MTFX Section Analytics 6
FOREX CURRENCY FORECAST (2016 - 2017) FOREX MAJORS (USD)
2016
2017
SPOT
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
Canadian Dollar
USD/CAD
1.34
1.38
1.42
1.37
1.36
1.34
1.33
1.32
1.30
Euro
EUR/USD
1.08
1.08
1.11
1.12
1.14
1.15
1.16
1.17
1.18
Japanese Yen
USD/JPY
114
113
115
118
120
119
118
117
116
British Pound
GBP/USD
1.39
1.41
1.43
1.47
1.54
1.55
1.56
1.57
1.58
Swiss Franc
USD/CHF
1.00
0.99
1.00
1.00
0.98
0.98
0.97
0.97
0.96
Australian Dollar
AUD/USD
0.72
0.70
0.69
0.71
0.74
0.75
0.76
0.77
0.78
New Zealand Dollar
NZD/USD
0.66
0.65
0.66
0.68
0.69
0.70
0.71
0.72
0.73
OTHER PAIRS (USD)
2016
2017
SPOT
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
Mexican Peso
MXN/USD
17.93
17.99
17.50
17.60
17.90
17.73
17.47
17.38
17.22
Chinese Renminbi
CNH/USD
6.54
6.60
6.70
6.75
6.80
6.80
6.70
6.60
6.60
Indian Rupee
INR/USD
67.8
68.5
67.5
67.0
67.0
67.0
66.5
66.0
66.0
South African Rand
ZAR/USD
15.6
14.3
14.2
14.2
14.1
14.0
13.9
13.9
13.8
Polish Zloty
PLN/USD
3.99
4.33
4.35
4.37
4.35
4.34
4.33
4.32
4.30
CANADIAN CROSSES
2016
2017
SPOT
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
1.58
1.53
1.55
1.54
1.54
1.55
1.53
Euro
EUR/CAD
1.46
1.49
Japanese Yen
CAD/JPY
85.5
82
81
86
88
89
89
88
87
British Pound
GBP/CAD
1.87
1.95
2.03
2.01
2.09
2.08
2.07
2.07
2.05
Swiss Franc
CAD/CHF
0.75
0.72
0.70
0.73
0.72
0.73
0.72
0.73
0.74
Austalian Dollar
AUD/CAD
0.96
0.97
0.98
0.97
1.01
1.01
1.00
1.01
1.02
New Zealand Dollar
NZD/CAD
0.89
0.90
0.94
0.93
0.94
0.94
0.94
0.95
0.95
Chinese Renminbi
CNY/CAD
4.70
4.78
4.72
4.93
5.01
5.07
5.04
5.01
5.08
Indian Rupee
INR/CAD
48.4
48.24
49.27
49.26
49.9
50.2
49.8
50.1
50.8
South African Rand
ZAR/CAD
11.63
10.36
10.02
10.30
10.44
10.52
10.53
10.53
10.62
Polish Zloty
PLN/CAD
2.97
3.14
3.19
3.20
3.23
3.24
3.26
3.27
3.31
Mexican Peso
MXN/CAD
13.37
12.35
12.85
13.23
13.14
13.17
13.18
13.25
13.16
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MTFX Section Analytics 6
MARCH 2016 - CURRENCY HIGHLIGHTS
USD
The US dollar has weakened over the last few weeks as markets have pared back the potential for Fed rate increases over the course of the year. Domestic fundamentals and global headwinds suggest a gentler path for a Fed tightening cycle which should modestly retrace the greenback’s strength over the coming months. (Bearish - Weaker USD)
CAD
The worst days for the loonie seem to have passed with a less hawkish Fed, a shift to fiscal policy stimulus vs. monetary policy stimulus in Canada and the recovery of oil. The loonie should depreciate further from current levels as growth trajectories between Canada and the US diverge but not to the extent experienced at the beginning of the year. (Bearish - Weaker CAD)
EUR
JPY
The ECB is expected to ease policy again at its March 10th meeting in an attempt to combat the persistently low inflationary pressures across the Eurozone. Though the euro is expected to weaken further after the next round of easing, most expect a recovery into the year-end. (Bullish - Stronger EUR)
The price action of the yen has been surprising given that the BoJ took rates into negative territory only to have the market bid up the value of the yen in response to the policy adjustment. Market analysts expect Kudora to take further action to weaken the currency over the coming months. (Bearish - Weaker JPY)
GBP
The combination of weak fundamentals, downgrades in growth expectations, probability of a rate hike being pushed off into 2017 and the overstated risk of a “Brexit” have weighed heavily on the pound in the last few weeks. While the sterling will remain on the defensive in the short term, most expect a strong recovery toward the end of the year. (Bullish - Stronger GBP)
MXN
The collapse in oil prices forced the Banxico to increase the fondeo rate by 50 bps resulting in a knee-jerk reaction pushing the USD/MXN rate from 19.00 to 18.00. Despite the awful start to the year the MXN peso is expected to outperform as growth accelerates and the Banxico increases the fondeo rate by another 50bp by the end of 2016. (Bullish - Stronger MXN)
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MTFX Section Analytics 6
MARCH 2016 - US DOLLAR HIGHLIGHTS March 2016
2016f Spot
USD/CAD
MTFX 1.34
Consensus Forecast EUR/USD
MTFX 1.08
Consensus Forecast JPY/USD
MTFX 114
Consensus Forecast GBP/USD
MTFX 1.39
Consensus Forecast MXN/USD Consensus Forecast
MTFX 17.93
2017f
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
1.38
1.42
1.37
1.36
1.34
1.33
1.32
1.30
1.39
1.44
1.40
1.39
1.38
1.38
1.37
1.36
1.08
1.11
1.12
1.14
1.15
1.16
1.17
1.18
1.05
1.00
0.95
0.95
0.98
1.00
1.07
1.12
113
115
118
120
119
118
117
116
116
118
118
119
120
121
120
119
1.41
1.43
1.47
1.54
1.55
1.56
1.57
1.58
1.40
1.42
1.40
1.39
1.38
1.38
1.37
1.36
17.99
17.5
17.6
17.9
17.73
17.47
17.38
17.22
17.5
17.4
17.4
17.6
17.4
17.2
17.0
16.8
U.S. DOLLAR HIGHLIGHTS: Risks to a Fed tightening cycle were always tilted to the downside and the weak inflationary pressures continue to make it difficult to implement the type of tightening suggested by FOMC forecasts. Global market volatility and U.S. domestic headwinds have now taken a March rate hike off the table. Market sentiment has dramatically shifted over the last month with the market barely pricing in a rate hike of 25bp over the next two years. Talk of a long and drawn out recession seem overdone with our projections suggesting two 25bp rate hikes in 2016. Despite the projected Fed rate hikes, the USD is likely to weaken against other majors as other economies begin to stabilize and expand as past stimulus measures kick-in making monetary policies less divergent. To add it all up, the two year bull run is likely to come to an end in 2016. The US economy is likely to slow in the coming months which should push out the Fed’s tightening cycle to later this year and weigh on the greenback.
MARCH 2016 CURRENCY RETURNS 4.0%
2.0%
0.0% CAD
EUR
JPY
GBP
MXN
-2.0%
-4.0%
-6.0%
-8.0%
EVENTS TO WATCH MARCH 2016 ECONOMIC EVENT
USD ISM Non-Manufacturing PMI USD Nonfarm Payrolls 1.800.832.5104 USD Retail Sales
USD Producer Price Index USD Business Inventories
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DATE
MAR 03 MAR 04
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MTFX Section Analytics 6
USD/CAD MARCH 2016 HIGHLIGHTS March 2016 USD/CAD
2016f Spot
MTFX Forecast Consensus Forecast
1.34
2017f
Q1a
Q2a
Q3a
Q4f
Q1f
Q2f
Q3f
Q4f
1.38
1.42
1.37
1.36
1.34
1.33
1.32
1.30
1.39
1.44
1.40
1.39
1.38
1.38
1.37
1.36
USD/CAD CURRENCY TREND - FEBRUARY 2016
HIGHLIGHTS: The last several weeks has seen Poloz and the BoC take a back seat to fiscal policy, the Fed suggest a delay in the timeline for a rate increase until later this year and oil prices bottom out. Taken together the recent events have allowed the loonie to rebound a whopping 10 cents against the greenback.
1.405 1.395 1.385 1.375 1.365
The use of deficit spending to stimulate the economy (projected at $10 billion of fiscal stimulus) means that the pressure on the loonie has been significantly reduced. Pressure on the loonie from further rate increases by the Fed has also been reduced as most expect the Fed to delay rate increases well into the year-end after a string of soft data releases.
1.355 1.345
EVENTS TO WATCH MARCH 2016 ECONOMIC EVENT
DATE
CAD Ivey PMI
MAR 04
CAD BoC Interest Rate Decision
MAR 09
CAD Employment Data
MAR 11
CAD Consumer Price Inflation
MAR 18
CAD Retail Sales
MAR 18
Given the current environment, the CAD should not deviate too much from its current level for the remainder of the year. Looking further, oil prices should grind higher which should be loonie supportive, however, most expect the currency to remain weak enough to keep the export sector competitive on the international stage.
MARKET SENTIMENT: Bearish
Bullish
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MTFX Section Analytics 6
EUR/USD MARCH 2016 HIGHLIGHTS March 2016 EUR/USD
2016f Spot
MTFX Forecast Consensus Forecast
1.08
2017f
Q1a
Q2a
Q3a
Q4f
Q1f
Q2f
Q3f
Q4f
1.08
1.11
1.12
1.14
1.15
1.16
1.17
1.18
1.05
1.00
0.95
0.95
0.98
1.00
1.07
1.12
EUR/USD CURRENCY TREND - FEBRUARY 2016
HIGHLIGHTS: Draghi and company have already unleashed a significant amount of stimulus but the efforts have not been enough to reverse the deteriorating and persistently low outlook for inflation. Most expect the ECB to vote in favour of substantially more easing during the upcoming meeting on March 10.
1.13 1.12 1.11 1.1 1.09
While Draghi is expected to play up the central bank’s ability to ease policy further, the question remains as to how much firepower still remains. Even if the central bank delivers a more aggressive stimulus package, the EUR is unlikely to depreciate much further from current levels.
1.08 1.07
EVENTS TO WATCH MARCH 2016 ECONOMIC EVENT
DATE
EUR German Industrial Production
MAR 08
EUR Gross Domestic Product (GDP - Eurozone)
MAR 08
EUR German Trade Balance
MAR 10
EUR ECB Interest Rate Decision
MAR 10
EUR German Consumer Price Inflation
MAR 11
Over the longer term, as the stimulus makes its way through the economy, growth within the Eurozone should increase and begin to accelerate at a moderate pace. Stabilization and growth combined should allow the single currency to recover somewhat toward year-end and strengthen further in 2017.
MARKET SENTIMENT: Bearish
Bullish
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MTFX Section Analytics 6
JPY/USD MARCH 2016 HIGHLIGHTS March 2016 JPY/USD
2016f Spot
MTFX Forecast Consensus Forecast
114
2017f
Q1a
Q2a
Q3a
Q4f
Q1f
Q2f
Q3f
Q4f
113
115
118
120
119
118
117
116
116
118
118
119
120
121
120
119
HIGHLIGHTS:
JPY/USD CURRENCY TREND - FEBRUARY 2016
The BoJ surprised the market earlier this year by taking deposit rates into negative territory but the move did not devalue the currency but instead strengthened the yen as most viewed the policy move as less aggressive than required to address persistently stagnant growth and inflation.
1.48 1.47 1.46 1.45 1.44
There remains a multitude of tools for Kuroda and the BoJ to use in the future; leaving risks skewed toward further action by the central bank should rates remain at current levels. The probability of further easing and the unlikeliness of inflation targets being achieved are likely to weigh on the Japanese economy in the coming months.
1.43 1.42 1.41
EVENTS TO WATCH MARCH 2016 ECONOMIC EVENT
DATE
JPY Current Account
MAR 07
JPY Gross Domestic Product
MAR 07
JPY Industrial Production
MAR 14
JPY Exports
MAR 16
JPY Trade Balance
MAR 16
A knocked down outlook for the Japanese economy combined with a diverging monetary policy stance between the BoJ and the Fed is likely to see the yen weaken further over the course of the year.
MARKET SENTIMENT: Bearish
Bullish
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MTFX Section Analytics 6
GBP/USD MARCH 2016 HIGHLIGHTS March 2016 GBP/USD
2016f Spot
MTFX Forecast Consensus Forecast
1.39
2017f
Q1a
Q2a
Q3a
Q4f
Q1f
Q2f
Q3f
Q4f
1.41
1.43
1.47
1.54
1.55
1.56
1.57
1.58
1.40
1.42
1.40
1.39
1.38
1.38
1.37
1.36
GBP/USD CURRENCY TREND - FEBRUARY 2016
HIGHLIGHTS: The British pound remains an underperformer as the UK’s place in the EU and the large current account deficit have kept the sterling on the defensive. A June 23rd referendum has been called leaving plenty of time for “Brexit” risks to dominate headlines and provide volatility.
1.46 1.45 1.44 1.43 1.42 1.41
Fear of a Brexit is not the only reason for sterling weakness. Likelihood for a BoE rate hike is fading given weak fundamental data. Weak data prints have shown that the output gap has narrowed, the unemployment rate has moved down again, inflation readings are weak and GDP forecasts have been downgraded again.
1.4 1.39 1.38
EVENTS TO WATCH MARCH 2016 ECONOMIC EVENT
DATE
GBP Construction PMI
MAR 02
GBP Services PMI
MAR 03
GBP Manufacturing Production
MAR 09
GBP Employment Data
MAR 16
GBP
MAR 17
BoE Interest Rate Decision
While the sterling remains on the defensive in the near-term thanks to EU membership speculation, weak fundamentals and a very low probability of a BoE rate hike this year, we expect a turn-around in the rates toward the latter part of the year. The UK economy should expand at a stronger pace than its peers which should allow for the pound to recover toward latter part of the year.
MARKET SENTIMENT: Bearish
Bullish
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MTFX Section Analytics 6
MXN/USD MARCH 2016 HIGHLIGHTS March 2016 MXNUSD
2016f Spot
MTFX Forecast Consensus Forecast
17.93
2017f
Q1a
Q2a
Q3a
Q4f
Q1f
Q2f
Q3f
Q4f
17.99
17.5
17.6
17.9
17.73
17.47
17.38
17.22
17.5
17.4
17.4
17.6
17.4
17.2
17.0
16.8
MXN/USD CURRENCY TREND - FEBRUARY 2016
HIGHLIGHTS: The rout on oil at the beginning of the year took the USDMXN rate above 19.00 which caused Banxico to take action less than two weeks after its last policy meeting, increasing the fondeo rate by 50bps to 3.7%, resulting in a knee-jerk reaction causing the currency to close at 18.00.
19.5 19.3 19.1 18.9 18.7 18.5 18.3
The rate hike does not imply the start of a tightening cycle; however, the impromptu hike will impact the exchange rate between Mexico and the US which will be closely watched by Mexican officials. Markets are pricing in two more 25bp increases in the fondeo rate over the next year which should see the central bank raise rates to 4.25%.
18.1 17.9 17.7 17.5
EVENTS TO WATCH MARCH 2016 ECONOMIC EVENT
DATE
MXN Gross Fixed Investments
MAR 04
MXN Consumer Confidence
MAR 07
MXN Consumer Price Inflation
MAR 09
MXN Industrial Production
MAR 11
MXN Interest Rate Decision
MAR 18
Despite the very bad start to the year, the Mexican peso is likely to outperform most of the emerging market currencies. Most analysts expect the Fundamentals to remain strong and growth to expand at 3% in 2016 suggesting a strong MXN rebound as markets settle.
MARKET SENTIMENT: Bearish
Bullish
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MTFX Section Analytics 6
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This report has been prepared by MTFX Inc. as a resource for its clients. The opinions, projections and estimates contained herein are our own and subject to change without notice.
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