RUB: (December) Exchange rate forecasts

Focus FX Focus FX issue 21/2014, bi-weekly 14 October 2014 EUR/RUB: 51.52 47.9 (December) USD/RUB: 40.59 38.1 (December) USD/RUB daily 42.00 4...
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Focus FX

Focus FX issue 21/2014, bi-weekly

14 October 2014

EUR/RUB: 51.52 47.9 (December) USD/RUB: 40.59 38.1 (December)

USD/RUB daily 42.00 41.00 40.00 39.00 38.00 37.00 36.00 35.00 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 40.4275, 5y low: 27.33 Source: Thomson Reuters

The Russian rouble remains under intense pressure and given the current events we will have to review our RUB forecasts. According to latest available data, the CBR is estimated to have spent USD 6 bn on FX interventions since the beginning of October. Currently, the CBR is shifting up its FX operational band by 5 kopecks after every USD 350 mn of accumulated interventions which explains the fast depreciation. Therefore, we have seen the target range adjusted from 44.4 to 45.35 and we currently expect that interventions will continue unless the CBR provides FX refinancing tools to the banks. Hopes of some short-term technical correction are meanwhile fading. Pressure on the rouble is coming from multiple sides. We feel that the low oil price and high demand for FX to refinance external debt (while global capital markets are closed to Russian borrowers) are the key factors weighing on RUB. While FX reserves are still sufficient to defend the target ranges for the rouble, we think that introduction of FX refinancing instruments by the regulator (expected in the coming weeks) could help to solve the problem of FX liquidity without additional pressure on RUB. Financial analyst: Wolfgang Ernst,

USD/RUB weekly

[email protected]

41.00 39.00 37.00

Exchange rate forecasts

35.00 33.00 31.00 17-Jan

07-Apr

26-Jun

14-Sep

5y high: 40.4275, 5y low: 27.33 Source: Thomson Reuters

USD/RUB monthly 42.00 40.00 38.00

current1

Dec-14

Mar-15

Jun-15

EUR/USD

1.266

1.26

1.23

1.20

1.17

EUR/CHF

1.208

1.21

1.21

1.22

1.22

EUR/JPY

135.2

136

135

134

135

USD/JPY

106.9

108

110

112

115

EUR/GBP

0.793

0.78

0.77

0.76

0.76

EUR/PLN

4.200

4.15

4.15

4.15

4.10

EUR/HUF

306.3

315

315

320

EUR/CZK

27.54

27.60

27.50

27.30

EUR/RON

4.406

4.45

4.40

4.45

4.45

EUR/HRK

7.654

7.68

7.66

7.59

7.65

EUR/RSD

119.67

121

123

122

121

EUR/RUB

51.53

47.9

48.5

47.3

47.3

USD/RUB

40.72

38.1

39.4

39.5

40.4

EUR/UAH

16.227

17.0

17.2

17.0

16.8

USD/UAH

12.800

13.5

14.0

14.2

14.4

EUR/CNY

7.752

7.77

7.48

7.24

7.02

USD/CNY

6.125

6.17

6.08

6.03

6.00

EUR/BGN

1.956

1.96

1.96

1.96

Sep-15

320 27.20

1.96

36.00

EUR/ALL

139.80

139.5

141.0

139.5

34.00

EUR/BYR

13,480

13,860

14,022

14,160

14,391

32.00

USD/BYR

10,650

11,000

11,400

11,800

12,300

EUR/KZT

230.28

229

224

218

USD/KZT

181.95

182

182

182

182

EUR/TRY

2.889

2.84

2.80

2.70

2.67

USD/TRY

2.282

2.25

2.28

2.25

2.28

30.00 28.00 26.00 Jul-11

Aug-12

Sep-13

5y high: 40.4275, 5y low: 27.33 Source: Thomson Reuters

Oct-14

1 as per 14 October 2014, 11:30 a.m. CET BGN, ALL, BYR, KZT, TRY only covered on a monthly basis Source: Thomson Reuters, Raiffeisen RESEARCH

Please note the risk notifications and explanations at the end of this document

140.5

213

Focus FX 14 October 2014 EUR/USD: 1.266  1.26 (December) 1.34 1.32 1.30 1.28 1.26 1.24 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 1.5139, 5y low: 1.1914 Source: Thomson Reuters

As we expected in the last issue of Focus FX, the euro’s steep dive now seems to have been put on hold. After

falling as low as EUR/USD 1.25, the common currency has since recovered to just shy of EUR/USD 1.28 and is now fluctuating around EUR/USD 1.27. Comments made by FOMC representatives resulted in new speculations that the Fed might delay its first interest rate hike, which likely triggered the stabilization of the euro. These representatives based their arguments on the significant appreciation of the dollar and the often weak economic picture seen outside the USA. We continue to hold such speculations to be completely exaggerated,

though. For starters, the latest appreciation of the dollar is, in a historical context, very small. Moreover, the US economy remains the primary influencing factor for Fed monetary policy. As the latest labour market report for September showed, the economy is running smoothly. The Fed is therefore likely to begin normalising policy by mid-2015 at the latest. We thus continue to assume a much weaker euro in the mid-term.

will change in this regard in the immediate future. The current topic on the market is the referendum on 30 November in which the Swiss will vote on a gold initiative. This initiative would amend the constitution to require the Swiss National Bank (SNB) to hold at least 20% of its balance sheet assets in gold. Furthermore, any sale of its gold reserves would be forbidden and all stocks would be required to be stored in the country. Should this become law, this would be a very expensive undertaking for the SNB.

Regardless of how much such a regulation would even make sense, this law would limit the SNB’s flexibility. In fact, the outcome would contradict exactly the core message of its supporters, namely “Only a foundation of gold can permanently secure the National Bank’s ability to act independently.” The initiators of this referendum certainly seem to be standing alone with this notion.

Financial analyst: Jörg Angelé [email protected]

EUR/CHF: 1.208  1.21 (December) 1.215 1.213 1.211 1.209 1.207 1.205 1.203 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 1.5175, 5y low: 1.0298 Source: Thomson Reuters

The Swiss franc continues to remain strong and it is unlikely that anything

Financial analyst: Lydia Kranner [email protected]

EUR/JPY: 135.2  136 (December), USD/JPY: 106.9  108 (December) 142 141 140 139 138 137 136 135 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct Graph refers to EUR/JPY 5y high: 145.12, 5y low: 94.3 Source: Thomson Reuters

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After the yen slid to 110 JPY per USD in the past month, things now seem to have turned around. The turnaround in the EUR/USD rate following weak stock markets and renewed doubts over when the US Fed will finally begin normalizing interest rates have left the USD once again trending weaker and the JPY appreciating. On the Japanese side there is little new to report. The Bank of Japan (BoJ) left its monetary policy unchanged following the last week’s meeting. While the weak economic data (Tankan surveys are below average, industrial production in the red, consumption surveys are

the weakest since the introduction of the consumption tax) did receive attention according to the minutes of the meeting, the BoJ continues to cling to its positive economic outlook. This all has little effect on our USD/JPY forecast. After a sideways phase the next devaluation push will send the JPY falling to 110-115 JPY per USD. Given the assumed weak EUR and current EUR/USD forecasts, the yen would slightly appreciate against the EUR.

Financial analyst: Lydia Kranner [email protected]

Please note the risk notifications and explanations at the end of this document

Focus FX 14 October 2014 EUR/GBP: 0.793  0.78 (December) 0.81 0.80 0.79 0.78 0.77 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 0.9341, 5y low: 0.7776 Source: Thomson Reuters

Bank of England (BoE) Governor M. Carney recently addressed the economic weaknesses within the euro area (which were the center of many a discussion at the IMF meeting on the weekend) and stated that this was only one factor when setting monetary policy. The dynamic economic development in Great Britain is primarily driven by the domestic economy. Nevertheless Germany plays a large role as Britain’s most important export market. Although the BoE is forecasting a lower economic dynamic in the

current quarter, it makes note of the potential effects that a stronger wage component could have on inflation. According to futures contracts, the market currently expects the BoE’s first interest rate hike to be in mid-2015. Prior, the market saw a first hike in Q1, which was in line with our opinion. Our EUR/GBP forecasts remain unchanged in our scenario. On an annual horizon we can therefore expect 76 pence per euro.

the resistance level at 4.20 before dropping back somewhat. With the current economic environment we expect the monetary council to continue with at least one more interest rate cut of 25bp to 1.75% in November. We would not, however, currently project rate cuts beyond the level of 1.75%. Indications for the monetary policy decisions should also come from new data to be released in the coming days. In particular, the CPI figures (15 October) and industrial production data (17 October) will be watched closely as they are bound to give indications of upcoming monetary policy

moves. For CPI, we expect more negative rates (-0.3% yoy), for industrial production we project a rebound to 4.9%, due to positive calendar effects. Despite these circumstances, we expect the trading range around EUR/ PLN 4.15-4.20 to remain for the time being. On the one side, we see only very limited probability for weakening above EUR/PLN 4.20, but on the other hand the current environment would also not support any strengthening towards below 4.15.

likely also supported by the fact that the rate-cutting cycle came to an end at 2.1%. But with the latest (stronger) cut in the policy rate in Poland, there is some new speculation on the market that Hungary could once again start cutting interest rates as well. We currently do not see this as a likely scenario and rather expect the Hungarian Central Bank to remain at the current interest rate level. However, market speculation could weigh on the forint if the speculation intensifies. Economic data recently reflected somewhat weaker trends in external

trade and industrial production. Nevertheless, we project that the setback in indicators in August will only be short-lived and expect a return towards somewhat stronger dynamics in the September data already. Still, with uncertainty on global markets and likely rising volatility for CEE exchange rates on the horizon, we project HUF to remain around 310 against EUR. Therefore, we regard the current strengthening below this level as a rather short-term phase.

Financial analyst: Lydia Kranner [email protected]

EUR/PLN: 4.200  4.15 (December) 4.24 4.22 4.20 4.18 4.16 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high:4.569, 5y low: 3.83 Source: Thomson Reuters

The surprisingly strong interest rate cut of 50bp (we had only expected a 25bp cut) led to some pressure on the zloty. EUR/PLN moved closer to

Financial analyst: Wolfgang Ernst, [email protected]

EUR/HUF: 306.3  315 (December) 318 316 314 312 310 308 306 304 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 320.1, 5y low: 261.12 Source: Thomson Reuters

In the past month the forint witnessed a slow but steady appreciation trend against the euro. This trend was most

Financial analyst: Wolfgang Ernst, [email protected]

Please note the risk notifications and explanations at the end of this document

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Focus FX 14 October 2014 EUR/CZK: 27.54  27.60 (December) 28.1 28.0 27.9 27.8 27.7 27.6 27.5 27.4 27.3 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 27.928, 5y low: 23.95 Source: Thomson Reuters

Consumer price inflation in September was eagerly awaited and at just 0.7% yoy the figure turned out lower than

we had projected (1.0% yoy). In addition, other economic data was also on the weak side recently, with industrial production at -5.2% yoy and retail sales at 2.7% yoy. Despite these weaker data releases, the overall picture regarding the FX intervention regime for CZK did not change in our view. EUR/CZK currently seems stuck in its old trading range seen before the August weakening and in our view an end to the intervention regime is still far away (we currently project it to end in Q1 2016). Until then, CZK should only see a slow appreciation

trend towards the intervention level of 27.0 before possibly witnessing some stronger appreciation as soon as the intervention regime is lifted. Apart from internal developments, CZK will also be largely driven by external events, such as rate-cut speculation by the US Fed and possible liquidity measures by the ECB. These events could lead to corrections in CZK, but in our view such phases of weakening above 27.5 to the euro should only be short-lived.

decreased by 15-20bp. However, the EUR/RON rate has continued to trade in a narrow range since 1 October (fluctuations of less than 0.5%), which suggests that inflows into RON T-securities were probably limited. The most recently published data on nonresidents’ holding in RON T-securities refer to end-July and show that these investors held RON 18.6 bn or 19.7% of outstanding stock. We maintain our previous call for a roughly stable RON going forward. Prospects for the local bond market remain positive, but we do not expect this to fuel leu appreciation. The recent drop in foreign

yields bodes well for the long-end of the yield curve, while the prospective increase in liquidity supports shortend tenors. Liquidity conditions should improve starting with 24 October (beginning of a new reserve maintenance period), when the reduction of RON MRR ratios by 2pp will release around RON 2.9 bn to the banking system. Furthermore, liquidity conditions might be positively impacted by the large government spending expected this quarter.

The domestic FX market featured no exciting developments in the last two weeks. EUR/HRK remained stable, hovering around 7.64 on thin interbank trading. Another calm week is probably ahead of us, as we do not see any triggers that could rattle the EUR/HRK rate. We see a trading range between 7.63 and 7.66 kuna per euro with slightly more upward pressure due to seasonal movements. However, as the Finance Minister has

announced small local bond issuance in the last quarter of the year, we do not exclude downward pressure just around the time the government taps the market. Obviously, the Ministry of Finance has decided to close the budget gap by direct bank borrowing and local issuance while the Eurobond is delayed to Q1 2015.

Financial analyst: Michal Brožka, michal. [email protected], Raiffeisenbank a.s., Prague

EUR/RON: 4.406  4.45 (December) 4.45

4.43

4.41

4.39

4.37 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 4.635, 5y low: 4.049 Source: Thomson Reuters

In October, non-resident players’ sentiment on RON T-securities seems to have improved and yields for medium and long-term tenors (3 years or more)

Financial analyst: Anca Jelea, [email protected], Raiffeisen BANK S.A., Bucharest

EUR/HRK: 7.654  7.68 (December) 7.66 7.65 7.64 7.63 7.62 7.61 7.60 7.59 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct

5y high: 7.667, 5y low: 7.1806 Source: Thomson Reuters

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Financial analyst: Marijana Cigic, [email protected], Raiffeisenbank Austria d.d., Zagreb

Please note the risk notifications and explanations at the end of this document

Focus FX 14 October 2014 EUR/RSD: 119.67  121.0 (December) 120.0 119.5 119.0 118.5 .

118.0 117.5

117.0 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct 5y high: 119.31, 5y low: 92.94 Source: Thomson Reuters

Weak fundamentals and the slowdown in credit supply (after government subsidy programme expired), are fuelling dinar weakening against the euro. Surprisingly, the National Bank of Serbia (NBS) actually sold EUR 70 mn this week in just one transaction, which marked the largest individual intervention in the last 2-3 months. This year the national bank has already sold more than EUR 1.1 bn to support the dinar. This does not suggest that the NBS will restart its aggressive FX intervention policy, but rather that it is opting to prevent rapid deprecation since the

beginning of October. Fiscal risks dominate and rating agency S&P recently placed Serbia’s ratings on creditwatch negative, which should reflect the deteriorating general government debt metrics. The pending fiscal plans and the ongoing RSD depreciation might be the main reasons that the National Bank of Serbia will keep the key interest rate untouched at the level of 8.5% at its monthly rate setting meeting this week.

Financial analyst: Martin Stelzeneder, [email protected]

EUR/UAH: 16.227  17.0 (December), USD/UAH: 12.800  13.5 (December) 14.40 13.90 13.40 12.90 12.40 11.90 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct Graph refers to USD/UAH 5y high: 13.5, 5y low: 7.885, Source: Thomson Reuters

UAH remains just below 13 against USD, supported by continued interventions by Ukraine’s central bank and administrative restrictions. According to statements by deputy vicegovernor Alexander Pisaruk the central bank spent nearly USD 300 mn last Thursday and Friday and about USD 760 mn in the past two weeks in order to stabilise the hryvnia. Data on FX reserves for September showed USD 16.2 bn, thereby indicating once again the limited intervention potential, despite a stable FX reserve compared to previous data. UAH sta-

bility against USD notwithstanding, the overall scenario for the hryvnia remains very difficult on the back of tumultuous political developments and the challenging economic outlook. Ukraine is witnessing a severe recession and despite a cease-fire there are continued reports about fighting in eastern Ukraine. While the Ukrainian central bank will continue to keep UAH as stable as possible, an overall depreciation trend for the hryvnia might continue. Financial analyst: Wolfgang Ernst, [email protected]

EUR/CNY: 7.752  7.77 (December), USD/CNY: 6.125  6.17 (December) 6.16 6.15 6.14 6.13 6.12 20-Aug 01-Sep 13-Sep 25-Sep 07-Oct Graph refers to USD/CNY 5y high: 6.833, 5y low: 6.0402; Source: Thomson Reuters

Chinese authorities are planning to relax capital market restriction for domestic retail investors in the course of the “Qualified Domestic Retail Inves-

tor” program. The program allows private investors in mainland China to invest in foreign stocks and real estate. Furthermore, there are plans to allow them access to offshore capital markets in Singapore and London. Details regarding the implementation are thus far unknown. In addition according to newspaper reports the ECB is considering adopting the yuan as a FX reserve currency. The internationalisation of the Chinese currency is therefore moving forward in small steps. The CNY itself is trading slightly stronger to the USD in recent days, although it has actually been moving sideways between 6.15

and 6.12 since mid-August. The very strong positive trade balance has created some appreciation pressure in recent months, though. In September the trade balance totalled USD 30.9 bn after record highs of USD 49.8 bn and USD 47.3 bn in previous months. A stronger USD and weaker than expected currencies from the region (such as JPY) mean that a significant appreciation by the end of the year is very unlikely, though.

Financial analyst: Judith Galter [email protected]

Please note the risk notifications and explanations at the end of this document

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Focus FX 14 October 2014

Risk notifications and explanations Warnings 

  

Figures on performance refer to the past. Past performance is not a reliable indicator of the future results and development of a financial instrument, a financial index or a securities service. This is particularly true in cases when the financial instrument, financial index or securities service has been offered for less than 12 months. In particular, this very short comparison period is not a reliable indicator for future results. Performance is reduced by commissions, fees and other charges, which depend on the individual circumstances of the investor. The return on an investment can rise or fall due to exchange rate fluctuations. Forecasts of future performance are based purely on estimates and assumptions. Actual future performance may deviate from the forecast. Consequently, forecasts are not a reliable indicator for the future results and development of a financial instrument, a financial index or a securities service.

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Focus FX 14 October 2014

Imprint Information requirements pursuant to the Austrian E-Commerce Act Raiffeisen Bank International AG Registered Office: Am Stadtpark 9, 1030 Vienna Postal address: 1010 Vienna, POB 50 Phone: +43-1-71707-0; Fax: + 43-1-71707-1715 Company Register Number: FN 122119m at the Commercial Court of Vienna VAT Identification Number: UID ATU 57531200 Austrian Data Processing Register: Data processing register number (DVR): 4002771 S.W.I.F.T.-Code: RZBA AT WW Supervisory Authorities: As a credit institution pursuant to § 1 of the Austrian Banking Act, Raiffeisen Bank International AG is subject to supervision by the Financial Market Authority and the Austrian Central Bank. Further, Raiffeisen Bank International AG is subject to legal regulations (as amended from time to time), in particular the Austrian Banking Act (Bankwesengesetz) and the Securities Supervision Act (Wertpapieraufsichtsgesetz). Membership: Austrian Federal Economic Chamber, Federal Bank and Insurance Sector, Raiffeisen Association Statement pursuant to the Austrian Media Act Publisher and editorial office of this publication: Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna Media Owner of this publication: Raiffeisen RESEARCH – Verein zur Verbreitung von volkswirtschaftlichen Analysen und Finanzmarktanalysen, Am Stadtpark 9, A-1030 Vienna Chairman of Raiffeisen RESEARCH – Verein zur Verbreitung von volkswirtschaftlichen Analysen und Finanzmarktanalysen: Mag. Peter Brezinschek (Chairman), Mag. Helge Rechberger (Vice-Chairman.) Raiffeisen RESEARCH – Verein zur Verbreitung von volkswirtschaftlichen Analysen und Finanzmarktanalysen is constituted as state-registered society. Purpose and activity are (inter alia), the distribution of analysis, data, forecasts and reports and similar publications related to the Austrian and international economy as well as financial markets. Basic tendency of the content of this publication  Presentation of activities of Raiffeisen Bank International AG and its subsidiaries in the area of conducting analysis related to the Austrian and international economy as well as the financial markets.  Publishing of analysis according to various methods of analyses covering economics, interest rates and currencies, government and corporate bonds, equities as well as commodities with a regional focus on the Eurozone and Central and Eastern Europe under consideration of the global markets. Producer of this publication Raiffeisen RESEARCH GmbH; Am Stadtpark 9, A-1030 Vienna

Acknowledgements Global Head of Research: Peter Brezinschek (1517) Top-Down CEE Banking Sector: Gunter Deuber (5707), Elena Romanova (1378) Research Sales: Werner Weingraber (5975) Economics, Fixed Income, FX: Valentin Hofstätter (Head, 1685), Jörg Angelé (1687), Eva Bauer (5644), Gunter Deuber (5707), Wolfgang Ernst (1500), Stephan Imre (6757), Lydia Kranner (1609), Matthias Reith (6741), Andreas Schwabe (1389), Gintaras Shlizhyus (1343), Gottfried Steindl (1523), Martin Stelzeneder (1614) Credit/Corporate Bonds: Christoph Klaper (Head, 1652), Michael Ballauf (2904), Jörg Bayer (1909), Igor Kovacic (6732), Martin Kutny (2013), Peter Onofrej (2049), Manuel Schreiber (3533), Lubica Sikova (2139), Jürgen Walter (5932)

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Stocks: Helge Rechberger (Head, 1533), Aaron Alber (1513), Connie Gaisbauer (2178), Christian Hinterwallner (1633), Jörn Lange (5934), Hannes Loacker (1885), Johannes Mattner (1463), Christine Nowak (1625), Leopold Salcher (2176), Andreas Schiller (1358), Christoph Vahs (5889) Quant Research/Emerging Markets: Veronika Lammer (Head, 3741), Björn Chyba (8161), Judith Galter (1320), Dagmar König (8017), Andreas Mannsparth (8133), Manuel Schuster (1529), Stefan Theußl (1593) Technical Analysis: Robert Schittler (1537), Stefan Memmer (1421) Layout: Birgit Bachhofner (3518), Kathrin Rauchlatner (1518)