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

[email protected] MAR 15

MAR 15 MAR 15

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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

FOREIGN EXCHANGE DISCLAIMER This publication has been prepared by MTFX Inc. for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which MTFX Inc., its affiliates or any of their employees incur any responsibility. Neither MTFX Inc. nor its affiliates accept any liability whatsoever for any loss arising from any use of this information.

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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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