Global Economics & Foreign Exchange Strategy
March 2016
Foreign Exchange Outlook
AMERICAS
We remain bullish on the USD as we anticipate tighter monetary policy from the Federal
Reserve this year. Re-pricing of the 2016 path presents upside risk to the USD. The month
of March contains considerable event risk for CAD as we look to policy decisions from the
Bank of Canada and the Federal Reserve and note the potential for added turbulence in
response to Canada’s Federal Budget. MXN has responded positively to aggressive and
concerted policy action. We anticipate further gains in MXN.
EUROPE
We expect the EUR to weaken on the basis of policy divergence and interest rate
differentials. The Brexit threat has provided for a sizeable drop in GBP; risks remain tilted to
the downside into the June 23 referendum.
ASIA-PACIFIC
JPY is expected to weaken, as we look to a reversal of its YTD sentiment-driven gains.
Central bank policy divergence is the core driver of our JPY forecast. CNY should weaken
modestly in response to slower growth and central bank policy accommodation.
Fundamentals will drive KRW weakness into year end.
Contents
Market Tone & Fundamental Outlook .....................................................................3
United States & Canada ..................................................................................... 4-5
G10 (Euro Zone, United Kingdom, Japan, Sweden) .......................................... 6-7
BRIC (Brazil, Russia, India, China) ..................................................................... 8-9
Pacific Alliance (Mexico, Colombia, Chile, Peru) ............................................ 10-11
Developing Economies (South Korea, Thailand, Taiwan, Malaysia) ............... 12-13
Global Currency Forecast .....................................................................................14
Contacts & Contributors ........................................................................................15
Foreign Exchange Outlook is available on scotiabank.com and Bloomberg at SCOT
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
Core Exchange Rates
Global Foreign Exchange Outlook
March 2, 2016
EURUSD
USDJPY
GBPUSD
USDCAD
AUDUSD
USDMXN
1.50
Spot
Q1
1.08
113.9
1.40
1.35
0.72
17.91
1.05
128
1.35
1.37
0.70
18.06
EURUSD
2016f
Q2
1.00
129
1.35
1.38
0.68
17.60
123
Q3
Q4
Q1
0.95
130
1.40
1.39
0.65
17.66
0.95
131
1.40
1.39
0.65
17.90
0.98
133
1.45
1.35
0.68
17.73
2017f
Q2
1.00
135
1.45
1.33
0.70
17.48
Q3
Q4
1.07
137
1.50
1.30
0.72
17.38
1.12
137
1.50
1.26
0.72
17.22
USDJPY
115
1.40
107
1.30
99
1.20
91
1.10
83
1.00
Mar-11
1.74
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
GBPUSD
75
Mar-11
1.43
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-13
Mar-14
Mar-15
Mar-16
Mar-13
Mar-14
Mar-15
Mar-16
USDCAD
1.35
1.66
1.28
1.59
1.20
1.13
1.51
1.05
1.44
1.36
Mar-11
0.98
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
0.90
Mar-11
AUDUSD
Mar-12
USDMXN
18.5
1.05
17.3
0.95
16.0
14.8
0.85
13.5
0.75
12.3
0.65
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
11.0
Mar-11
Mar-12
2
Global Economics & Foreign Exchange Strategy
Market Tone & Fundamental Focus
March 2016
Foreign Exchange Outlook
Shaun Osborne 416.945.4538
shaun.osborne@scotiabank.com
Currency market volatility increased through February, delivering sharp and, in some cases, unexpected moves in the major
currencies. Equity markets have remained choppy and broader market uncertainties have increased in the past few weeks,
driving demand for safe havens. Crude oil prices have, however, stabilized somewhat. Investors will have to confront significant
event risk in the next few weeks (central bank policy decisions in the US, euro zone, Canada etc., the federal budget will be
unveiled in Ottawa and battle lines will become more precisely delineated in the US presidential election campaign and the UK’s
“Brexit” debate). Broader measures of FX market volatility reached the highest level since 2011 in February and volatility
appears likely to remain elevated in the weeks ahead.
The US dollar (USD) remains generally well-supported, with the DXY (market-weighted index) close to recent (multi-year) highs.
The early February weakness in the big dollar was handily reversed, with the February run of US data generally reporting above
expectations. The US economy appears to be in a relatively good shape. Q4 GDP was revised higher, unexpectedly, and GDP
tracking measures for Q1 suggest growth in the region of 2% currently. We continue to anticipate tighter monetary policy from
the Federal Reserve this year but markets disagree and have factored out virtually any chance of any tightening this year.
Tighter policy will drive a broader re-pricing of the short end of the curve and remains a key upside risk for the USD.
The Canadian dollar (CAD) was one of the better-performing currencies in February as it reversed a good part of the January
sell-off. Oil prices have stopped declining and the Bank of Canada (BoC) has moved to policy sidelines as it awaits news on the
fiscal policy front from the Federal government. Meaningful fiscal stimulus in the budget would take over the heavy-lifting to
boost growth from monetary policy and the exchange rate. While the weaker CAD has helped underpin growth in Canadian non
-energy exports, the downside of a plunging exchange rate has become obvious for policymakers in the form of rising imported
food costs. We continue to target 1.37 for the end of Q1 and we recognize the potential for heightened volatility around March’s
event risk. We think near-term USDCAD gains back towards the 1.38/1.40 area are a good selling opportunity.
The GBP has under-performed broadly in the past few weeks. The UK data run has also managed to surprise positively relative
to market expectations but the reality of the “Brexit” referendum, called by UK Prime Minister Cameron after he won
concessions for the UK on its participation in the European Union (EU), has boosted uncertainty in the GBP. The referendum
will be held on June 23rd. The emergence of some significant political personalities on the “leave” side of the argument has lent
a little more credibility to the anti-EU camp. Polls suggest sentiment is fluid and a high number of voters are undecided,
however. Uncertainty will prolong the Bank of England’s stay on the policy sidelines and investors will want clarity on the UK’s
position in Europe before embracing the GBP again. The cost of leaving the EU would likely be significant in economic terms.
EURUSD has weakened steadily from the early February high near 1.14. Price signals suggest that the broader consolidation in
the EUR that developed following the early December European Central Bank (ECB) meeting is starting to break down
bearishly for the EUR. Euro zone data have been less impressive, suggesting slow growth and renewed deflationary impulses.
We expect the ECB to unveil more accommodation at the March 10th policy meeting. Given prospects for the US economy, we
think the asymmetric growth and policy divergence narrative between the euro zone and the US that kept the EUR under
pressure for much of 2015 remains alive. We continue to target EURUSD falling to 1.05 at the end of March and we think
downside risks remain significant for H2, especially as UK “Brexit” volatility could spill over negatively into the EUR.
The JPY has been a top-performer through February and is up more than 5% versus the USD since the start of the year. JPY
appreciation reflects safe-haven demand amid broader uncertainties across assets earlier in the year. Gains roundly ignore the
Bank of Japan’s latest monetary easing as well as our own expectations for exchange rate depreciation (based on policy
differentials). Japanese officials are uncomfortable with the JPY rise, fearing that strength may undermine exports, derail growth
and curb inflation. The Ministry of Finance resorted to “verbal intervention” to try and slow or reverse JPY gains. Bank of Japan
data imply that no actual intervention occurred in February but USDJPY losses appear to have steadied around 111,
coincidental with improving global equity markets.
In the developing market space, stable energy prices are positive developments for the likes of the RUB, COP and IDR. The
MXN has responded positively to stronger crude oil as well as aggressive and concerted domestic policy action to reverse
recent weakness. USDMXN weakness below 18 suggests that more MXN gains are likely going forward. The KRW has fallen
sharply over the past month amid weak export growth, rising rate cut expectations and geo-political tensions. The CNY has
weakened steadily, if only slightly, over the past month; we think modest weakness is fundamentally justified amid slower
growth and central bank policy accommodation. The Shanghai G-20 meeting held at the end of February revealed no new
measures on global growth initiatives or FX policy. Enhanced international cooperation and coordination remains difficult to
achieve while policymakers remain pre-occupied with domestic challenges.
3
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
Shaun Osborne 416.945.4538
shaun.osborne@scotiabank.com
Canada
Currency Outlook
The CAD has experienced a significant reversal in fortunes in the past few weeks. Having tumbled more than 12% against the
USD from the middle of October through the middle of January in a more or less one-way move, the CAD’s rebound has been
just as spectacular – and relentless. USDCAD has given back more than two thirds of its late 2015/early 2016 rally in the past
six weeks and the CAD has gained significant ground on some of the key crosses, rising strongly against the GBP, EUR and
AUD for example. Event risk this month is significant and may add to CAD volatility. The Bank of Canada policy meeting is on
the 9th, the FOMC meeting is on the 16th and the Federal budget is unveiled in Ottawa on the 22nd.
The CAD’s rally has been helped by a stabilization in energy prices on the one hand and an improvement (narrowing) in USCanada short-term interest rate spreads on the other. Oil prices appear to be trying to grind out a low. Supply/demand dynamics
remain adverse but a “trading bounce” in crude oil could easily see prices rise further towards $45-50/bbl in the next few
months, which would be CAD-supportive. Meanwhile, short-term interest rate differentials have moved more supportively for the
CAD. Two-year, US-Canada government bond yield differentials peaked at +70bps in mid-January, around the same time that
USDCAD tested 1.47. The spread has subsequently halved, undercutting a key source of support for the USD. We think risks
around the Fed policy outlook remain significant, however. A rate tightening or hawkish commentary from the Fed could still
drive the USD temporarily higher through March. A Canadian budget which delivers significant fiscal stimulus to boost growth
(and further reduces scope for BoC rate cuts) should be CAD-supportive, however.
From a technical perspective, short, medium and longer-term price signals are USDCAD-bearish and suggest a significant
reversal in the USD bull trend is in the process of unfolding. Considering all these developments, we are more constructive on
the CAD’s prospects through the middle of the year and think modest USDCAD rebounds through March/April will be limited to
the 1.36/1.38 range. We are retaining, for now, our 1.39 year-end forecast for USDCAD but risks around the outlook appear to
be skewed to the downside.
Canadian Dollar Cross-Currency Trends
Spot
2-Mar
0.97
84.5
1.46
1.35
FX Rate
AUDCAD
CADJPY
EURCAD
USDCAD
1.04
16Q1f
16Q2f
16Q3f
16Q4f
17Q1f
17Q2f
17Q3f
17Q4f
0.96
93.4
1.44
1.37
0.94
93.5
1.38
1.38
0.90
93.5
1.32
1.39
0.90
94.2
1.32
1.39
0.92
98.5
1.32
1.35
0.93
101.5
1.33
1.33
0.94
105.4
1.39
1.30
0.91
108.7
1.41
1.26
AUDCAD
101.5
CADJPY
99.0
1.01
96.5
94.0
0.99
91.5
89.0
0.96
86.5
84.0
0.94
81.5
0.91
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
79.0
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
1.62
EURCAD
1.45
1.57
1.40
1.53
1.35
1.48
1.44
1.30
1.39
1.25
1.35
1.20
1.30
Mar-15
USDCAD
Jun-15
Sep-15
Dec-15
Mar-16
1.15
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
4
March 2016
Global Economics & Foreign Exchange Strategy
United States and Canada
Fundamental Commentary
Foreign Exchange Outlook
Neil Tisdall 416.866.6252
neil.tisdall@scotiabank.com
Adrienne Warren 416.866.4315
adrienne.warren@scotiabank.com
UNITED STATES — The US economy is posting moderate growth averaging around 2%. Consumer spending and housing
activity remain well supported by pent-up demand, a robust job market, rising income gains, solid household balance sheets,
cheap gasoline prices, and low borrowing costs. Ongoing hiring gains, led by construction and services, have pushed the
unemployment rate below 5% for the first time since 2008, stabilizing labour force participation rates and strengthening wage
gains. Consumer confidence and buying intentions remain upbeat despite increased financial market volatility. Motor vehicle
sales are running near record levels, and retailers are reporting healthy, albeit moderate, sales growth. A gradual easing in
lending conditions, low mortgage rates and strengthening household formation are underpinning improving home sales and
residential construction, though affordability pressures are beginning to emerge. Non-residential construction is showing broad
strength across industrial and commercial sectors. At the same time, the overall momentum in industrial activity remains soft
amid the retrenchment in oil & gas drilling, inventory readjustments and sluggish export sales. US dollar strength and moderate
global growth are weighing on export activity, though solid domestic sales should support a modest expansion in manufacturing
production in 2016. Business investment plans remain restrained, held back by cutbacks in the energy and mining sectors, as
well as weak export earnings, though a rebound in core capital goods orders in January is encouraging. The services sector is
witnessing broad-based expansion across a range of industries, including real estate, finance, utilities, and wholesale and retail
trade. The US economy also is getting a lift from a pickup in local and state government spending, and a reduced pace of
federal fiscal restraint. Inflation pressures are edging up notwithstanding the deflationary impulse from a strong US dollar. Core
CPI hit a 3½-year high of 2.2% y/y in January, while headline inflation has moved back above 1%.
CANADA — The Canadian economy grew by only 1¼% in 2015 as commodity prices weighed on the mining and oil and gas
industries. Exports and auto sales provided some offset, and will continue to be positive drivers in the year ahead. Despite slow
growth last year, the labour market added jobs at a moderate pace, with positive momentum in services and construction more
than offsetting weakness in resources and manufacturing. Expanded federal spending will likely boost the growth outlook this
year, with details to be released in the March 22nd budget. Vehicle sales remain at record highs, and auto production has picked
up after an extended period of retooling in the first half of 2015. Consumer spending has been supportive of growth, but
Canadians are expected to be cautious spenders this year in the face of weak wage growth, soft consumer confidence and
elevated household debt. Residential investment will likely be flat this year following a 4% jump in 2015, as housing markets
around the oil patch continue to cool. We expect manufacturing to improve with an increasingly competitive Canadian dollar as
well as rising auto sales and residential construction south of the border. Business investment remains muted with energy
sector cutbacks and moderate sales growth weighing on capital spending plans, though infrastructure investment will
increasingly provide support. Despite the sharp decline in energy prices, rising food costs have driven headline inflation to 2%
y/y, well above most other advanced nations. Core inflation is also running around 2%, reflecting the pass-through of a weaker
Canadian dollar on imported goods.
Monetary Policy Commentary
Derek Holt 416.863.7707
derek.holt@scotiabank.com
Dov Zigler 212.225-6631
dov.zigler@scotiabank.com
UNITED STATES — We continue to expect the Federal Reserve to raise interest rates by 100 bps in 2016. The balance of Fed
communications have, however, become more cautious. The Fed’s January statement removed a reference to risks to the
outlook being “balanced”. Since then, the NY Fed President, Fed Chair, and Fed Vice Chair have delivered policy speeches
acknowledging risks to their outlooks for inflation and growth, by implication pointing to a potentially slower rate of policy
changes than the 3-4 hikes that are forecast in the Fed’s ‘dots’. The performance of the labor market remains constructive,
however, and inflation numbers have been gaining traction to start the year. As well, the Fed’s outlook may be lagging should
China add fiscal stimulus, the ECB provide more accommodative policy, and Q1 2016 U.S. GDP pick up speed. The degree of
downside risk being priced by markets, which currently only price a single rate hike in 2016, seems extreme. In effect, even if a
base case of four hikes in 2016 is starting to confront risks, the market’s current base case of one hike this year seems
excessively pessimistic.
CANADA — We continue to expect the Bank of Canada (BoC) to hold its policy rate level at the current level of 50 bps. The
logic that the BoC presented at its January meeting will likely persevere throughout 2016: a mix of the speed of the depreciation
of the C$ and a desire to see how the federal government’s fiscal plans unfold will compel the BoC to stay on hold. Inflation
running at 2% y/y on headline and core CPI doesn’t hurt either – even if this is largely a function of elevated import prices due to
the soft C$. This combination of factors will, in our view, win out over a more conventional output-gap based case for a rate cut
– although it could become a closer call later in the year. Optically, Q1 2016 might also look pretty strong in terms of GDP,
which could well sway sentiment towards the BoC further away from pricing in rate cuts – and somewhat flatten out the front
end of the C$ rates curve.
5
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
Eric Theoret 416.863.7030
eric.theoret@scotiabank.com
G10
Currency Outlook
EURO ZONE — EUR has entered March with a considerable amount of bearish momentum, its late February decline providing
for the formation of a bearish monthly shooting star doji candle. Fundamentals and interest rate differentials appear to have
returned as the primary drivers for EUR, overpowering the supportive impact of risk aversion and position squaring that had
dominated movement in EUR on a YTD basis. We look to further EUR weakness and hold a Q2 2016 forecast of 1.00.
UNITED KINGDOM — GBP ended February at fresh multi-year lows, trading around crisis levels last observed in early 2009.
GBP has been under a tremendous amount of pressure, its decline driven sentiment and uncertainty surrounding the June 23
referendum on EU membership. We look to further weakness and hold a Q2 2016 forecast of 1.3500.
JAPAN — JPY has consolidated its early February gains and has entered March at the upper end of its one year range. Its
divergence to EUR has been notable, with a failure to weaken in response to the moderation in risk aversion through the latter
half of February. Measures of sentiment are bullish with a four year high in the $5.9bn net long CFTC position as of February 23
and longer-term risk reversals suggesting steady demand for protection against JPY strength. We anticipate a fade in sentiment
and refocus toward fundamentals. We hold a Q2 USDJPY forecast of 129.
SWEDEN — SEK has entered March at the mid-point of its YTD range vs. EUR, with a 2% gain from the short-lived panic lows
seen in early February. We look to weakness in EURSEK on the back of relative central bank policy, however we acknowledge
the upside risk inherent to short-lived periods of risk aversion that have been observed over the past few months. We hold a Q2
EURSEK forecast of 9.15.
Currency Trends
Spot
2-Mar
1.08
1.40
114
9.35
FX Rate
EURUSD
GBPUSD
USDJPY
EURSEK
1.18
16Q1f
16Q2f
16Q3f
16Q4f
17Q1f
17Q2f
17Q3f
17Q4f
1.05
1.35
128
9.03
1.00
1.35
129
9.15
0.95
1.40
130
9.03
0.95
1.40
131
9.03
0.98
1.45
133
9.02
1.00
1.45
135
9.00
1.07
1.50
137
8.99
1.12
1.50
137
8.96
EURUSD
GBPUSD
1.16
1.57
1.14
1.52
1.12
1.10
1.47
1.08
1.42
1.06
1.04
Mar-15
127
Jun-15
Sep-15
Dec-15
Mar-16
USDJPY
1.37
Mar-15
9.63
125
123
Jun-15
Sep-15
Dec-15
Sep-15
Dec-15
Mar-16
EURSEK
9.50
121
9.38
119
117
9.25
115
9.13
113
111
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
9.00
Mar-15
Jun-15
Mar-16
6
Global Economics & Foreign Exchange Strategy
G10
Fundamental Commentary
March 2016
Foreign Exchange Outlook
Erika Cain 416.866.4205 Tuuli McCully 416.863.2859
erika.cain@scotiabank.com tuuli.mccully@scotiabank.com
EURO ZONE — The euro zone recovery is expected to gain modest momentum, with real GDP growth rising to 1.7% in 2016
and 1.8% in 2017, up from 1.5% last year. Nevertheless, the region is not immune to the challenging global environment. After
being one of last year’s global economic bright spots, the recent softening in key leading indicators, such as PMIs, consumer
confidence and business sentiment surveys, suggests that the euro zone economy is succumbing to the slowdown in emerging
markets and elevated financial market volatility. Indeed, euro zone growth has shown signs of moderation as households have
pulled back on spending and weaker foreign demand has weighed on exports and industrial production. Meanwhile, domestic
headwinds from the influx of refugees, heightened security amid terrorism concerns, new bank regulations, and the UK’s EU
referendum present further downside risks to the regional outlook. The euro bloc has also slid back into deflation, with the
headline HICP print declining to -0.2% y/y in February, from 0.3% in the prior month, largely due to lower oil prices. What is
particularly alarming, however, is that core inflation has fallen to its lowest level in 10 months, at 0.7% y/y in February. Against
this backdrop, the European Central Bank (ECB) is widely expected to unveil another round of monetary stimulus following the
governing council’s next meeting on March 9th and 10th. The ECB will likely announce another cut to its deposit rate, currently at
-0.3%, and step up its asset purchase program, which is presently set to run at €60bn per month until March 2017.
UNITED KINGDOM — The UK economy is expected to maintain decent growth of around 2% this year, down from 2¼% in 2015.
Growth in consumer spending is forecast to remain supportive, but will likely ease over the course of the year as real income
gains slow on the back of gradually rising inflation. Some offset, however, could come from a pick-up in UK exports alongside an
improving euro zone recovery and prospects of a weaker GBP boosting export competitiveness. Monetary policy will also remain
highly supportive of growth as expectations for Bank of England (BoE) policy tightening continued to be pushed back. Given
below target inflation and subdued wage gains, we believe that the timing of the first BoE rate hike is unlikely until at least May or
August of 2017. The UK’s EU referendum will also likely generate increased uncertainty ahead of the June 23rd vote. UK Prime
Minister David Cameron was able to secure a deal on the UK’s relationship with the EU at the February EU leaders’ summit.
However, critics have argued that it falls short of what Cameron originally promised as concessions were made on migrant and
welfare benefits. While opinion polls suggest that support for the “leave the EU” and “remain in the EU” camp have converged
sharply in recent months, we maintain the view that the UK will ultimately vote to stay in the EU. Still the debate leading up to the
referendum is expected to be quite negative, and uncertainty surrounding the outcome poses significant downside risks to the
outlook. The biggest risk facing the UK economy is that a loss of consumer and business confidence could weigh on household
spending as well as hiring and investment intentions.
JAPAN — Economic weakness remains firmly in place in Japan. The country’s real GDP growth returned to negative territory in
the final quarter of 2015, as output declined by 0.4% q/q (+0.7% y/y) following a 0.3% (1.6% y/y) expansion in the prior three
month period. The main factor behind the weak outcome was a struggling Japanese consumer. In 2015 as a whole, the
economy grew by 0.5%. We have revised our real GDP growth forecasts for Japan downward and now expect the economy to
expand by 0.7% in 2016 and 0.6% in 2017 (compared with the prior forecasts of 1.1% and 0.8%, respectively). The Bank of
Japan will maintain an accommodative monetary policy in place for the foreseeable future and will likely consider additional
stimulus measures to complement the existing policy program — Quantitative and Qualitative Monetary Easing with a Negative
Interest Rate — which applies an interest rate of -0.1% to financial institutions’ deposits at the central bank. Persistent economic
fragility will also put the implementation of the consumption tax rate hike (scheduled for April 2017) at risk. Headline inflation
was 0% y/y in January, while core prices — excluding food and energy — increased by 0.7% y/y. We expect the headline rate
to accelerate only slightly to 0.5% y/y by the end of this year.
SWEDEN — Sweden continues to be one of Europe’s top economic performers. Swedish real GDP growth beat expectations
by advancing 4.5% y/y during the fourth quarter of 2015, which brings the country’s full-year growth rate to 3.8%. Output was
driven by strong domestic demand, but also got a boost from the external sector. Private consumption has been buoyed by
rising employment, highly accommodative monetary policy, muted inflation and a buoyant housing market. Meanwhile, low
borrowing rates and rising business confidence has supported investment at a time when government spending has edged up
and growth in exports has outpaced imports. CPI inflation also rose sharply in January to 0.8% y/y, up from 0.1% in the prior
month. The stronger-than-expected growth and inflation data follow the Riksbank’s bolder-than-expected 15 basis point cut to
benchmark interest rates on February 11th, bringing its key repurchase rate to -0.5%. While two out of the bank’s six executive
board members objected to this decision, further monetary policy loosening remains a possibility this year. Indeed, the rise in
inflation could prove short lived as it was partly due to temporary factors, while import prices could be weakened by the renewed
appreciation of the krona. Looking ahead, Swedish real GDP growth is forecast to moderate to around 3% in 2016 as tax
increases and tighter lending conditions weigh on household spending. Demand for exports will also likely ease on the back of
less favourable conditions in key external markets, such as Germany and the UK. Inflation is expected to trend modestly higher
to an average annual rate of ¾% in 2016 — still well below the Riksbank’s 2% target.
7
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
Erika Cain 416.866.4205
erika.cain@scotiabank.com
BRIC
Currency Outlook
Qi Gao 852.2861.4770 Eduardo Suárez 5255.9179.5174
qi.gao@scotiabank.com eduardo.suarez@scotiabank.com
BRAZIL — The BRL has stabilized somewhat (-1.0% YTD), thanks to a combination of high yields (in a world where Japanese
10yrs now carry negative interest rates), and a more benign global risk environment. The macro picture remains uncertain – if we
take an optimistic view on the country, otherwise it might be called bleak – and our sense is that positioning is not particularly
light. High yields have driven a fairly large amount of receivers positions, which could turn messy if risk appetite turns sour.
RUSSIA — After hitting a seven-week high, the Russian ruble (RUB) has slipped as the rally in oil prices stalled. While we expect the
RUB to modestly strengthen over the course of 2016 to a year-end rate 71.0 against the US dollar, the RUB outlook remains generally
bearish given subdued oil prices, ongoing economic challenges, and heightened geopolitical tension. This combined with the diverging
monetary policy bias between the Russian Central Bank and the US Fed orients the risks to the forecast towards the downside.
INDIA — The nation retained FY2016-17 budget deficit target of 3.5% of GDP on February 29th, down 0.4 percentage points from
3.9% for current fiscal year. The budget with fiscal consolidation remaining on track is expected to prompt a policy rate cut by the
RBI. Foreign investors could add to their local bond holdings ahead of the RBI’s April meeting. Meanwhile, we could not rule out the
chance of an unscheduled monetary policy review. We believe the INR will continue to follow a path of gradual depreciation in the
coming months amidst the RBI’s sterilized intervention. USDINR is likely to trade in a range of 67.5-69.5 in the month of March.
CHINA — China has reiterated its commitment to keep the CNY basically stable against, but not pegged to, the CFETS, BIS and
SDR currency basket while enhancing the flexibility of dollar/yuan. We expect dollar/yuan FX forward spread to re-steepen in the
near term given depreciating pressure on the yuan. We still expect around 3% orderly depreciation of the CNY this year, particularly
in the first half. As the economy may start to stabilize in mid-2016 on account of stimulus, the CNY may reverse some losses then.
CFETS RMB Index is likely to remain in a range of 99-101 in the foreseeable future. PBoC Governor Zhou said on February 26th that
the central bank will maintain a prudent monetary policy with a slightly easing bias, signaling further monetary easing.
Currency Trends
FX Rate
USDBRL
USDRUB
USDINR
USDCNY
4.40
Spot
2-Mar
3.92
74
68
6.55
16Q1f
16Q2f
16Q3f
16Q4f
17Q1f
17Q2f
17Q3f
17Q4f
4.15
71
69
6.60
4.20
72
69
6.60
4.15
71
69
6.65
4.30
69
70
6.70
4.35
69
70
6.70
4.40
67
69
6.70
4.45
66
69
6.65
4.50
65
68
6.65
85
USDBRL
80
4.10
USDRUB
75
3.80
70
65
3.50
60
3.20
55
2.90
2.60
Mar-15
69
50
Jun-15
Sep-15
Dec-15
Mar-16
45
Mar-15
6.60
USDINR
Jun-15
Sep-15
Dec-15
Mar-16
USDCNY
68
6.50
67
6.40
66
65
6.30
64
6.20
63
62
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
6.10
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
8
Global Economics & Foreign Exchange Strategy
BRIC
Fundamental Commentary
Pablo F.G. Bréard 416.862.3876
pablo.breard@scotiabank.com
March 2016
Foreign Exchange Outlook
Erika Cain 416.866.4205
erika.cain@scotiabank.com
Tuuli McCully 416.863.2859
tuuli.mccully@scotiabank.com
BRAZIL — A high-inflation recessionary environment amidst a profound institutional crisis continues to shape investor
sentiment towards Brazil with a myriad of downside risks to both growth and inflation. The double-notch downgrade by Moody’s
at the end of February sealed the newly achieved “speculative-grade” status by Brazil as a government borrower. We are of the
belief that multiple downgrade revisions were fully priced in Brazilian debt securities. The Brazilian real (BRL) was fairly muted
to the rating actions (which tend to follow market prices, not pre-empt them). In this context, we do not anticipate a large-scale
depreciation of the BRL in the year ahead similar to the 33% accumulated in 2015 as a whole. In fact, the BRL has been
immersed in a relatively well defined trading range over the past six months despite a highly volatile financial market
environment (courtesy of erratic policy shifts in China and ambiguous monetary policy decisions in the USA). We have revised
our economic projections anticipating a real GDP contraction of 3.6%, a consumer price inflation rate of 7.5% (measured by the
IPCA index), a nominal exchange rate depreciation of 8.5% and a current account deficit equivalent to 2.1% of GDP by the end
of 2016. We anticipate that political stress associated with potential impeachment proceedings against President Rouseff will
continue to escalate, deterring the fiscal adjustment under way; indeed, the consolidated public sector deficit already reached
10.8% of GDP.
RUSSIA — Preliminary estimates of Russian real GDP indicate that the economy contracted by 3.7% in 2015, underpinned by
the sharp drop in household spending and investment. Business investment is expected to remain weak given the subdued oil
price outlook, extension of EU sanctions through at least July 2016, depressed corporate profitability and banking sector
challenges. Meanwhile, Russian manufacturing and export orders data continue to prove very fragile at a time when the Ministry
of Labour believes that unemployment could rise by an additional 500,000 people this year. This suggests that the Russian
economy is far from a turning point and supports our view that real GDP will contract by -1% in 2016. Nevertheless, conditions
appear to be improving for the Russian consumer, with inflationary pressures easing – the headline CPI print edged down to
9.8% y/y in January from 12.9% in the prior month – and retail sales volumes picking up. The tentative signs of a recovery in
household income and consumption could be further reinforced by an improvement in consumer sentiment, which could take
place amid stabilization in oil prices and the ruble exchange rate. The Russian Central Bank (RCB) will likely maintain a
cautious monetary policy stance in the near-term given still elevated consumer price inflation as well as concerns regarding
banking sector instability and global capital shifts in favour of the US dollar amid Fed monetary tightening.
INDIA — India’s Union Budget for fiscal year 2016/17 (April-March), presented at the end of February, maintained the promise
for further fiscal consolidation. The administration kept previous fiscal targets in place and aims to narrow the central
government deficit to 3.5% of GDP in FY2016/17 from 3.9% in 2015/16. Nevertheless, the shortfall remains larger at the general
government level, averaging 6¾% of GDP through 2017, according to the International Monetary Fund. The budget focuses on
rural development and infrastructure. The fiscally cautious budget supports our view that the Reserve Bank of India will likely
lower the benchmark interest rate in the near future by 25 basis points to 6.50%. The most recent cut took place at the end of
September. While India’s inflation environment remains generally favourable, consumer price gains have accelerated somewhat
in recent months and reached 5.7% y/y in January, driven by higher food prices, particularly those of pulses. We expect a
further but modest pick-up over the course of 2016 before inflation stabilizes around 6% y/y by the end of the year. The Indian
economy expanded by 7.3% y/y in the final quarter of 2015, taking the increase in the nation’s output to 7.3% in 2015 as a
whole. We expect real GDP expansion to average around 7½% in 2016-17, below India’s potential growth of 8-10% due to
rather slow progress on improving the ease of doing business.
CHINA — Monetary conditions continue to ease in China. The People’s Bank of China lowered the Reserve Requirement Ratio
(RRR) by 50 basis points for all financial institutions on February 29th. The cut — the fifth since February 2015 — brings the
ratio for most large banks to 17% of deposits. The RRR reduction is aimed at supporting adequate liquidity in the banking
system and boosting money supply and credit growth, thereby offsetting the strong decelerating forces the Chinese economy is
facing. The country’s authorities are operating in a challenging context: while the economy is in need of a boost, it would
simultaneously benefit from relatively tight monetary conditions to limit ongoing capital outflow pressure, which is placing the
Chinese yuan on the defensive. The potential for further bouts of financial market volatility over the coming months remains
high, forcing the government to keep its interventionist approach in place. We expect additional cautious monetary easing over
the coming months, together with sizable fiscal injections. Nevertheless, in our view, monetary and fiscal stimulus will not be
enough to prevent China’s real GDP growth from slowing to 6.4% this year from 6.9% in 2015. The inflation outlook is
favourable as persistent producer price deflation is helping keep costs in check. Consumer prices increased by 1.8% y/y in
January; we expect only a modest pick-up over the coming quarters, with inflation at slightly over 2.0% y/y at the end of 2016.
9
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
Eduardo Suárez 5255.9179.5174
eduardo.suarez@scotiabank.com
Pacific Alliance
Currency Outlook
MEXICO — The peso had a dismal performance to start the year, with rising risk-proxy correlations, 24 hour liquidity, and a
US$130bn daily turnover making the peso a widely used proxy-hedge. However, the FinMin (a 70bps of GDP pre-emptive
adjustment) and Banxico (a surprise intra-meeting 50bps hike) took joint intervention to stabilize MXN (switching to discretionary
FX intervention), which completely change the peso’s dynamics, which have been positive since. We think MXN continues to
track broad USD trends, but no longer as a weakling.
COLOMBIA — With oil prices trading range-bound since late January, the peso has found its footing, although it is still down 3.6% YTD. The country’s current account gap and inflation both suggest the economy may be overheating, which combined
with oil price risk suggest upside to USDCOP in our view. We think that BanRep must turn more aggressive in curbing inflation,
or it risks pushing USDCOP higher, which in turn could drive inflation up.
CHILE — Among the Andeans, the Chilean economy seems to be adjusting to the new reality of lower commodity prices best,
with the country’s current account gap showing a positive trend lately, while inflation has stabilized, even if it remains
substantially above target. The combination of these factors has made the CLP somewhat of a LATAM safe heaven, posting a
YTD gain of +1.7%, making the peso the 6th best performer among the expanded majors.
PERU — One of the surprising aspects about the sol is that despite the BCRP’s heavy intervention, it is now almost flat to the
MXN since the start of 2015 (-15.5% vs -18.7%). Our concern is that inflation dynamics and the current account don’t point
towards a positive PEN performance going forward. We heard some point about the Soberano’s yields as a potential driver for
inflows, but we think that the BCRP’s swaps make hedging currency risk expensive, which we see as headwinds for Soberano
inflows.
Currency Trends
Spot
2-Mar
17.91
3203
687
3.52
FX Rate
USDMXN
USDCOP
USDCLP
USDPEN
19.50
16Q1f
16Q2f
16Q3f
16Q4f
17Q1f
17Q2f
17Q3f
17Q4f
18.06
3350
723
3.55
17.60
3500
723
3.56
17.66
3450
720
3.56
17.90
3400
724
3.55
17.73
3400
714
3.57
17.48
3400
714
3.52
17.38
3350
714
3.55
17.22
3350
714
3.52
USDCOP
USDMXN
3,375
18.75
18.00
3,075
17.25
2,775
16.50
15.75
2,475
15.00
14.25
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
745
725
2,175
Mar-15
3.56
USDCLP
Jun-15
Sep-15
Dec-15
Mar-16
Sep-15
Dec-15
Mar-16
USDPEN
3.48
705
3.41
685
3.33
665
3.26
645
3.18
625
3.11
605
585
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
3.03
Mar-15
Jun-15
10
Global Economics & Foreign Exchange Strategy
Pacific Alliance
Fundamental Commentary
March 2016
Foreign Exchange Outlook
Pablo F.G. Bréard 416.862.3876
pablo.breard@scotiabank.com
MEXICO — Mexico announced a series of policy measures to defend its currency amidst intensifying stress in emerging markets
and increasing risk of capital outflows. In an extraordinary coordinated action, the Ministry of Finance and the central bank
unveiled the following decisions: an increase of the reference interest rate by 50 bps to 3.75%, the possibility of outright
intervention in the foreign exchange market, and a reduction in public spending by MXN132 billion or 0.7% of GDP (US$7.2
billion equivalent) from the budget approved last November (the bulk of spending cuts will be executed by the state-owned
energy firm PEMEX). Mexico is relatively vulnerable to “back to USA” repatriation capital flows. We maintain a strong tradeweighted USD view for the year ahead. Consumer prices increased by 2.6% y/y in January (versus the 3% target). The surprise
policy actions inject a sense of uncertainty (not present until now) regarding potential course of monetary policy action connected
with the US cycle. At a time when market participants are increasingly questioning the urgency of Fed rate increases, Mexico
decided to act pre-emptively (or defensively) to counteract potential capital outflows of US-based investors from Mexican
securities portfolios.
COLOMBIA — The Colombian economy continues to adjust to the new realities of the global energy market with direct effects
on investors’ perception of currency risk. The finance ministry announced a downward revision to the 2016 Federal budget
equivalent to 0.7% of GDP. The government still projects that the economy can expand at a 3% y/y rate this year, yet the fiscal
adjustment may weigh on economic growth prospects. Following a sharp decline in crude oil prices, the country’s leadership
believes that the structural transformation away from energy sector dependence is permanent. In fact, oil-related receipts
accounted for less than 5% of total fiscal revenue last year and one third of total exports in 2015. This marks a profound
structural transformation of the Colombian economy. Infrastructure development continues to be earmarked as a key source of
economic activity. Meanwhile, the central bank opted – once again – to increase its policy reference rate by 25 basis points to
6.25% at its latest monetary committee meeting. Inflation containment is at the very core of the tightening cycle under way;
consumer prices increased by 7.45% y/y in January, well above the officially established 3% ±1% target. The central bank’s staff
estimates that the economy will likely expand by 2.7% y/y in 2016, yet there are concerning signs of deterioration in consumer
activity and employment dynamics. Politically, a peace settlement with the insurgent FARC group might be announced before
the end of the quarter.
CHILE — Emerging signs of stabilization in copper prices following a 57% decline over the past five years have instilled a sense
of calm into the Chilean peso (CLP) over a 30-day period. Nevertheless, a prolonged appreciation of the USD coupled with
persistently soft global trade activity (China in focus) may weigh on a swift recovery of the CLP in the months ahead. On a
positive note, the “Fed Fear” factor has somewhat dissipated since the beginning of the new year, as global market participants
re-assess their views on the speed and depth of monetary policy normalization in the USA. Closer to home, the deepening of the
institutional and economic crisis in Brazil injects another negative factor for South American currencies as a whole, yet the
magnitude of a potential sell off (following a sharp correction materialized in 2015) will not likely be repeated this year. On the
monetary front, the Chilean central bank will remain vigilant to guiding inflationary expectations towards the mid-point of its
official target range throughout the remainder of the year, with increasing sensitivity to the alignment of credit flows to economic
activity. The headline inflation rate somewhat reversed its declining trend recently, closing at 4.8% y/y in January. Looking
ahead, we anticipate that still soft economic activity coupled with persistently low energy prices and unwinding of the El Niño
Southern Oscillation weather effects will accelerate the process of disinflation.
PERU — Peru is in full campaign mode ahead of the April presidential elections. The surveys of voting intentions indicate that it
is almost certain that a run-off vote will take place sometime in May as no single candidate would obtain the absolute majority
during the first round. Recent data showed that economic activity experienced a major rebound in the last quarter of 2015, driven
by a boost of mining production which led the resource-based sectors to expand by 12% y/y. The Peruvian sol (PEN) which
accumulated a depreciation of 13% versus the USD during 2015, has found some temporary relief recently as a result of
stabilization of base metal prices, higher demand for gold (as a safe-haven asset) and a modest consolidation tone in Latin
American currency markets. Containing inflationary expectations remains a core objective of the central bank, as reflected in the
25 basis points (bps) increase in its reference interest rate to 4.25% in February (accumulating a 100 bps tightening since
September 2015). In line with other central banks in the developing Americas, Peru is not waiting until the US Federal Reserve
adjusts monetary conditions to execute pre-emptive rate hikes. Consumer prices increased by 4.6% y/y last January and the 12month expected inflation rate is currently set at 3.5% (above the 2% ±1% target). We estimate that real GDP growth will expand
by 3.5% this year following a 3.3% advance last year.
11
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
Qi Gao 852.2861.4770
qi.gao@scotiabank.com
Developing Economies
Currency Outlook
SOUTH KOREA — USDKRW surged in February after the Lunar New Year on a combination of portfolio outflows, expectations
of monetary easing and escalating geopolitical risks. However, foreign investors have recently turned to net purchases of local
equities and bonds. We look to buy the pair on dips while trading its downward trend technically. USDKRW is likely to trade between
1,215 and 1,270 in March. Should the BoK’s concerns regarding mounting household debt be tackled, a small rate cut is possible.
THAILAND — The BoT will review its GDP forecast for 2016 in March with a downward bias after cutting it to 3.5% in December.
We expect the THB to decline modestly against the USD in the near term on divergent monetary polies, the yuan’s depreciation
bias, contained portfolio inflows and domestic political issues. USDTHB will likely reach 37.0 at end-Q1. However, the THB is
not expensive now in terms of either NEER or REER and the chance of sharp falls in the THB is pretty low. In addition, the
nation is relatively less susceptible to China's slowdown with a solid coverage of external liability compared to regional peers.
TAIWAN — As Taiwan’s export orders tumbled for a tenth month in January, the CBC is very likely to trim its policy rate again
in March as indicated by declining 364-day NCD auction yields. We expect the TWD to catch up with the weakening KRW in the
coming weeks. In addition, president-elect Tsai Ing-wen said late February that she won’t let the TWD exchange rate to affect
the island’s industry and the new administration will discuss FX issue and macro economy with the central bank. We maintain
our short TWDKRW cross with a target of 36.20, while staying with our long INR position funded with the low-yielding TWD.
MALAYSIA — The MYR gained modestly in early February on stabilizing domestic conditions and a revised Budget 2016. The
sovereign rating was affirmed by Fitch at “A-”. However, oil prices will not help strengthen the MYR in the near term. While
continued bond inflows chasing the high yields are supportive, the MYR is still susceptible to external uncertainty (the Fed, the
CNY, and China). A high foreign ownership of local government bonds could trigger capital outflows if sentiment weakens.
Currency Trends
Spot
2-Mar
1227
35.6
33.1
4.17
FX Rate
USDKRW
USDTHB
USDTWD
USDMYR
1250
16Q1f
16Q2f
16Q3f
16Q4f
17Q1f
17Q2f
17Q3f
17Q4f
1220
37.0
33.5
4.38
1230
37.2
33.7
4.38
1240
37.5
33.9
4.40
1250
37.7
34.0
4.42
1240
37.6
33.9
4.41
1240
37.5
33.9
4.40
1230
37.4
33.8
4.39
1220
37.4
33.8
4.39
Sep-15
Dec-15
Mar-16
Sep-15
Dec-15
Mar-16
37.0
USDKRW
1210
36.0
1170
35.0
1130
34.0
1090
33.0
1050
Mar-15
33.8
Jun-15
Sep-15
Dec-15
Mar-16
USDTWD
32.0
Mar-15
4.50
33.0
4.30
32.3
4.10
31.5
3.90
30.8
3.70
30.0
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
USDTHB
Jun-15
USDMYR
3.50
Mar-15
Jun-15
12
Global Economics & Foreign Exchange Strategy
Developing Economies
Fundamental Commentary
March 2016
Foreign Exchange Outlook
Tuuli McCully 416.863.2859
tuuli.mccully@scotiabank.com
SOUTH KOREA — Fiscal stimulus and an accommodative monetary policy stance will continue to support South Korean economic performance over the coming quarters. In early February, the government proposed a fiscal stimulus package, worth
around US$20 billion, to front-load spending in order to boost the economy. For the same reason, the Bank of Korea (BoK) will
keep monetary conditions loose for an extended period of time; we assess that the chance for further monetary stimulus has
increased recently despite policymakers’ concerns regarding a large and increasing household debt burden. The benchmark
interest rate is currently set at 1.50%. South Korean inflation remains low with the consumer price index rising by 0.8% y/y in
January, down from 1.3% a month before. We expect to see a modest pick-up in price pressures over the coming months; the
annual inflation rate will likely reach around 1⅔% by the end of the year, remaining below the BoK’s 2% inflation target for 201618. A weak external sector performance was the key contributor to South Korea’s slower economic growth in 2015; real GDP
expanded by 2.6% in 2015, down from 3.3% the year before. In our view, South Korea’s economic outlook will improve slightly
in 2016-17 as demand from advanced economies for the country’s exports strengthens gradually and as monetary and fiscal
stimulus underpins domestic demand; output expansion will likely average 2.8% y/y over the next two years.
THAILAND — Thailand continues to suffer from external sector headwinds; in January, the country’s exports recorded the thirteenth consecutive monthly decline in year-over-year terms, mainly due to declining shipments to China and other Asian trading
partners. The Thai economy expanded by 2.8% y/y in the final quarter of 2015, and posted an equivalent rate of expansion for
the year as a whole. The export sector struggles aside, momentum was supported by household spending as well as rising public sector outlays. Encouragingly, private sector investment recuperated, reflecting improved business confidence. Nevertheless,
the sustainability of the recovery is uncertain given persistent political uncertainty. We expect Thailand’s GDP to expand by
3.2% y/y in 2016-17. The country’s inflation environment remains muted, with headline consumer price gains remaining in negative territory at -0.5% y/y in February. We expect deflationary pressures to remain in place in the first half of 2016, after which
modest price gains will take the inflation rate toward the lower end of the Bank of Thailand’s medium-term target of 2½% ±1½%.
While financial stability is among the central bank’s key priorities, monetary policymakers may implement further monetary stimulus in the near term if the economy underperforms authorities’ expectations. The benchmark interest rate has been kept at
1.50% since April 2015.
TAIWAN — Monetary conditions in Taiwan will remain loose for an extended period of time. In fact, we expect the Taiwanese
central bank to inject further monetary stimulus into the struggling economy following the March 24th policy meeting and lower
the benchmark interest rate to 1.50%. The most recent cut took place in December when the rate was reduced by 12.50 basis
points to 1.625%. The Taiwanese economy contacted by 0.5% y/y in the final quarter of 2015 following a 0.8% decline in the
prior three month period. Real GDP expanded by only 0.7% in 2015 as a whole, following a solid 3.9% advance in the year before. The outcome reflected a combination of weaker domestic demand and dull export sector performance. We expect price
pressures to remain mild, yet the headline inflation rate jumped to 0.8% y/y in January from 0.1% at the end of 2015, reflecting
the base effect from electricity cost refunds a year earlier. We forecast that inflation will remain well-contained over the coming
months, hovering slightly below 1% y/y for most of 2016. The Taiwanese political power structure is changing; the Democratic
Progressive Party, which won the January 16th elections, now holds a majority in parliament and should be able to implements
its agenda rather effortlessly. President-elect Tsai Ing-wen will take office in May.
MALAYSIA — The Malaysian economy continues to record reasonably solid momentum despite low energy prices that are
adversely impacting the country’s energy sector. Real GDP grew by 4.5% y/y in the fourth quarter, compared with a 4.7% gain
in the July-October period. In 2015 as a whole, the country’s output expanded by 5.0%. Economic activity is driven by domestic
demand. Private consumption is holding up, underpinned by stable wage growth and employment conditions. Investment is supported by private sector outlays in the manufacturing and services industries. This should partially compensate for the investment downturn in the oil and gas sector as well as weaker export sector performance. We expect Malaysia’s real GDP to expand by 4⅓% this year, in line with the government’s revised forecast. The recalibrated Budget for 2016 maintained a deficit
target of 3.1% of GDP. Low energy prices are causing a dip in the government’s revenues, yet prudent fiscal stance is abled by
enlarging the tax base and optimizing public expenditure. The budget is based on a US$30-35 per barrel price forecast for Brent
crude. The consumer price index rose by 3.5% y/y in January, up from 2.7% recorded in December. We expect inflation to remain elevated in the near term until the impact of a weaker currency and the GST implementation in April 2015 start fading
away. The headline rate will likely hover slightly above 2% y/y at the end of the year. We expect the Malaysian central bank to
keep the benchmark interest rate at 3.25% over the coming months. The key rate has remained unchanged since July 2014
when it was raised by 25 basis points.
13
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
Global Currency Forecast (end of period)
2015 2016f 2017f
Major Currencies
2016f
2017f
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Japan
USDJPY
120
131
137
128
129
130
131
133
135
137
137
Euro zone
EURUSD
1.09
0.95
1.12
1.05
1.00
0.95
0.95
0.98
1.00
1.07
1.12
EURJPY
131
124
153
134
129
124
124
130
135
147
153
GBPUSD
1.47
1.40
1.50
1.35
1.35
1.40
1.40
1.45
1.45
1.50
1.50
EURGBP
0.74
0.68
0.75
0.78
0.74
0.68
0.68
0.68
0.69
0.71
0.75
USDCHF
1.00
1.16
0.98
1.03
1.09
1.16
1.16
1.12
1.10
1.03
0.98
EURCHF
1.09
1.10
1.10
1.08
1.09
1.10
1.10
1.10
1.10
1.10
1.10
USDCAD
1.38
1.39
1.26
1.37
1.38
1.39
1.39
1.35
1.33
1.30
1.26
CADUSD
0.72
0.72
0.79
0.73
0.72
0.72
0.72
0.74
0.75
0.77
0.79
UK
Switzerland
Americas
Canada
Mexico
Brazil
USDMXN
17.21 17.90 17.22
18.06 17.60 17.66 17.90
17.73
17.48 17.38 17.22
CADMXN
12.44 12.88 13.67
13.18 12.75 12.71 12.88
13.13
13.14 13.37 13.67
USDBRL
3.96
4.30
4.50
4.15
4.20
4.15
4.30
4.35
4.40
4.45
4.50
Chile
USDCLP
709
724
714
723
723
720
724
714
714
714
714
Colombia
USDCOP
3175
3400
3350
3350
3500
3450
3400
3400
3400
3350
3350
Peru
USDPEN
3.41
3.55
3.52
3.55
3.56
3.56
3.55
3.57
3.52
3.55
3.52
Uruguay
USDUYU
29.9
34.5
39.0
32.0
32.5
33.0
34.5
35.0
36.5
38.0
39.0
Australia
AUDUSD
0.73
0.65
0.72
0.70
0.68
0.65
0.65
0.68
0.70
0.72
0.72
China
USDCNY
6.49
6.70
6.65
6.60
6.60
6.65
6.70
6.70
6.70
6.65
6.65
Hong Kong
USDHKD
7.75
7.78
7.77
7.78
7.78
7.78
7.78
7.78
7.78
7.77
7.77
India
USDINR
66.2
69.5
68.0
68.5
68.9
69.2
69.5
69.5
69.0
68.5
68.0
Indonesia
USDIDR
Malaysia
USDMYR
4.29
4.42
4.39
4.38
4.38
4.40
4.42
4.41
4.40
4.39
4.39
New Zealand
NZDUSD
0.68
0.60
0.66
0.65
0.60
0.60
0.60
0.63
0.63
0.66
0.66
Philippines
USDPHP
46.9
48.3
48.0
47.4
47.7
48.0
48.3
48.2
48.1
48.0
48.0
Singapore
USDSGD
1.42
1.46
1.44
1.44
1.45
1.45
1.46
1.45
1.45
1.44
1.44
South Korea
USDKRW
1175
1250
1220
1220
1230
1240
1250
1240
1240
1230
1220
Taiwan
USDTWD
32.9
34.0
33.8
33.5
33.7
33.9
34.0
33.9
33.9
33.8
33.8
Thailand
USDTHB
36.0
37.7
37.4
37.0
37.2
37.5
37.7
37.6
37.5
37.4
37.4
Asia-Pacific
13788 14600 14530
14000 14200 14400 14600
14580 14550 14530 14530
Europe / Africa
Czech Rep.
EURCZK
27.0
27.0
26.6
27.2
27.1
27.0
27.0
26.9
26.8
26.7
26.6
Hungary
EURHUF
315
308
306
309
309
308
308
307
307
306
306
Norway
USDNOK
8.84
9.00
7.80
8.80
8.90
9.20
9.00
8.70
8.50
8.25
7.80
Poland
EURPLN
4.26
4.35
4.30
4.33
4.35
4.37
4.35
4.34
4.33
4.32
4.30
Russia
USDRUB
72.5
69.0
65.0
71.0
71.5
70.5
69.0
68.5
67.0
66.0
65.0
South Africa
USDZAR
14.30 14.20 14.20 14.20
14.10
Sweden
EURSEK
9.17
9.03
8.96
9.03
9.15
9.03
9.03
9.02
9.00
8.99
8.96
Turkey
USDTRY
2.92
3.05
2.85
3.10
3.15
3.10
3.05
3.00
2.95
2.90
2.85
15.47 14.20 13.80
14.00 13.90 13.80
f: forecast a: actual
14
March 2016
Global Economics & Foreign Exchange Strategy
Foreign Exchange Outlook
International Economics Group
Canadian & U.S. Economics
Foreign Exchange Strategy
Pablo F.G. Bréard
pablo.breard@scotiabank.com
Derek Holt
derek.holt@scotiabank.com
Shaun Osborne
shaun.osborne@scotiabank.com
Erika Cain
erika.cain@scotiabank.com
Neil Tisdall
neil.tisdall@scotiabank.com
Eduardo Suárez
eduardo.suarez@scotiabank.com
Rory Johnston
rory.johnston@scotiabank.com
Adrienne Warren
adrienne.warren@scotiabank.com
Eric Theoret
eric.theoret@scotiabank.com
Tuuli McCully
tuuli.mccully@scotiabank.com
Dov Zigler
dov.zigler@scotiabank.com
Qi Gao
qi.gao@scotiabank.com
Estela Molina
estela.molina@scotiabank.com
Foreign Exchange Strategy
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