia: RBA’s Stevens jawbones AUD lower
At the RBA meeting on 1 July, rates were left
unchanged at 2.50%. On the 3 July however,
Governor Glenn Stevens said that ‘investors are
underestimating the likelihood of a significant fall
in the Australian Dollar’. This attempt to jawbone
the currency lower saw the AUD fall 0.6% against
the USD on the day.
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Macro
Currency Strategy
December 2014
August
UK: Carney’s first dissenters
A summer lull
August 07
Australia unemployment higher
than expected
August 13
Large negative GDP growth for
Japan in Q2
August 19
Softer than expected UK inflation
figures
August 20
BoE minutes: 7-2 vote in favour of
keeping rates unchanged
August 22
Draghi hints toward QE at
Jackson Hole
August 25
FOMC minutes: consensus on the
sequence of tightening taking shape
August 28
US Q2 GDP revised up to 4.2%pa
(vs exp 3.9%)
August 29
Japan industrial production softer
than expected (0.2% vs exp 1.0%
MoM)
As was expected, the Bank of England kept its
base rate at 0.50%, but minutes released on
20 August revealed that two members of the MPC
(Weale and McCafferty) voted for interest rate
hikes – the first time this has happened since
Governor Carney joined the Bank.
Eurozone: Draghi hints at further easing
After the release of worse than expected GDP
numbers out of Germany and France, the worries
of the ECB were confirmed at the annual Jackson
Hole symposium. President Mario Draghi used a
modified speech in which he reinvigorated
expectations that the ECB would loosen monetary
policy further in the coming months.
Australia: unemployment keeps on rising
Australian unemployment continued its trend
upwards as it reached its highest level since 2002.
This was partially attributed to an increase in the
participation rate but markets still saw it as a
negative signal and AUD sold off 0.7% against
the USD.
US: broad USD strength.
August saw USD strength across the board as the
DXY rose 1.5%. Against the EUR and GBP, the
USD approached the 1.30 and 1.65 levels
respectively and against the JPY it pushed higher
towards 105. The release of the Fed minutes saw
the introduction of a more hawkish tone with
universal agreement that labour markets had
improved more than expected.
South Africa: recession narrowly avoided
Q2 GDP data out of South Africa showed that a
technical recession was only narrowly avoided.
The downward pressure on GDP was mainly
driven by the five month platinum miners’ strike.
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Macro
Currency Strategy
December 2014
September
Sterling slides as Scotland decides
September 02 Prime Minister Abe unveils a new
18-member cabinet in Japan
US: USD bull run gathers pace
The USD saw considerable strength through
September, appreciating against all G10
currencies, breaking through 1.30 against EUR
and 1.65 against GBP.
UK: Scotland stays
September 04 ECB cuts rates by 10bps and
announces forthcoming ABS
purchases
September 05 Nonfarm payrolls much lower than
expected (142K vs exp 230K)
September 08 YouGov poll shows “YES”
campaign in the lead in Scotland
September 13 China Industrial Production
surprises to the downside (6.9% vs
exp 8.8%)
September 17 US CPI falls to 1.7% YoY
(vs exp 1.9%)
September 19 Results of Scottish referendum vote
shows win for “NO” campaign
The month in the UK was dominated by the
Scottish referendum. A YouGov poll released on
2 September showed a large narrowing in the lead
for the “NO” campaign and further polls showed
this continued narrowing, with several giving the
lead to the “YES” campaign. GBP fell from 1.66
on 2 September to below 1.61 on 10 September in
the run up, with 1m implied volatility reaching its
highest level since November 2011. There was a
slight rally as results were announced which
showed a clear majority for the “NO” campaign
(55.3% vs 44.7%).
Eurozone: Inflation still the worry
In a surprise move, the ECB cut the refi rate from
0.15% to 0.05% and also lowered the corridor
around it by 10bps, taking the deposit rate down
to -0.20%. This marks a departure from
Mr Draghi’s comments at the June meeting when
he stated that “for all practical purposes” interest
rates had “reached the lower bound”. This move
was backed up with lower than expected inflation
data later in the month out of the Eurozone.
New Zealand: RBNZ intervenes
Governor Wheeler gave an unscheduled statement
on 25 November where he said “The bank would
September 29 RBNZ confirm the scale of its recent
interventions to weaken the NZD
welcome a move towards a more sustainable
exchange-rate level.” On 29 September, the
RBNZ confirmed the scale of its recent
September 30 Japan industrial production weaker
than expected (-1.5% vs exp +0.2%)
interventions to weaken the currency. They sold a
net NZ$521m in August – its first significant
move in the FX market since spring 2013, and its
biggest since 2011. This announcement saw the
NZD fall 0.9% against the USD.
14
abc
Macro
Currency Strategy
December 2014
October
Japan: BoJ’s surprise easing
BoJ open the taps further
October 01
BoJ Tankan Survey better than
expected
October 07
Germany IP much worse than
expected (-4.0% vs exp -1.5%)
The surprise announcement on 31 October that the
BoJ had expanded their asset purchase scheme
saw the JPY fall 2.8% against the USD
throughout the day. In order to achieve the more
aggressive pace of monetary base expansion, the
BoJ will be relying almost entirely on JGB
purchases and will now aim for JPY80trn in
annual net purchases– a JPY30trn increase.
Sweden: Riksbank surprises again
October 14
UK CPI falls to 1.2% YoY
October 15
China CPI lower than expected
(1.6% vs exp 1.7% YoY)
US 10y treasuries yield falls to
1.86% and there is a sharp USD
sell-off
October 22
US CPI rises to 0.1% MoM
(vs exp 0.0%)
October 28
Riksbank cut rates further than
expected to 0.00%
US Consumer Confidence at
highest level since 2007
After three years of missing their target, and
another below expectations inflation print, the
Riksbank decided to act aggressively on
28 October. This came after another surprise cut
in July. Their expectations of inflation were cut
dramatically, while the repo rate path was lowered
to remain at 0% until mid-2016.
US: FOMC dismisses the doves
In an interview on 16 October, St. Louis Fed
President James Bullard raised the possibility the
FOMC might delay ending its asset purchase
program. This however didn’t come to fruition as
the FOMC statement on 29 October gave a more
upbeat assessment of labour market conditions
and downplayed the effect on inflation of falling
energy prices.
Russia: RUB slides
The RUB carried on falling as the Bank of Russia
continued its intervention. This fall was halted
temporarily on the news that Moscow had signed
October 31
BoJ increase monetary base to
JPY80tr per year
a deal with Kiev that will see the resumption of
Bank of Russia increase interest
rates 150bp to 9.50%
the RUB strengthen 4.5% against the USD. The
gas exports to Ukraine. This announcement saw
31 October saw the central bank increase rates by
150bp to 9.50%. After a brief RUB rally (1.5%),
the fall in the currency continued.
15
abc
Macro
Currency Strategy
December 2014
November
Oil prices plunge
November 06 ECB: No new policies but Draghi
decidedly dovish
November 14 University of Michigan confidence
at highest level since 2007
Commodities: Oil leads the decline
Commodities across the globe fell further through
November with oil being the main driver. Brent,
WTI and Dubai oil prices combined fell by an
average of 10% in November compared to
October. On 27 November, OPEC opted against
production quota cuts that could have supported
prices. The announcement prompted further price
falls over the last two days of the month.
Japan: Abe decides
November 16 Large miss in Japan Q3 GDP
(-0.4% vs exp 0.5% QoQ)
November 18 Abe announces delay in sales tax
hike and calls snap election
November 20 Surprise cut in interest rates by
the PBoC
November 21 Draghi: ECB would broaden
purchases if inflation risks
materialise
November 27 Japan CPI lower than expected
with IP and jobless rate better
OPEC meeting: output left
unchanged which saw a fall in oil
prices
November 30 Switzerland votes “NO” in Gold
Referendum
16
On 18 November, Prime Minister Abe announced
that the sales tax hike that was due to be
implemented in October 2015 would be delayed
until April 2017.It was also announced that the
parliament would be dissolved that an election
would occur on 14 December. There was little
JPY movement on these announcements as they
had both been widely anticipated.
Switzerland: EUR-CHF floor remains golden
In the run up to the gold referendum in
Switzerland, polls were showing that it would be a
close vote but after much anticipation in the
markets that this referendum could threaten the
EUR-CHF floor and see gold prices rocket, it
ended in a damp squib, with 77% voting against
the proposed policy.
China: Surprise cut from PBoC
On 21 November, the PBoC cut rates for the first
time since July 2012. The 1-year deposit rate was
lowered by 25bps to 2.75% and the policy rate by
40bps to 5.6%. The rate cuts point to a shift in the
PBoC's approach, as targeted quantitative easing
was not as effective as hoped. There was a sizable
AUD rally off the back of this news.
abc
Macro
Currency Strategy
December 2014
EUR-USD in 2014
It wasn’t until July that EUR-USD started to fall,
helped by further dovish comments from the ECB
and consistently stronger than expected data out
of the US. QE in the US ended in October as was
expected by the market, but EUR-USD continued
to grind lower, helped on its way by heightened
expectations of further ECB easing.
For the first half of 2014 EUR-USD remained
resilient, staying well above 1.30. The high level
of the exchange rate was becoming increasingly
relevant for the ECB as inflation remained weak
and well below the target level of the ECB.
4. EUR-USD in 2014
EUR-USD
1.40
1.38
14 January : US
Congress
reaches
agreement on
budget for the
remainder of FY
2014.
09 April: FOMC minutes: market
misinterpreted policymakers' future
rate outlook.
30 July : US GDP
stronger than
ex pected (4.0%
v s exp 3.0%
YoY).
1.34
30 April: US Q1
19 March: Yellen: GDP softer than
the gap betw een ex pected (0.1%
the end of tapering
v s exp 1.2%
and first interest
QoQ).
rate hike could be
'around six
months'.
1.32
1.30
1.28
11 February : US House
of Representativ es vote
to suspend the
Treasury 's debt celing
until 15 March 2015.
31 January :
Eurozone CPI low er
than consensus
(0.7% v s exp 0.9%).
1.26
18 June: FOMC:
Av erage Fed funds rate
projections for 2015 and
2016 mov ed up, but
Yellen sends dov ish
signals.
10 June: ECB's Mersch:
prolonged low inflation
w ould require further
easing.
05 June: ECB cut
deposit rate to negativ e
and deliv ered further
easing measures.
13 March: Draghi:
the euro ex change
rate is 'becoming
increasingly relevant
in our assessment
of price stability '.
04 September: ECB
cuts rates and
announces ABS
purchase to start in
October.
1.36
22 August: Draghi
hints tow ards QE at
Jackson Hole.
1.34
17 September: US
CPI below
ex pectations (1.7%
v s exp 1.9% YoY)
and FOMC continue
to use "considerable
time" rhetoric.
1.32
1.30
21 Nov ember:
Draghi: ECB w ould
broaden purchases
if inflation risks
materialise.
1.28
05 September: US
nonfarm pay rolls
much w orse than
ex pected (134K vs
ex p 214K).
1.26
15 October: US 10y
treasury yields fall 04 Nov ember:
below 2.00% on an US midterms:
Republicans win
intraday basis.
Senate and take
control of the
house.
09 January : ECB:
on hold, more
emphasis on 'highly
accommodativ e
stance'.
1.22
Jan-14
1.38
29 October: Less
dov ish Fed note
improv ement in
labour market
conditions.
12-13 April:
Draghi: strength
of the EUR
'requires further
monetary
stimulus'.
1.36
1.24
1.40
1.24
1.22
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Source: HSBC, Bloomberg
17
abc
Macro
Currency Strategy
December 2014
GBP-USD in 2014
Since July however, it has been a different story.
Increased political uncertainty, driven by the
Scottish Referendum, saw GBP come off the boil
as it fell below 1.60 in November. Inflation
forecasts from the BoE have been revised
downwards with the expectation now that CPI
will fall below 1% in 2015.
GBP-USD in 2014 was a year of two halves. In a
similar vein to EUR-USD, the slide didn’t start until
July. Before then, GBP-USD broke through 1.70,
fuelled by increased rate expectations in the UK.
5. GBP-USD in 2014
GBP-USD
1.72
1.70
1.68
14 January : US
Congress
reaches
agreement on
budget for the
remainder of FY
2014.
19 February : FOMC
minutes: a few
participants noted 'it
might be appropriate to
raise the federal funds
rate relativ ely soon'.
23 April: BoE
minutes:
unanimous v ote,
but div ergent views
on labour market
slack
1.66
1.62
06 March: BoE: five
y ear anniversary of
the start of QE and
0.5% rate.
1.60
1.58
1.56
1.68
05 September: US 19 September:
nonfarm pay rolls Results show clear
much w orse than majority for "NO"
ex pected (134K vs campaign in
Scotland.
ex p 214K).
15 October: US 10y
treasury yields fall
below 2.00% on an
intraday basis.
29 October: Less
dov ish Fed note
improv ement in
labour market
conditions.
18 May : Carney: BoE stands
ready to take action to cool dow n
housing market.
Source: Bloomberg, HSBC
Mar-14
1.66
1.64
1.62
1.60
1.58
14 October: UK
CPI falls to
1.2% YoY.
1.56
24 January : BoE's
Carney : rates will not
rise any time soon.
Feb-14
04 Nov ember:
US midterms:
Republicans win
Senate and take
control of the
house.
08 September:
YouGov poll shows
20 August: BoE minutes: "YES" campaign in
7-2 v ote in fav our of no the lead in Scotland.
rate hike.
12 February : BoE Inflation
Report: still considerable spare
capacity , rates will not be rising
any time soon.
1.54
Jan-14
18
12 June: Mansion
House speech:
Carney says 'rate
hikes could happen
sooner than
markets currently
ex pect'.
1.70
25 June: Large
dow nward revision to Q1
US GDP (-2.9% v s exp 1.8%).
21 May : FOMC minutes:
09 April: FOMC minutes: no surprises regarding the
market misinterpreted
near-term course of
policy makers' future rate monetary policy; debate
on prospectiv e use of new
19 March: Yellen: the outlook.
policy normalis ation tools.
gap betw een the end
of tapering and first
interest rate hike
13 August: Weaker than
could be "around six
ex pected UK wage growth
months".
1.64
1.72
18 June: FOMC: Average
Fed funds rate projections
for 2015 and 2016 mov ed
up, but Yellen sends dov ish
signals.
30 April: US Q1
GDP softer than
ex pected (0.1%
v s exp 1.2%
QoQ).
12 Nov ember: BoE Inflation
Report: slightly dovish with
dow nward revisions to
inflation.
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
1.54
abc
Macro
Currency Strategy
December 2014
USD-JPY in 2014
JPY plummeted in the second half of the year,
with the BoJ extending easing measures at the end
of October. It was helped along its way by Abe’s
announcement of snap elections. Before then
however, JPY was trading in a very tight range in
the low volatility environment, not breaking
through 110 until 01 October as the BoJ remained
on autopilot with the Fed tapering as predicted.
6. USD-JPY in 2014
USD-JPY
123
121
123
14 January : US
Congress
reaches
agreement on
budget for the
remainder of FY
2014.
119
117
25 January :
BoJ's Kuroda:
optimistic about
the grow th
outlook and
inflation target.
115
113
111
109
121
119
117
01 April: Japan consumption
sales tax rise comes into effect
02 February :
Ease of
pressure on EM
FX dampens
demand for safe
hav ens.
18 February : BoJ:
ex tend ex isting fundfor-lending schemes.
19 March:
Yellen: the gap
betw een the
end of tapering
and first
interest rate
hike could be
"around six
months".
107
105
01 July : BoJ Tankan:
drop in manufacturing
and non-manufacturing
16 April: Yellen:
interest rates to
remain v ery low until
the recov ery is on a
more secure footing.
30 April: BoJ:
increasingly
optimistic about
inflation
27 June: Natl CPI in
line w ith
ex pectations at
3.7% YoY, reflecting
the impact of the tax
hike.
103
101
Jan-14
04 Nov ember:
US midterms:
Republicans win
Senate and take
control of the
house.
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
15 October: US 10y
treasury yields fall
below 2.00% on an
intraday basis.
115
18 Nov ember: Abe
announces delay in
sales tax hike and
calls snap election.
31 October: BoJ
increase monetary
base to JPY80tr per
y ear.
22 October: US CPI
surprises to the
upside.
30 July : US GDP
stronger than
ex pected (4.0%
v s exp 3.0% YoY)
113
111
109
107
105
26 September: Japan
05 September: US inflation readings slightly
nonfarm pay rolls w eaker than expected.
much w orse than
ex pected (134K vs
ex p 214K).
Aug-14
Sep-14
Oct-14
Nov-14
103
101
Dec-14
Source: Bloomberg, HSBC
19
abc
Macro
Currency Strategy
December 2014
Dollar Bloc
CAD still on the ropes
The CAD remains on the defensive, pressured by
continued USD strength and the sharp decline in
oil prices. The latest Bank of Canada statement
was modestly more upbeat on Canadian growth,
but cautious on the global growth outlook and the
effects of lower oil prices. We expect the firmer
bias in USD-CAD to persist.
Oil declines matter for the CAD…
The dramatic decline in oil prices has, not
surprisingly, been associated with weaker levels
of CAD. But despite the Canadian economy’s
sensitivity to oil—energy and energy-related
products account for roughly a quarter of
Canada’s exports—the fallout on the CAD itself
has been somewhat contained relative to that of
other currencies. We noted in last month’s update
that the CAD had outperformed most other G10
currencies versus the USD since the decline in oil
prices began last July, and that continues to be the
case. Since the start of July, the CAD has lost
6.7% versus the USD, which in fact leaves it as
the “best” performing G10 currency versus the
USD over that time frame. Further, its declines
are well below those of other oil and/or
commodity-linked currencies such as the NOK
(-13.8%), AUD (-12.0%) and NZD (-12.4%). Part
of that is a function of USD-CAD’s lower
volatility relative to most other USD-G10
exchange rates. For example, USD-CAD 3-month
implied volatility is currently trading near 7.7%,
while AUD-USD is near 11.4%, NZD-USD is
near 12.0% and USD-NOK is near 10.6%. And it
stands to reason that the higher volatility
currencies would show more movements/losses.
…but there are some mitigating
factors
But there are some other factors to consider in
terms of the impact of lower oil prices on the
CAD. Canada imports refined oil products, and it
benefits from a reduction in those prices. In
1. Discount of Canadian WCS to US WTI relatively small by recent standards
WCS discount to WTI (USD)
-5
-5
-10
-10
-15
-15
-20
-20
-25
-25
-30
-30
-35
-35
-40
-40
-45
2008
Source: Bloomberg
20
-45
2009
2010
2011
2012
2013
2014
abc
Macro
Currency Strategy
December 2014
addition, the discount of Canadian-produced
Western Canada Select oil to US-produced West
Texas Intermediate oil is relatively small by
historic standards. That suggests that Canadian oil
continues to be exported to the US, contrary to the
reduced US demand for crude oil imports from
other countries. Along those same lines, Canada’s
concentration of exports to the US leaves it less
exposed to diminished demand in some other key
commodity consuming economies (i.e. China).
And in the medium-term, to the extent that lower
oil prices support increased US demand and
overall growth, it will have positive spill over
effects on Canada. Oil prices have become a more
important consideration for a wide range of
factors, including various financial instruments,
economic developments, and economic/fiscal
policy deliberations. We would expect the CAD
to remain sensitive to larger swings in oil, but it is
also important to recognize that there are Canadaspecific factors that have limited the damage to
the CAD from lower oil prices.
Canada economic developments and
BoC assessment
As has often been the case in recent years, the latest
Canadian economic data has been mixed. On the
less encouraging side, November employment fell
10.7K, a bit weaker expected and ending a twomonth streak of outsized job gains totalling 117K.
And note that the 117K September-October jobs
gain represented over half (61%) of Canada’s 190K
employment increase in the year-to-date. On the
whole, labour market conditions in Canada are still
relatively soft.
Canadian growth has been somewhat better than
expected, with Q3 GDP rising 2.8% annualized
versus an expected rise of near 2%, and following
an upwardly revised 3.6% gain in Q2 (originally
3.1%). The Bank of Canada acknowledged as
much in its December 3 policy statement,
observing the broadening of the recovery. It said,
“Stronger exports are beginning to be reflected in
increased business investment and employment.
This suggests that the hoped-for sequence of
rebuilding that will lead to balanced and selfsustaining growth may finally have begun.” But it
added an important caveat that, “the lower profile
for oil and certain other commodity prices will
weigh on the Canadian economy.” Moreover, it
also noted that while inflation has been higher
than expected (headline CPI rose to 2.4% y/y in
October, above the BoC’s 2% target); “weaker oil
prices pose an important downside risk to the
inflation profile.” The BoC has understandably
2. Market expectations for BoC tightening remain muted
%
1.3
2-year CAD OIS, %
%
1.3
BoC Overnight Target Rate, %
1.2
1.2
1.1
1.1
1.0
1.0
0.9
Jan-14
0.9
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Source: Bloomberg, HSBC
21
abc
Macro
Currency Strategy
December 2014
3. Yield spread shifts support USD-CAD gains
USD-CAD
1.18
US-Canada 2-year yield spread (%, rhs)
-0.50
-0.60
1.13
-0.70
1.08
-0.80
-0.90
1.03
-1.00
0.98
Jan-13
-1.10
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Source: Bloomberg, HSBC
acknowledged the improvement in the economy,
but they are also focused on the downside risks to
growth and inflation from lower oil prices. On
net, it suggests a balanced outlook for policy,
which is what the BoC used to characterize as a
“neutral” stance before dropping their stated bias
in the October policy statement.
the steady progression towards the likely start of
Importantly, the BoC does not appear to be in any
hurry to start to normalize policy and financial
markets have also remained largely of the same
opinion. 2-year Canada overnight index swaps, an
indication of where the market expects the
overnight interest rate to be in two years’ time, are
trading at 1.13%, near the middle of the
approximate 1.0%-1.25% range they have held for
most of this year, and implying only a very
limited prospect for BoC rate increases over that
two-year horizon. In other words, the CAD is not
getting any obvious support from BoC policy
speculation, and we expect that condition to
persist for the foreseeable future.
not change the path of Fed policy, it does maintain
USD strength remains a defining
feature of USD-CAD
But on the USD side of the equation, front-end US
yields have resumed their push higher on the back
of a further improvement in the US backdrop and
22
Fed rate hikes in 2015. The stronger US
employment data in November (321K payroll rise,
44K in upward revisions to previous month’s
payrolls and a 0.4% m/m increase in hourly
earnings) represented a further improvement in
labour market conditions. And while one report will
and by some measures accelerates the improvement
in labour market conditions evident this year. US
interest rate markets responded by pushing frontend yields up sharply. 2-year USD interest rate
swaps rose to a new cycle high above 0.85%,
consistent with USD gains following the
employment report. That further narrowed the
spread to 2-year CAD swaps to -57bp, the smallest
CAD premium since 2012. The continued erosion
of the CAD’s yield premium over the US has been
consistent with USD-CAD gains and we expect that
relationship to persist going forward. Indeed, the
anticipated outperformance of the USD, and
perhaps more immediately some further effects of
lower commodity prices, keep us bullish on
USD-CAD, where we expect levels of 1.2000 by
year-end-2015.
abc
Macro
Currency Strategy
December 2014
AUD: further falls in 2015
The AUD has been suffering at the hands of the
stronger USD. As of 15 December, the AUD has
fallen 7.9% against the USD year to date, but we
believe there is more to come. We have revised
our AUD-USD forecast to 0.78 by year end 2015.
There have been three main factors for the fall in
AUD in 2014:
1 Generally stronger USD
As is shown in Chart 1, commodity prices have
been falling across the board. Whilst in recent
months the attention has been on the large decline
in oil prices, key commodities to Australia such as
iron ore have seen a similarly large decline, with
iron ore falling 30% since the start of July.
Looking forward
The AUD is not alone in its weakness throughout
2014. The USD has been the currency of choice.
The DXY has appreciated over 10%, reaching its
highest level since 2009. No major currencies
have appreciated against the USD.
2 China slowdown
The China slowdown has been evident throughout
2014. GDP growth has been falling and HSBC
Manufacturing PMI has been teetering around the
50 level. The latest sign was the cut by the PBoC
on 21 November. We have recently revised our
forecasts for China and now see further easing
from the central bank in 2015.
1. Commodities prices have fallen sharply in 2014
320
3 Falling commodity prices
Thomson Reuters Commodity Index
It is not only the stronger USD story that led us to
change our forecast; the economic situation in
Australia remains less promising.
The Australian sovereign yield curve (chart 2)
makes for interesting reading. The market is pricing
in a slowing down of growth and lower inflation in
the medium and long term in Australia. This has led
to a shift in expectations for the RBA rate decisions
next year. Looking at the OIS for the June 2015
meeting, there is an implied probability of 73% that
a rate cut will occur. Our economists have recently
changed their rate view, but are still bullish
compared to the market. They now see the first rate
hike in Q4 2015.
2. The Australian sovereign curve has flattened significantly
320
310
310
300
300
290
290
280
%
5.00
12 December
1 January
%
5.00
4.50
4.00
4.00
280
3.50
3.50
270
270
3.00
3.00
260
260
250
250
2.50
2.50
240
Jan-14 Mar-14 May-14
240
2.00
2.00
Source: Bloomberg, HSBC
Jul-14
Sep-14 Nov-14
1Y
2Y
3Y
4Y
5Y
6Y
7Y
8Y
9Y
10Y
11Y
13Y
15Y
20Y
4.50
Source: Bloomberg, HSBC
23
abc
Macro
Currency Strategy
December 2014
NZD: caught on the horns of
the USD bull run
Compared to other G10 currencies, the NZD has
performed relatively well against the USD, ‘only’
falling 5.5% in 2014. This comes despite rate
hikes through the year, bringing the central bank
rate from 2.50% back in January to its current
level of 3.50%.
Whilst this move can be attributed to both USD
strength and the sharp fall in dairy prices (around
30% of all merchandise exports are dairy), the
RBNZ has also helped the currency along its way
with intervention, citing that the currency remains
too high. This occurred in August when they sold
net $521m.
Looking into 2015, we see GDP remaining robust,
with New Zealand remaining the best performing
G10 nation. One worry however may be the low
inflation environment that is currently gripping
the world. The latest inflation print came out at
1.0%, the bottom end of the RBNZ band (as
illustrated in Chart 1). The RBNZ 2-year inflation
expectations have also seen a sharp decline
recently and now are at 2.06%.
RBNZ hawkish on growth
At their meeting on 11 December, the RBNZ kept
rates unchanged, as expected. They did however
increase their GDP forecast and lower inflation
1. Inflation is at the bottom of the RBNZ’s target band
%
6.0
expectations. Their GDP forecast has been raised
for the longer term and they need see it at to be
3.4% in the year to March 2016.
The Central Bank also continues to believe that
the NZD is still ‘unjustifiably and unsustainably
high’. Looking at the current value of the real
effective exchange rate and the deviation from the
5-year moving average would support this. It is
currently 5.9% above the average suggesting it
has room to move down further.
The Aussie/Kiwi divergence
There is a labour market disparity between New
Zealand and Australia. Whilst Australia sees
increasing unemployment, New Zealand has seen
strong labour market data with unemployment
falling from 6.1% to 5.4%. Wage growth remains
subdued however at 2.3%. In the case of New
Zealand this does not mean a poor labour market.
This year The participation ratio has reached its
highest level since records began and levels of net
migration also continue to rise, bolstering the
workforce (see chart 2).
Forecast revision
In our revised forecasts, we see NZD-USD at 0.73
by December 2015. This reflects the strong-USD
view that we have, as opposed to a weakening
NZD, as the NZD is forecast to strengthen against
all bar two other G10 currencies.
2. Inward migration and participation are at record levels
Net migration
Participation ratio (RHS)
%
6.0
5000
69.5
5.0
5.0
4000
69.1
4.0
4.0
3000
3.0
3.0
2000
2.0
2.0
1000
1.0
1.0
0
0.0
Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13
0.0
-1000
Mar-08
RBNZ Target Inflation Band
Source: Bloomberg, HSBC
24
CPI (YoY)
68.7
68.3
67.9
67.5
Mar-10
Source: Bloomberg, HSBC
Mar-12
Mar-14
abc
Macro
Currency Strategy
December 2014
G10 at a glance
CHF
1.7
1.8
1.6
1.6
1.5
1.4
1.4
1.2
1.3
1.0
1.2
0.8
1.0
0.6
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
1.1
EUR- CHF ( LHS)
Switzerland: EUR-CHF floor to hold through 2015
 EUR-CHF is likely to trade close to the 1.20 floor throughout
2015, in part reflecting the continued expansionary monetary
programme of the ECB which will drive generalised EUR selling.
 The Swiss economy continues to battle with the deflation threat so
there is little chance that policymakers will abandon their
commitment to the currency floor. Credibility of the policy remains
high, and intervention was not required during 2014 to protect the
floor even during fears the run-up to the gold referendum. It is
also possible that the SNB could move to a negative policy
interest rate to help prevent CHF strength.
 Any renewed fears about EUR break-up amid rising Euroscepticism and stronger primary fiscal surpluses in the periphery
are also likely to prevent any rise in EUR-CHF. We retain our
forecast that EUR-CHF will remain close to the 1.20 floor.
USD- CHF ( RHS)
Source: Bloomberg, HSBC
EUR-NOK
10.5
10.0
10.0
9.5
9.5
9.0
9.0
8.5
8.5
8.0
8.0
7.5
7.5
7.0
7.0
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
10.5
Norway: hit hard by oil
 NOK weakness has been far more pronounced than we expected,
as the central bank responded to the drop in oil prices by
delivering a surprise cut in the policy interest rate. They also left
the door open to a further easing.
 The dovish stance seems rather at odds with the still robust
showing of the mainland economy and inflation close to target, but
clearly policymakers are convinced that there will be sufficient
spill-over from the drag in the oil sector to warrant some support
to the non-oil sector. The combination of lower oil prices and the
dovish Norges Bank will make it hard for the NOK to rally anytime
soon.
 However, we do not expect a further rate reduction in 2015 as we
believe the mainland economy will fare better than some expect,
and core inflation will remain robust. Rising wages and house
prices also argue against further easing. As a result, we expect
EUR-NOK to fall during 2015, but the move back to a more
reasonable level will first require the rout in oil prices to stop.
Source: Bloomberg, HSBC
EUR-SEK
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
Sweden: Riksbank likely to limit SEK appreciation
 The SEK has remained weak as the economy battles weakness in
growth and an inflation rate which remains uncomfortably low.
The one reprieve for policymakers is that the SEK has continued
to depreciate against the EUR, helping to fend off at least one
source of deflation. However, the danger is that EUR-SEK begins
to push lower if the ECB embarks on full-blown QE early in 2015.
 The policy options for the Riksbank to respond to unwanted SEK
strength are limited. The path of rate hikes could be pushed out
further into the future, but it is unclear that this would have a
potent impact on the currency. Credit easing could be constrained
by the high level of household debt, QE by the relatively small
government bond market.
 As a result, we continue to believe policymakers will be keen to
prevent EUR-SEK falling far in response to ECB QE, and a floor
on EUR-SEK remains a possibility.
Source: Bloomberg, HSBC
25
abc
Macro
Currency Strategy
December 2014
Asia – regional overview
2015 will be another tough year for Asian
currencies as a number of global and domestic
factors will likely lead to meagre returns. Indeed,
we see every currency in the region weakening
versus the USD, though there should still be room
for differentiation, see ‘Asian FX Focus 2015
Outlook: The pressure cooker’, 8 December 2014.
Globally, the Fed’s expected tightening cycle and
further easing by the BoJ and the ECB should
create greater regional FX volatility; fears of a
currency war are likely to intensify, too. We
expect a number of Asian currencies to suffer due
to their tight relationships with the JPY and/or the
EUR. Steering clear of the pairs closely linked to
either is a key part of our differentiation strategy.
Locally, against a backdrop of soft growth and
rising disinflationary pressures, we expect a more
resilient performance from currencies, where:
1) FX policy is less in favour of local currency
weakness (perhaps due to domestic, core price
pressures); 2) better terms of trade help bolster
external balances against sluggish global demand
and soft commodity prices; and 3) domestic
growth can be supported by structural reforms and
the ability to add leverage.
This combination of global and local factors
favours the INR, IDR and PHP. The global
backdrop is likely to be more conducive for higheryielding currencies and these currencies also have
some positive domestic factors for support.
Conversely, we think the KRW, the TWD and the
MYR will continue to underperform. These
currencies are either highly correlated to the JPY
or adversely affected by lower commodity prices.
26
The likes of the THB and the SGD fall more into
the middle ground, in our view. The THB could
see some capital inflows return after the exodus in
2013-14 and may also benefit from BoJ's easing,
although its economic outlook remains soft and
political uncertainty could rise again next year. As
for the SGD, the MAS has already turned more
cautious about its SGD NEER appreciation
policy. If core inflation falls further, there is room
for the NEER to fall from the middle and into the
lower part of the band, although a shift in policy
stance still remains less likely for now.
In line with our economists’ call for more
monetary easing, we have changed our year-end
2015 forecast for USD-RMB to 6.22 (from 6.10).
The RMB should continue to outperform most
other Asian currencies in 2015, although higher
currency volatility is expected, which would be
transmitted to other currencies in the region. But
we do not believe the PBoC will engage in a
currency war, and this would mitigate some of the
downside risks to Asian FX emanating from
China's softer growth outlook. Policymakers are
focused on domestic goals, and they are also
aware China's significance in global trade and for
the FX policies of the US and other Asian central
banks would mean that a dramatic shift in the
RMB's outlook will be too disruptive to foreign
trade and relations.
The main risk to our views could stem from the
Fed starting to matter more again. If US Treasury
yields were to rise quickly as well, and excessive
USD strength ignites an emerging market crisis,
then the focus could tilt back to the external
factors that were more in play in 2013.
abc
Macro
Currency Strategy
December 2014
Asia at a glance
USD-CNY
8.4
8.2
8.0
7.8
7.6
7.4
7.2
7.0
6.8
6.6
6.4
6.2
6.0
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
8.4
8.2
8.0
7.8
7.6
7.4
7.2
7.0
6.8
6.6
6.4
6.2
6.0
China (CNY): Prepare for higher volatility
 The PBoC cut policy rates on 21 November for the first time
since July 2012. However, we do not believe the easing marks
a major shift in China’s FX policy. China has a broader agenda,
involving economic reform and rebalancing. This has important
implications for FX policy: The PBoC will maintain a “hands-off”
approach to FX intervention, continue on the path of RMB
internationalisation and steer clear of entering a global
‘currency war’.
 Next year we expect some modest spot depreciation of the
RMB vs. the USD. In line with our economists' call for more
monetary easing, we changed our forecast for USD-RMB to
6.22 by end-2015 (from 6.10 previously).
 There is a risk of USD-RMB temporarily overshooting our
forecast in the near-term. USD-RMB volatility is starting to rise.
This reflects reforms to make the RMB more market-driven,
monetary policy divergence with the US, swings in corporate
hedging flows and wider capital flow channels.
Source: Bloomberg
USD-CNH
6.80
6.70
6.70
6.60
6.60
6.50
6.50
6.40
6.40
6.30
6.30
6.20
6.20
6.10
6.10
6.00
6.00
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
6.80
Offshore CNH: Funding remains tight
 The RMB has traded weaker in recent weeks with USD-CNH
breaking through the 6.20 level for the first time since July.
While this partly represents a catch up of other USD-Asia
movements, local developments have also led to a weaker
RMB. These include soft trade data, expectation for looser
monetary policy and changes in regulations regarding onshore
leverage and collateral, which has curbed positive sentiment.
 Meanwhile, offshore RMB funding remains tight with the
deliverable FX forwards curves steepening despite
expectations for lower interest rates in the future.
 This may in part be due to the greater uptake of the
Northbound Stock Connect channels and short term position
adjustments towards CSDC's tightening of the repo collateral
rules, but also reflects less FX forward selling on account of
shifting RMB appreciation expectations. RMB volatility should
continue to rise in coming months.
Source: Bloomberg
USD-KRW
2000
2000
1800
1800
1600
1600
1400
1400
1200
1200
1000
1000
800
800
97
99
01
03
05
07
09
11
13
15
Korea: Still vulnerable in 2015
 The BoJ's easing commitment has changed the KRW’s outlook.
Korean policymakers are keen to preserve export
competitiveness vis-à-vis Japan amid sluggish domestic
demand. More rate cuts are expected in 2015 and we have
revised our USD-KRW forecast to 1160 for end-2015.
 The positive correlation between USD-KRW and USD-JPY is at
its highest since the start of Abenomics as the KRW, by some
measures, can no longer be regarded as under-valued, Korean
assets have become lower-yielding and Japan's trade is
showing signs of improvement.
 While Korea’s current account surplus remains large (and could
widen with lower oil prices), exporters are likely to further
increase their FX deposits. Accumulation of portfolio assets
abroad and FX reserves are also key channels to recycle the
current account surplus
Source: Bloomberg
27
abc
Macro
Currency Strategy
December 2014
Asia at a glance continued
USD-MYR
4.8
4.8
4.4
4.4
4.0
4.0
3.6
3.6
3.2
3.2
2.8
2.8
2.4
2.4
97
99
01
03
05
07
09
11
13
15
Malaysia: Tough times
 The MYR came under intense weakening pressure recently,
and the BNM's traditionally "hands-off" FX policy does not
appear to be curbing this depreciation for now.
 The recent price action partly reflects thin liquidity in the
onshore FX market. But even looking beyond this, there are
clearly structural challenges the currency will continue to face in
2015, notably: smaller underlying inflows and a softer terms of
trade and increasing capital outflows on the back of negative
real interest rates. We now see USD-MYR at 3.57 by the end of
next year.
 Although falling oil prices are no longer as unambiguously
negative for the MYR as in the past, due to the removal of
subsidies and a more neutral oil balance, there are still
concerns over weaker trade inflows and the potentially negative
effect of the state oil company cutting its dividend payment to
the government. The latter could create more fiscal uncertainty
and lead to greater MYR volatility in coming months.
Source: Bloomberg
USD-IDR
16000
16000
14000
14000
12000
12000
10000
10000
8000
8000
6000
6000
4000
4000
2000
2000
97 99 01 03 05 07 09 11 13 15
Indonesia: A reformed character?
 President Widodo implemented the much-needed fuel price
hike on 17 November. Though the quantum of price increase
(IDR2,000) was below the earlier suggested hike (IDR3,000),
the move was still viewed positively by the market in light of
falling global commodity prices.
 We believe a fuel price hike will be less painful for the economy
than past adjustments due to a larger real rate buffer and less
signs of IDR over-valuation. Furthermore, BI pre-emptively
raised the policy rate by 25bps the same evening the hike was
announced.
 We have turned more constructive on the IDR's medium-term
prospects, but we still see USD-IDR rising to 12,600 in 2015 as
part of a balance of payments adjustment. The current account
deficit may not improve that quickly due to challenging terms of
trades, while more supply-side reforms are needed to
rebalance the economy.
Source: Bloomberg
USD-INR
70
66
62
58
54
50
46
42
38
34
70
66
62
58
54
50
46
42
38
34
97
99
Source: Bloomberg
28
01
03
05
07
09
11
13
15
India: RBI signals a more dovish tone
 The RBI kept policy rate unchanged in December although the
tone was more dovish than in the last meeting. Cooling inflation
on the back of lower crude oil prices prompted the central bank
to lower its March 2015 CPI target from 8% to 6%, and it also
suggested policy easing could be possible early next year if
inflation and inflation expectations continue to soften.
 Meanwhile, the RBI also further eased gold import restrictions.
The current account deficit widened in Q3, but remains
manageable and lower oil prices would help contain the deficit
going forward.
 Overall, we remain confident on the INR’s improving
fundamentals and its ability to weather USD strength more
resiliently in 2015, provided the domestic policy framework
does not disappoint. We also note that the RBI’s ability to curb
excessive INR weakness is now at its strongest since 2008. We
forecast USD-INR at 63 by end-2015.
abc
Macro
Currency Strategy
December 2014
Latin America – regional overview
USD up, LatAm down
We see the trend of higher USD-LatAm FX well
entrenched and continuing to run in 2015.
Uncertainty still reigns when it comes to key
world events but overall, we find the balance of
risks, in particular the divergences between G3
monetary policies, favouring a stronger USD.
Domestic drivers also augur poorly for the
region’s currencies. In the last year, sentiment
towards Latin America has suffered as growth
rates have consistently disappointed. Across the
board, potential GDP estimates have been revised
down and a brighter spotlight has been shone on
the need for structural reforms and higher
investment rates.
Lower commodity prices add to the list of risks
for the region. The importance of commodity
prices for LatAm stretches from external
accounts, to consumption via wealth effects, to
investment allocations and fiscal revenues. Not
only do we enter 2015 with slower growth
momentum, but with the added headwind of lower
commodity prices. Weaker currencies are the
natural mechanism to adjust for lower commodity
prices and therefore we retain our view for more
currency weakness vs the USD for the region.
The silver lining is that the combination of nearly
two years of slowing growth and weaker
currencies should finally result in improved
current account dynamics. To our surprise, current
accounts have been resilient to both weaker
growth and FX levels thus far. But to the extent
that lower commodity prices accelerate the
adjustment, the outlooks for current account
balances in 2016 could start to improve,
potentially lending some support to LatAm
currencies in the second half of the year.
Valuations saw important improvements in 2014
with most regional real effective exchange rates
(REERs) converging back to their long term
averages. And yet, we now see little support via
the valuation channel in the near-term given
persistent imbalances in external accounts and
still poor cyclical growth drivers.
Differentiation is likely to remain a theme in
2015. Not only has the pace of depreciation of
individual currencies in the region diverged, but
idiosyncratic stories have created opportunities for
tactical relative-value strategies that have paid off
well. We expect investors to differentiate between
countries on the basis of policy divergences,
exposure to commodity prices, and cyclical
growth patterns. We see PEN and CLP
outperforming the likes of BRL, MXN and COP.
Inflation pressures are likely to remain subdued
due to slow growth and lower commodity prices.
As such, LatAm central banks will have more
room to keep monetary policy rates
accommodative, with the exception of Brazil
where additional tightening is expected. ‘Carry’ in
LatAm FX may thus be insufficient to offer
sufficient cushion against expected depreciation
for longer-term positions. However, in particular
for the high-yielding BRL, we believe windows to
earn carry will resurface but would see these only
as tactical in nature.
29
abc
Macro
Currency Strategy
December 2014
Latin America at a glance
USD-MXN
15.5
14.5
14.5
13.5
13.5
12.5
12.5
11.5
11.5
10.5
10.5
9.5
9.5
8.5
8.5
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
15.5
Mexico: Sucked into the USD bull-run
 The MXN was a relative outperformer compared to other EM
currencies for much of 2014, but this has changed. Both global
and domestic factors have contributed to this and we believe
that it is now being ‘dragged into the vortex’ of EM weakness
and a stronger USD.
 On the global front, the decline in oil prices has been the main
factor, along with USD strength across the board. From an
overall trade balance perspective Mexico is not a major oil
exporter, but its reliance on oil for roughly 30% of fiscal
revenues places the country in the cross-hairs as oil prices
decline. Moreover, there are concerns that weaker oil prices
may impact foreign oil companies’ appetite to invest in the
recently opened up Mexican energy sector.
 Meanwhile, concerns over the security situation have risen and
with FX positioning quite neutral, this sets the MXN up for more
potential weakness.
Source: Bloomberg
USD-BRL
4.00
3.50
3.50
3.00
3.00
2.50
2.50
2.00
2.00
1.50
1.50
1.00
1.00
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
4.00
Brazil: It will get worse before it gets better
 Recent BRL outperformance is best explained by the market’s
positive reaction to the announcements of Joaquim Levy and
Nelson Barbosa as Ministers of Finance and Planning,
respectively. The appointment has given the market more
confidence on the scope and implementation of the much
needed fiscal adjustment.
 Our economists, however, also see this as an additional drag
on growth and now see the economy contracting 0.5% in 2015.
We see the BRL continuing to weaken in a recessionary
environment. We also point to the lack of adjustment of the
current account to weaker FX and growth as a signal that
competitiveness gains have been minimal and more FX
depreciation is still needed.
 Finally, we are more concerned about the sources of external
financing for the current account as the quality of FDI has
deteriorated and portfolio flows plateaued. We expect the BRL
to weaken to 3.0/USD by end-2015.
Source: Bloomberg
USD-ARS
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
Jan-2002
Jan-2003
Jan-2004
Jan-2005
Jan-2006
Jan-2007
Jan-2008
Jan-2009
Jan-2010
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Jan-2015
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
Source: Bloomberg
30
Argentina: Postponing the adjustment
 We expect the Argentine authorities to postpone necessary
adjustments until after the Presidential elections scheduled for
25 October 2015. Since Central Bank Governor Vanoli
assumed office, the authorities have signalled a strong
preference for using the FX as a nominal anchor, even at the
expense of losing more reserves and inducing a sharper
recession. We thus recently revised our ARS forecast for 2015
to 10.50/USD (from 12.90/USD), which implies renewed
appreciation in real terms.
 While this strategy is not sustainable in the medium-to longterm, the relevant horizon is up to next year’s election.
Prospects of a government change functions as an anchor for
expectations. This makes the current status quo sustainable
even if liquid FX reserves held at the BCRA continue to fall.
 Without the expectation that economic policies will change only
a year from now, the strategy above would be insufficient to
contain pressures in the FX market. ARS implied yields have
more than halved since October in response to the shift in FX
policy towards a more stable spot rate. We see this as a
temporary improvement and would be biased to buy USD-ARS.
abc
Macro
Currency Strategy
December 2014
EMEA – regional overview
Rising stress in the face of a
strengthening USD
CEEMEA FX shows signs of stress. Strong US
data and the expectations of Fed raising interest
rates in 2015 are leading to re-pricing in EM FX.
However, the conventional differentiation within
the CEEMEA region is again at work. Whilst
‘dollar bloc’ currencies feel the pain, CEE
currencies display the usual resilience.
‘Dollar bloc’ currencies caught between a
strong USD and negative domestic backdrop
It is important to recall that the depreciation of the
RUB, ZAR and TRY are not only due to external
variables. The coincidence with negative countryspecific variables plays a pivotal role,
exacerbating the downward pressure on those
currencies. The USD strength explains only partly
the fall of the RUB. The Russian rouble suffers
from a continual deterioration of the macro
situation (economic contraction and acceleration
of inflation), a stress in the financial markets
because of foreign debt repayments and obviously
falling oil prices. The Russian central bank has
used different tools to stop the RUB depreciation.
So far, they have been ineffective. Hence, the risk
of further RUB weakness is high.
The rapid rise of USD-ZAR to multiple year highs
is not surprising. The ZAR displays its usual
sensitivity to the USD. However, the scale of the
depreciation is due to the absence of improvement
on the external deficit front. The current account
deficit was still at 6.0% of GDP in Q3 and the
trade balance recorded a historically wide deficit
in October. With such a backdrop, it is difficult to
envisage any sustained reversal. USD-ZAR is
likely to continue to trend higher.
The TRY is a specific case. Until recently, the
TRY showed a strong resilience and outperformed
both the RUB & ZAR for the right reasons.
Turkey is one of the biggest beneficiaries in EM
of lower oil prices. The sharp fall in energy prices
will lead to substantive improvement in the
current account balance and reduction of
inflationary pressures. This macro rebalancing in
its nature is definitely TRY-positive. However,
the TRY is being caught by the acceleration of the
re-pricing in EM FX, whilst the resurgence of
domestic political tensions creates additional
reasons for investors to be cautious.
Conventional CEE resilience
Like in 2013, the CEE currencies display a strong
resilience and we expect this to continue. The
economic growth remains decent in the region
given the current global circumstances and most
of the countries still have small current account
deficits or comfortable surpluses. Moreover, there
is no financing stress. The other reason behind the
resilience is obviously the ECB. The prospect of
ECB quantitative easing in 2015 constitutes an
anchor for the currencies of this region. Therefore,
we expect these currencies, particularly the PLN
to perform well in the upcoming period. Only a
response to persistently low inflation/weaker
economy via further rate cuts for regional central
banks would create downward pressures on CEE
currencies. This is not our base case scenario.
31
abc
Macro
Currency Strategy
December 2014
EMEA at a glance
USD-ZAR
Jan-15
Jan-14
Jan-13
Jan-12
5
Jan-11
6
5
Jan-10
6
Jan-09
7
Jan-08
8
7
Jan-07
9
8
Jan-06
9
Jan-05
10
Jan-04
11
10
Jan-03
12
11
Jan-02
12
South Africa: facing USD strength amid wide external deficit
 USD-ZAR has reached new multiple-years high in December.
The broad-based USD strength in a context of a persistently
wide current account deficit explains the ZAR’s depreciation.
 Expectations of a macro-rebalancing reducing South African
currency vulnerability have failed to materialise. South Africa
has reported a current deficit of 6.0% of GDP in Q3 2014 and
shockingly wide trade deficit of ZAR 21bn in October. This
record deficit increases the risk of an external deficit staying
persistently wide in Q4 despite a weak economic growth. Large
external financing needs in a context of rising USD in
anticipation of higher interest rates in the US are particularly
ZAR-negative.
 Our macro scenario still foresees a narrowing current account
deficit to 4.5% on average in 2015. A weak domestic demand,
a recovering production in key sectors and lower oil prices
should contribute positively. However, this improvement will
only limit the downside pressure on the ZAR. We continue to
forecast USD-ZAR reaching 12.00 in 2015.
Source: Bloomberg
USD-TRY
2.5
2.3
2.3
2.1
2.1
1.9
1.9
1.7
1.7
1.5
1.5
1.3
1.3
1.1
1.1
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
2.5
Turkey: under pressure but more resilient
 The TRY remains sensitive to US interest rate expectations and
USD strength. The recent bout of lira weakness in the wake of
strong US data has highlighted this once again. In a context of
continual USD appreciation, USD-TRY is likely to keep an
upward trend.
 However, the TRY is probably more resilient to external
headwinds thanks to the lower oil price. The sharp fall of oil will
have a significant impact on Turkey’s current account deficit.
The narrowing seen in the recent period is likely to continue in
coming months, driving the deficit to 5.2% in 2015 from 5.6%
this year and 7.4% in 2013. Although the deficit will remain
sizeable, its dynamic should make the TRY more resilient than
in 2013 when the Fed signalled the tapering and Turkish deficit
was expanding.
 The CBRT will play a pivotal role in TRY’s resilience to USD
strength. The maintenance of tight monetary policy will be
necessary.
Source: Bloomberg
USD-ILS
5.10
4.70
4.70
4.30
4.30
3.90
3.90
3.50
3.50
3.10
3.10
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
5.10
Source: Bloomberg
32
Israel: the shekel depreciation interrupted?
 USD-ILS has flirted with 4.00 in December before correcting
sharply lower. Although the political situation with the prospects
of early general elections raises some uncertainties, particularly
regarding the fiscal policy, we believe that the recent
consolidation in the FX market is healthy.
 Until recently, the ILS depreciation was largely monetary policy
induced. The cuts of policy rate to a historical low of 0.25% and
rising expectations of more to come in form of unconventional
measures have had a strong negative impact on the ILS.
However, the Band of Israel has made rather clear that no
additional measures are required for the time being as the
economy gives some signs of improvement and the
disinflationary panorama stopped deteriorating. In such a
context, a stabilisation of the ILS appears normal.
 Therefore, we prefer to be neutral ILS in the near-term. In the
longer-term, we retain the view that the ILS will weaken further.
abc
Macro
Currency Strategy
December 2014
HSBC Volume-Weighted REERs
For full details of the construction methodology of
the HSBC REERs, please see “HSBC’s New
Volume-Weighted REERs” Currency Outlook
April 2009.
The value of a currency
Since FX prices are always given as the amount of
one currency that can be bought with another, the
inherent value of a currency is not defined. For
example, if EUR-USD goes up, this could be
because the EUR has increased in value, the USD
has decreased in value, or a combination of both.
One possible method for getting some insight into
changes in the value of a currency is to look at
movements in the value of a basket of other
currencies against the currency of interest. For
example, if EUR-USD increased over some time
period, one could see how EUR had performed
against a range of other currencies to determine
whether EUR has become generally more valuable
or whether this was simply a USD-based move. An
effective exchange rate is an attempt to do this and to
represent the moves in index form.
There are two main approaches to building an
effective exchange rate: Nominal Effective
Exchange Rates (NEERs) and Real Effective
Exchange Rates (REERs). NEERs simply track
the weighted average returns of a basket of other
currencies against the currency being investigated;
REERs deflate the returns in an attempt to
compensate for the differing rates of inflation in
different countries. The reason for doing this is
that, particularly over long time frames, inflation
can have a large impact on the purchasing power
of a currency.
How should we weight the
basket?
If we are trying to create an index for the change
in value of a currency against a basket of other
currencies, we now need to decide on how to
weight our basket. One possible solution would be
to simply have an equally-weighted basket. The
rationale for this would be that there is no a priori
reason for choosing to put more emphasis on any
one exchange rate. However, this could clearly
lead to the situation where a large move in a
relatively small currency can strongly influence
the REERs and NEERs for all other currencies.
To avoid this, the indices are generally weighted
so that more “important” currencies get higher
weighting. This, of course, begs the question of
how “importance” is defined.
Mark McDonald
FX Strategist
HSBC Bank plc
+44 20 7991 5966
mark.mcdonald@hsbcib.com
Trade Weights
Weighting the basket by bilateral trade-weights is
the most common weighting procedure for
creating an effective exchange rate index. This is
because the indices are often used to measure the
likely impact of exchange rate moves on a
country’s international trade performance.
Volume Weights
The daily volume traded in the FX market
dwarves the global volume of physical trade.
From this it is possible to make a convincing
argument that the weighting which would be
really important would be to weight the currency
basket by financial market flows, rather than
bilateral trade.
33
abc
Macro
Currency Strategy
December 2014
To do this properly would require us to have
accurate FX volumes for all currency pairs
considered in the index. However, these are not
available. The BIS triennial survey of FX volumes
only gives data for a small number of bilateral
exchange rates. However, the volumes are split by
currency for over 30 currencies. From these
volumes we can estimate financial weightings for
each currency. We believe that this gives another
plausible definition for “importance”, and one
which may be more relevant for financial
investors than trade weights. We call this
procedure volume weighting and the indices
produced through this procedure we call the
HSBC volume-weighted REERs.
We would argue that if you are a financial market
investor, the effective value of a currency you
would be exposed to is more accurately
represented by the HSBC volume-weighted index
rather than the trade-weighted index.
34
Data Frequency
This is something which is rarely considered
when constructing REERs – inflation data is
generally released at monthly frequency at best so
the usual procedure is to simply create monthly
indices by default. However, some countries
release their inflation data only quarterly. The
usual procedure for these countries is to simply
pro-rata the change over the period. Here there is
an implicit assumption that the rate of inflation
changes slowly. We take this assumption one step
further and assume that it is valid to spread the
inflation out equally over every day in the month.
abc
Macro
Currency Strategy
December 2014
HSBC Volume – Weighted REERs
USD REER index
EUR REER index
USD Tr ade-W eighted REER
EUR Volume-Weighted REER
USD Volume-Weighted REER
1996=100
160
1996=100
160
140
140
120
120
100
100
80
80
Jul-95
Jul-98
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
1996=100
120
120
110
110
100
100
90
90
80
80
70
70
60
60
Jul-95
Jul-98
Jul-01
Source: HSBC
Source: HSBC
JPY REER index
GBP REER index
JPY Tr ade-Weighted REER
JPY Volume- Weighted REER
1996=100
1996=100
115
115
105
105
95
95
85
85
75
75
65
55
Jul-95
Jul-98
Source: HSBC
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
EUR Tr ade-Weighted REER
1996=100
Jul-04
Jul-07
GBP Tr ade-Weighted REER
1996=100
140
Jul-10
Jul-13
GBP Volume-W eighted REER
1996=100
140
130
130
120
120
110
110
100
100
65
90
90
55
80
Jul-95
80
Jul-98
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
Source: HSBC
35
abc
Macro
Currency Strategy
December 2014
CAD REER index
CHF REER index
CAD Trade-Weighted REER
CAD Volume-Weighted REER
1996=100
CHF Volume-Weighted REER
CHF Trade-Weighted REER
150
1996=100
150
130
130
140
140
120
120
130
130
110
110
120
120
100
100
110
110
90
90
100
100
80
80
90
90
70
70
80
60
Jul-95
80
Jul-95
Jul-98
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
1996=100
1996=100
60
Jul-98
Source: HSBC
Source: HSBC
AUD REER index
NZD REER index
AUD Tr ade-W eighted REER
AUD Volume-W eighted REER
1996=100
160
120
100
100
80
80
60
Jul-98
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
Source: HSBC
Jul-10
Jul-13
NZD Trade-Weighted REER
1996=100
140
1996=100
140
120
100
100
80
80
60
Jul-95
60
Jul-98
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
NOK REER index
SEK T rade-W eighted REER
SEK Volume- Weighted REER
1996=100
110
NOK Trade- Weighted REER
1996=100
110
100
100
90
90
80
80
70
70
60
Jul-98
Source: HSBC
120
Source: HSBC
SEK REER index
36
Jul-07
140
120
60
Jul-95
Jul-04
NZD Volume-Weighted REER
1996=100
160
140
60
Jul-95
Jul-01
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
NOK Volume-Weighted REER
1996=100
130
1996=100
130
120
120
110
110
100
100
90
90
80
80
70
Jul-95
70
Jul-98
Source: HSBC
Jul-01
Jul-04
Jul-07
Jul-10
Jul-13
abc
Macro
Currency Strategy
December 2014
HSBC forecasts vs forwards
EUR-USD vs forwards
EUR-USD
EUR-CHF vs forwards
Forward
EUR-USD
Forecast
EUR-CHF
Forward
EUR-CHF
Forecast
1.60
1.60
1.50
1.50
1.70
1.70
1.40
1.40
1.60
1.60
1.30
1.30
1.50
1.50
1.20
1.20
1.40
1.40
1.10
1.10
1.30
1.30
1.00
1.20
1.20
0.90
1.10
1.10
1.00
0.90
0.80
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
0.80
1.00
Jan-00
1.00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Source: Thomson Financial Datastream, Reuters, HSBC
Source: Thomson Financial Datastream, Reuters, HSBC
GBP-USD vs forwards
EUR-GBP vs forwards
GBP-USD
Forward
GBP-USD
Forecast
EUR-GBP
1.00
Forward
Jan-12
Jan-14
EUR-GBP
1.00
Forecast
2.10
2.10
2.00
2.00
0.95
0.95
1.90
1.90
0.90
0.90
1.80
1.80
0.85
0.85
1.70
1.70
0.80
0.80
1.60
1.60
0.75
0.75
0.70
0.70
1.50
1.50
0.65
0.65
1.40
1.40
0.60
0.60
1.30
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
1.30
0.55
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
0.55
Source: Thomson Financial Datastream, Reuters, HSBC
Source: Thomson Financial Datastream, Reuters, HSBC
USD-JPY vs forwards
EUR-JPY vs forwards
USD-JPY
Forward
USD-JPY
Forecast
140
140
130
130
120
120
110
110
100
100
90
90
80
80
70
70
60
Jan-00
60
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Source: Thomson Financial Datastream, Reuters, HSBC
Jan-12
Jan-14
EUR-JPY
175
165
155
145
135
125
115
105
95
85
Jan-00
Forward
EUR-JPY
Forecast
175
165
155
145
135
125
115
105
95
85
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Source: Thomson Financial Datastream, Reuters, HSBC
37
abc
Macro
Currency Strategy
December 2014
Short rates
3 Month Money
2012
Q4
2013
Q3
Q4
2014
Q1
Q2
Q3
Q4f
2015
Q1f
end period
North Am erica
x
Q2f
Q3f
x
US (USD)
0.4
0.2
0.2
0.2
0.2
0.2
0.3
0.3
0.5
0.8
x
Latin Am erica
Canada (CAD)
x
1.3
x
1.2
x
1.2
x
1.2
x
1.2
x
1.2
x
1.2
x
1.2
x
1.2
x
1.2
x
x
Mex ico (MXN)
4.4
3.7
3.4
3.3
3.0
3.0
3.0
3.0
3.0
3.5
x
Brazil (BRL)
7.1
9.4
10.1
10.8
10.8
10.9
11.8
12.0
12.0
12.0
x
Western Europe
Eurozone
Other Western Europe
Chile (CLP)
x
x
x
4.9
x
0.1
x
4.8
x
0.1
x
4.9
x
0.3
x
4.0
x
0.2
x
3.8
x
0.2
x
3.3
x
0.1
x
3.0
x
0.1
x
3.0
x
0.1
x
3.0
x
0.1
x
3.3
x
0.1
x
x
UK (GBP)
0.9
0.5
0.5
0.6
0.6
0.7
0.8
0.9
1.3
1.4
Norw ay (NOK)
1.9
1.7
1.7
1.7
1.8
1.8
1.9
1.9
2.0
2.0
x
Sw eden (SEK)
1.3
1.2
0.9
0.9
0.7
0.5
0.3
0.3
0.3
0.3
x
EMEA
Sw itzerland (CHF)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Hungary (HUF)
5.8
3.6
3.0
2.7
2.3
2.1
2.1
2.1
2.1
2.1
Poland (PLN)
4.1
2.7
2.7
2.7
2.7
2.4
2.0
2.0
2.0
2.0
Russia (RUB)*
7.5
6.8
7.2
9.1
9.5
10.6
12.8
12.0
11.5
11.0
Turkey (TRY)
5.5
6.9
7.8
11.5
8.3
8.8
8.9
9.0
9.0
9.0
Asia/Pacific
South Africa (ZAR)
x
5.2
x
5.4
x
5.2
x
5.6
x
5.6
x
6.0
x
6.1
x
6.6
x
6.9
x
7.1
x
x
Japan (JPY)
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.1
0.1
x
Australia (AUD)
3.0
2.6
2.6
2.7
3.7
2.6
2.9
3.2
3.3
3.4
x
New Zealand (NZD)
2.6
2.7
2.9
3.2
3.6
3.7
3.7
3.9
4.4
4.6
3.7
North Asia
China (CNY)
5.5
5.6
5.0
5.5
4.8
4.7
4.4
3.7
3.7
x
Hong Kong (HKD)
0.4
0.4
0.4
0.4
0.4
0.4
0.6
0.8
1.0
1.3
x
Taiw an (TWD)
0.9
0.9
0.9
0.9
1.9
1.9
1.9
2.1
2.2
2.3
x
South Asia
South Korea (KRW)
2.9
2.7
2.7
2.6
2.6
2.4
2.2
2.3
2.4
2.4
8.1
India (INR)
8.5
9.7
8.7
8.9
8.6
9.0
8.7
8.6
8.4
x
Indonesia (IDR)
5.0
7.2
7.8
8.1
8.2
8.1
7.9
7.8
7.7
7.6
x
Malay sia (MYR)
3.2
3.2
3.3
3.3
3.5
3.7
3.8
3.7
3.6
3.6
x
Philippines (PHP)
1.4
0.5
0.3
1.0
1.0
0.5
0.5
0.5
0.5
0.5
x
Singapore (SGD)
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
x
Thailand (THB)
2.9
2.6
2.4
2.2
2.2
2.2
2.2
2.4
2.6
3.0
x
South Africa (ZAR)
5.2
5.4
5.2
5.6
5.6
6.0
6.1
6.6
6.9
7.1
No tes: * 1-mo nth mo ney. So urce: HSB C
Important note
This table represents three month money rates. Due to the dislocation in the three month money markets, these rates may not give a
good indication of policy rates.
38
abc
Macro
Currency Strategy
December 2014
Emerging markets forecast table
Latin America vs USD
x
16-Dec-14
2014
last
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
x
x
x
x
x
x
x
x
x
x
x
x
2015
2016
Argentina (ARS)
8.55
8.45
8.75
9.00
9.50
10.00
10.50
11.00
11.50
12.00
12.50
Brazil (BRL)
2.73
2.45
2.60
2.70
2.80
2.90
3.00
3.05
3.10
3.15
3.15
Chile (CLP)
623
598
610
618
625
633
640
640
640
640
640
Mexico (MXN)
14.85
13.43
14.10
14.25
14.50
14.75
14.80
14.85
14.90
14.95
15.00
Colombia (COP)
2426
2025
2200
2300
2400
2450
2500
2525
2550
2575
2600
Peru (PEN)
2.97
2.89
2.95
3.01
3.08
3.14
3.20
3.24
3.28
3.31
3.35
Venezuala (VEF)
6.29
6.29
15.00
23.00
23.00
23.00
42.00
50.00
58.00
66.00
75.00
Czech Republic (CZK)
27.6
27.5
27.6
27.6
27.3
27.0
27.0
26.5
26.5
26.5
26.5
Hungary (HUF)
313
311
310
310
305
305
305
305
305
305
305
Russia vs USD (RUB)
75.9
39.6
55.3
59.3
61.3
62.1
62.0
62.0
63.4
64.1
64.5
Romanian (RON)
4.48
4.41
4.40
4.40
4.40
4.40
4.40
4.40
4.40
4.40
4.40
Turkey vs USD (TRY)
2.39
2.28
2.30
2.35
2.37
2.40
2.40
2.40
2.40
2.40
2.40
4.21
4.18
4.15
4.10
4.10
4.05
4.05
4.05
4.05
4.05
4.05
Eastern Europe vs EUR
Simple rate
Poland (PLN)
Middle East vs USD
x
x
x
x
x
x
x
x
x
x
Egypt (EGP)
7.15
x
x
7.15
7.50
7.50
7.50
7.50
7.70
7.70
7.70
7.70
7.70
Israel (ILS)
3.92
3.69
3.70
3.95
4.00
4.10
4.10
3.95
3.95
3.95
3.95
11.71
11.30
11.70
11.70
11.80
12.00
12.00
12.00
12.00
12.00
12.00
Africa vs USD
South Africa (ZAR)
Interest rates
Source: HSBC
39
abc
Macro
Currency Strategy
December 2014
Exchange rates vs USD
end period
2013
Q4
2014
Q1
Q2
Q3
2015
Q1f
Q4f
Q2f
Q3f
2016
Q1f
Q4f
Q2f
Q3f
Q4f
Americas
x
x
Canada (CAD)
1.06
1.10
1.07
1.12
1.15
1.15
1.17
1.19
1.20
1.20
1.20
1.20
1.20
x
Mex ico (MXN)
13.09
13.06
12.99
13.43
14.10
14.25
14.50
14.75
14.80
14.85
14.90
14.95
15.00
x
Brazil (BRL)
2.34
2.26
2.20
2.45
2.60
2.70
2.80
2.90
3.00
3.05
3.10
3.15
3.15
x
x
Argentina (ARS)
6.52
8.00
8.13
8.45
8.75
9.00
9.50
10.00
10.50
11.00
11.50
12.00
12.50
Western Europe
x
1.15
1.14
1.13
1.12
1.12
x
Eurozone (EUR*)
Other Western Europe x
x
1.38
x
x
1.38
x
x
1.37
x
x
1.26
x
x
1.25
x
x
1.21
x
x
1.19
x
x
1.17
x
x
x
UK (GBP*)
1.66
1.67
1.71
1.62
1.57
1.54
1.51
1.49
1.48
1.47
1.46
1.45
1.45
x
Sw eden (SEK)
6.43
6.48
6.69
7.22
7.52
7.44
7.56
7.69
7.83
7.89
7.96
8.04
8.04
x
Norw ay (NOK)
6.06
5.99
6.13
6.43
7.68
7.27
7.31
7.35
7.39
7.37
7.43
7.50
7.50
x
x
Sw itzerland (CHF)
0.89
0.88
0.89
0.95
0.97
0.99
1.01
1.03
1.04
1.05
1.06
1.07
1.07
Emerging Europe
x
x
Russia (RUB)
32.7
35.7
33.6
39.6
55.3
59.3
61.3
62.1
62.0
62.0
63.4
64.1
64.5
x
Poland (PLN)
3.01
3.02
3.04
3.31
3.32
3.39
3.45
3.46
3.52
3.55
3.58
3.62
3.62
x
Hungary (HUF)
216
223
226
246
248
256
256
261
265
268
270
272
272
x
x
Czech Republic (CZK)
19.8
19.9
20.0
21.8
22.1
22.8
22.9
23.1
23.5
23.2
23.5
23.7
23.7
Asia/Pacific
x
x
Japan (JPY)
105
103
101
110
118
122
124
126
128
128
129
129
130
x
Australia (AUD*)
0.89
0.93
0.94
0.87
0.83
0.82
0.80
0.79
0.78
0.77
0.76
0.75
0.75
x
x
New Zealand (NZD*)
North Asia
x
x
0.82
x
x
0.87
x
x
0.87
x
x
0.78
x
x
0.77
x
x
0.76
x
x
0.75
x
x
0.74
x
0.73
x
0.73
x
0.72
x
0.71
x
0.71
x
x
China (CNY)
6.05
6.22
6.20
6.14
6.16
6.16
6.18
6.20
6.22
6.24
6.26
6.28
6.30
x
Hong Kong (HKD)
7.75
7.76
7.75
7.76
7.80
7.80
7.80
7.80
7.80
7.80
7.80
7.80
7.80
x
Taiw an (TWD)
29.8
30.5
29.9
30.4
31.2
31.1
31.3
31.7
32.0
32.1
32.2
32.3
32.4
x
x
South Korea (KRW)
1056
1065
1011
1058
1115
1120
1140
1150
1160
1160
1170
1170
1180
South Asia
x
x
India (INR)
x
x
x
x
x
x
x
x
x
x
x
x
61.8
60.0
60.1
61.9
62.0
62.0
62.5
63.0
63.0
63.5
63.5
64.0
64.0
12170
11360
11855
12175
12200
12300
12400
12500
12600
12700
12700
12800
12800
3.65
x
Indonesia (IDR)
x
Malay sia (MYR)
3.28
3.26
3.21
3.28
3.45
3.42
3.47
3.52
3.57
3.59
3.61
3.63
x
Philippines (PHP)
44.4
44.8
43.7
44.9
44.8
44.8
45.0
45.2
45.4
45.6
45.7
45.8
45.9
x
Singapore (SGD)
1.263
1.258
1.247
1.276
1.310
1.32
1.330
1.34
1.350
1.360
1.370
1.380
1.380
x
Thailand (THB)
32.8
32.4
32.5
32.4
32.9
32.8
33.1
33.4
33.7
33.8
33.9
34.0
34.1
Vietnam (VND)
21080
21080
21329
21205
21250
21250
21500
21500
21750
22000
22000
22000
22000
12.00
12.00
Africa
x
x
South Africa (ZAR)
Source HSBC
40
x
x
9.24
x
10.52
x
10.63
x
11.30
x
11.70
x
11.70
x
11.80
x
12.00
x
12.00
x
12.00
x
12.00
abc
Macro
Currency Strategy
December 2014
Exchange rates vs EUR & GBP
end period
2013
2014
Q4
Q1
Q2
Q3
Q4f
2015
Q1f
Q2f
Q3f
Q4f
2016
Q1f
Q2f
Q3f
Q4f
Vs euro
Americas
x
x
x
US (USD)
1.38
1.38
1.37
1.26
1.25
1.21
1.19
1.17
1.15
1.14
1.13
1.12
1.12
x
Europe
Canada (CAD)
x
1.47
1.52
1.46
1.42
1.44
1.39
1.39
1.39
1.38
1.37
1.36
1.34
1.34
x
UK (GBP)
0.83
0.83
0.80
0.78
0.80
0.79
0.79
0.79
0.78
0.78
0.78
0.77
0.77
x
Sw eden (SEK)
8.86
8.92
9.16
9.11
9.40
9.00
9.00
9.00
9.00
9.00
9.00
9.00
9.00
x
Norw ay (NOK)
8.36
8.25
8.40
8.12
9.60
8.80
8.70
8.60
8.50
8.40
8.40
8.40
8.40
x
Sw itzerland (CHF)
1.23
1.22
1.21
1.21
1.21
1.20
1.20
1.20
1.20
1.20
1.20
1.20
1.20
x
Russia (RUB)
45.1
49.1
46.0
50.0
69.1
71.8
72.9
72.7
71.3
70.7
71.6
71.8
72.2
x
Poland (PLN)
4.16
4.17
4.16
4.18
4.15
4.10
4.10
4.05
4.05
4.05
4.05
4.05
4.05
x
Hungary (HUF)
297
307
310
311
310
310
305
305
305
305
305
305
305
x
Czech Republic (CZK)
Asia/Pacific x
27.3
x
27.4
x
27.4
x
27.5
x
27.6
x
27.6
x
27.3
x
27.0
x
27.0
x
26.5
x
26.5
x
26.5
x
26.5
x
x
Japan (JPY)
145
142
139
138
148
148
148
147
147
146
146
144
146
x
Australia (AUD)
1.54
1.49
1.45
1.45
1.51
1.48
1.49
1.48
1.47
1.48
1.49
1.49
1.49
x
New Zealand (NZD)
1.67
1.59
1.56
1.62
1.62
1.59
1.59
1.58
1.58
1.56
1.57
1.58
1.58
Vs sterling
Americas
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
US (USD)
1.66
1.67
1.71
1.62
1.57
1.54
1.51
1.49
1.48
1.47
1.46
1.45
1.45
x
Europe
Canada (CAD)
x
1.76
x
1.84
x
1.82
x
1.82
x
1.81
x
1.77
x
1.77
x
1.77
x
1.77
x
1.76
x
1.75
x
1.74
x
1.74
x
x
x
Eurozone (EUR)
0.83
0.83
0.80
0.78
0.80
0.79
0.79
0.79
0.78
0.78
0.78
0.77
0.77
x
Sw eden (SEK)
10.65
10.80
11.44
11.71
11.82
11.46
11.41
11.46
11.55
11.60
11.60
11.64
11.64
x
Norw ay (NOK)
10.05
9.99
10.49
10.43
12.07
11.20
11.03
10.95
10.91
10.82
10.82
10.87
10.87
x
Sw itzerland (CHF)
Asia/Pacific x
x
Japan (JPY)
1.47
x
174
1.48
x
172
1.52
x
173
1.55
x
178
1.52
x
186
1.53
x
188
1.52
x
187
1.53
x
188
1.54
x
189
1.55
x
188
1.55
x
188
1.55
x
187
1.55
x
188
x
Australia (AUD)
1.86
1.80
1.81
1.86
1.89
1.88
1.89
1.89
1.89
1.91
1.92
1.93
1.93
x
New Zealand (NZD)
2.01
1.92
1.96
2.08
2.04
2.03
2.01
2.01
2.02
2.01
2.02
2.04
2.04
Source: HSBC
41
Macro
Currency Strategy
December 2014
Notes
42
abc
Macro
Currency Strategy
December 2014
abc
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: David Bloom, Daragh Maher, Paul Mackel, Robert Lynch,
Clyde Wardle, Stacy Williams, Marjorie Hernandez, Mark McDonald, Murat Toprak, Dominic Bunning, Ju Wang and Joey
Chew
Important Disclosures
This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the
clients of HSBC and is not for publication to other persons, whether through the press or by other means.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer
to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this
document is general and should not be construed as personal advice, given it has been prepared without taking account of the
objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice,
consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek
professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may
not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of
the investment products mentioned in this document and take into account their specific investment objectives, financial
situation or particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an
investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls
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HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives)
of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
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Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
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Additional disclosures
1
2
3
This report is dated as at 16 December 2014.
All market data included in this report are dated as at close 15 December 2014, unless otherwise indicated in the report.
HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
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43
Macro
Currency Strategy
December 2014
abc
Disclaimer
* Legal entities as at 30 May 2014
Issuer of report
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HSBC Bank plc
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[441656]
44
Main contributors
David Bloom
Global Head of FX Research
HSBC Bank plc
+44 20 7991 5969
david.bloom@hsbcib.com
Murat Toprak
FX Strategist, EMEA
HSBC Bank plc
+44 20 7991 5415
murat.toprak@hsbcib.com
Daragh Maher
FX Strategist, G10
HSBC Bank plc
+44 20 7991 5968
daragh.maher@hsbcib.com
Stacy Williams
Head of FX Quantitative Strategy
HSBC Bank plc
+44 20 7991 5967
stacy.williams@hsbcgroup.com
Paul Mackel
Head of Asian FX Research
The Hongkong and Shanghai Banking Corporation Limited
+852 2996 6565
paulmackel@hsbc.com.hk
Mark McDonald
FX Quantitative Strategist
HSBC Bank plc
+44 20 7991 5966
mark.mcdonald@hsbcib.com
Ju Wang
FX Strategist, Asia
The Hongkong and Shanghai Banking Corporation Limited
+852 2822 4340
juwang@hsbc.com.hk
Robert Lynch
Head of G10 FX Strategy, Americas
HSBC Securities (USA) Inc.
+1 212 525 3159
robert.lynch@us.hsbc.com
Dominic Bunning
FX Strategist, Asia
The Hongkong and Shanghai Banking Corporation Limited
+852 2822 1672
dominic.bunning@hsbc.com
Clyde Wardle
Emerging Markets FX Strategist
HSBC Securities (USA) Inc.
+1 212 525 3345
clyde.wardle@us.hsbc.com
Joey Chew
FX Strategist, Asia
The Hongkong and Shanghai Banking Corporation Limited
+852 2996 6568
joey.s.chew@hsbc.com.hk
Marjorie Hernandez
FX Strategist, Latin America
HSBC Securities (USA) Inc.
+1 212 525 4109
marjorie.hernandez@us.hsbc.com
Issuer of report: HSBC Bank plc