Daily Currency Briefing

July 27, 2011

Waiting for Godot?

G10 Currencies
EUR-USD: Two actors and nothing is happening. The financial markets are waiting for the allimportant news that the US will raise its debt ceiling, but tonight Republicans and Democrats seem to be getting nowhere once again just like the actors in Samuel Becketts play. The vote in the House of Representatives on the two-tier plan presented by the speaker John Boehner was postponed from today to tomorrow as clear signs of opposition even amongst the Republicans were beginning to emerge. The fact that those close to President Barack Obama strictly oppose Boehners proposals does not exactly simplify matters. While a few weeks ago all that mattered was whether or not they were going to reach an agreement markets are now waiting for the exact details of the package agreed. Even if the debt ceiling is raised a rating downgrade is not necessary off the agenda as the rating agencies have already signalled that long term efforts are required to prevent a rating downgrade. It seems more than questionable whether Republicans and Democrats will be able to find a sustainable solution in the currently tense negotiations. At least the International Swaps and Derivatives Authority (ISDA) made it clear last night that it would grant the US Treasury at least three additional days to settle delayed payments without it causing a credit event (CDS payment). In the end the day of judgend ment, 2 August, is not set in stone as the day when the US will go bankrupt as there are still a few emergency options available to the government (please also refer to Economic Briefing dated 26.07.11: US debt crisis - Update). Nonetheless: the US Dollar remained under pressure in Asian trade with EUR-USD stabilising around the 1.45 mark. In an environment such as this data publications remain of secondary importance. If at all US order intake for durable goods in June might weaken the US dollar further today as we expect a 1.0% fall mom. Signs of a possible weakening of the US economy are likely to cause renewed speculation about QE3 measures. Should the data disappoint as expected EUR-USD is likely to target the next resistance level at 1.4580. GBP: Yesterdays Q2 preliminary gdp report posted a 0.2% quarter on quarter gain which was perfectly in line with market expectations. What is of particular interest is that the office of national statistics highlighted a number of special factors that they felt could have warranted a higher print. The disruption following the Japanese tsunami and the effects of the bank holidays and royal wedding had the effect of dampening economic growth. Had these events not taken place, gdp growth could have printed as high as 0.7% in the second quarter. Nonetheless the question is really what the BoE will do from here. Higher inflation prints towards the end of the summer (when energy price increases will take place) will erode consumer spending power thus lowering household demand. Retail sales have been essentially flat over the past year and given the outlook for consumer spending in the short term, it is unlikely that the UK consumer will spur the economy out of the doldrums. The minutes from the July interest rate meeting indicated that Q3 could be rather soft in terms of economic activity so on the basis of this it is more likely than not that the BoE will wait until 2012 before increasing interest rates. The pound is likely to stay broadly weak in the meantime and will trade as a function of general market risk appetite. Should the US debt ceiling impasse be overcome we continue to expect an initial stronger bid towards risky assets meaning the pound should come under selling pressure. Key levels to watch in EUR-GBP are 0.8820 on the downside and 0.8890 on the upside. AUD: Australian CPI data confirmed all those who had already adjusted their rate expectations following RBA governor Stevens optimistic speech yesterday. With a rise to 3.6% yoy from 3.3% the data well exceeded market expectations (chart). Our view that the RBA will raise rates before the end of the year remains unchanged. AUD-USD has breached the 1.10 level
Peter Kinsella +44 20 7475 3959 peter.kinsella@commerzbank.com Carolin Hecht +49 69 136 41505 carolin.hecht@commerzbank.com

Antje Praefcke +49 69 136 43834 antje.praefcke@commerzbank.com

For important disclosure information please refer to the back pages

Daily Currency Briefing

while AUD-NZD has recovered well from the lows at 1.2490. The next levels to watch on the way up are 1.11 in AUD-USD and 1.2680 in AUD-NZD (see below). Rate expectations in Australia adjusted due to increasing inflationary pressure Consumer prices, percentage yoy, quarterly data
6 5 4 3 2 1 0 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

Sources: Commerzbank Research, Bloomberg

NZD: It is still too early for a RBNZ rate step today, despite the fact that the New Zealand centh tral bank sounded slightly more hawkish in its statement on 9 June. Back then, it noted that the economic outlook had improved since the statement in March. Moreover, the RBNZ stated in June that, a gradual increase in the OCR over the next two years would be required to offset the expected rise in underlying inflation, such that CPI inflation tracks close to the midpoint of the target band over the latter part of the projection. In addition, in the first three months of the year the New Zealand economy grew surprisingly strongly by 0.8% qoq despite the earth quake in Q1. Moreover, second-quarter inflation rose sharply to 5.3% in Q2. It has therefore become more likely that the RBNZ will remove at least part of its precautionary rate cut of March to 2.5% before the end of the year. It had always been intended that the rate cut would be removed as soon as it becomes evident that the economy is gaining track again. But one swallow does not make a summer. The RBNZ will wait a little longer before the first rate rise, also because of the renewed earth quake in June. We nonetheless stick to our forecast that the RBNZ will raise rates before the end of the year. If the statement tonight sounds more hawkish than the one in June that would be positive for NZD. Due to the positive Q1 GDP and high Q2 inflation data rate expectations have however already been adjusted one of the reasons why the NZD was able to appreciate against the AUD over the past few weeks. We therefore see potential for disappointment should the statement tonight not sound as hawkish as many expect as in our view rate expectations have moved a little too far. We therefore see slight potential for a setback in NZD-USD, with the area around 0.8580 providing good support though. Accordingly, AUD-NZD might breach 1.2680 to the upside as the Australian CPI data already caused upward pressure in AUD.

Antje Praefcke +49 69 136 43834 antje.praefcke@commerzbank.com

Emerging Market Currencies

HUF: As expected the Hungarian central bank left the key rate unchanged at 6.00% yesterday. Compared with the last meeting the central banks focus has changed slightly. Rather than stressing the importance of anchoring inflation forecasts, the NBHs focus for its rate policy is now the European debt crisis. In this context the main concern is the Hungarian risk premium, external demand and the depreciation of the forint against the Swiss franc. The NBH nonetheless stuck to its well-known statement of leaving key rates unchanged for the rate of inflation to return to the target corridor by 2012. The rate decision had hardly any influence on the forint at all. The decision on the US debt ceiling will remain decisive over the coming days. In case of an agreement being reached between Republicans and Democrats USD-HUF in particular has considerable scope to the upside.
Carolin Hecht +49 69 136 41505 carolin.hecht@commerzbank.com

27 July 2011

Daily Currency Briefing

Todays Events
Time 02:30 07:00 Region Indicator AUD GER GER 09:00 10:30 12:00 13:30 22:00 EUR CHF RUB USA USA NZD Consumer prices Import Prices Consumer prices M3 money supply 3 month av. KOF leading indicator CPI weekly year to date MBA Mortgage Applications Durable Goods New Orders ex Transportation Interest rate decision Period Q3 Q3 Jun Jun Jul Jul Jun Jul Jul Jul Jun Jun Jul qoq yoy mom yoy mom yoy yoy % % mom mom % Actual
+0,9 +3,6 -0,6 +6,5 +0,5 +2,6 +2,3

Our Forecast

Survey +0,7 +3,4 -0,2 +7,1 +0,3 +2,3 +2,3 +2,11

Last +0,9 +3,6 -0,6 +8,1 +0,1 +2,3 +2,2 +2,23 +5,1 15,50 +2,1 +0,7 2,50

Direction

Cross

-1,0 +1,0 2,50

+0,3 +0,5 2,50

Important Market Data

FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low Forwards / Options EUR-USD 3M Money Market Rate (%) Bonds / Bond Futures Yield (%), Price Equity Indices Closing Change Change (%) Oil / Prec.Metals $ per unit EUR-USD 1,4525 +1,06 1,4521 1,4358 EUR-SEK 9,0634 -0,36 9,1181 9,0583 EUR-AUD 1,3134 -0,70 1,3292 1,3200 EUR-RUB 39,9346 +0,33 40,0436 39,7950 Fwd 3M -38,7500 EURIBOR 1,62 10Y Bund 2,74 EuroStoxx50 2739,65 -3,05 -0,11 Oil, Brent 118,18 EUR-JPY 113,04 +0,40 113,31 112,28 EUR-NOK 7,7549 -0,30 7,7922 7,7500 EUR-NZD 1,6595 +0,06 1,6683 1,6561 EUR-RON 4,2340 -0,53 4,2614 4,2258 Fwd 6M -76,0900 $ LIBOR 0,25 10Y T-Note 2,97 DAX 7349,45 +4,91 +0,07 Oil, Nymex 99,46 EUR-GBP 0,8839 +0,16 0,8884 0,8817 EUR-DKK 7,4535 +0,01 7,4548 7,4524 EUR-BRL 2,2247 +0,39 2,2430 2,2104 EUR-CNY 9,3517 +0,95 9,3503 9,2545 Fwd 12M -146,2900 LIBOR 0,20 10Y JGB 1,08 Dow Jones 12501,30 -91,50 -0,73 Gold 1622,20 EUR-CHF 1,1643 +0,45 1,1662 1,1540 EUR-HUF 267,93 -0,35 269,47 267,01 EUR-MXN 16,8753 +0,67 16,8587 16,7237 EUR-SGD 1,7429 +0,44 1,7479 1,7339 Vol 1M 11,49 LIBOR 0,83 EUR-CAD 1,3697 +0,81 1,3700 1,3580 EUR-CZK 24,318 -0,45 24,443 24,321 EUR-TRY 2,4672 +0,12 2,4993 2,4616 EUR-KRW 1523,8251 +0,53 1526,4701 1513,5201 Vol 3M 11,98 $ index 73,46 -0,82 74,20 73,45 EUR-PLN 3,9984 -0,18 4,0132 3,9879 EUR-ZAR 9,7029 -0,23 9,7961 9,6608 EUR-THB 43,0494 +0,68 43,1338 42,6526 Vol 12M 12,81

CHF LIBOR CAD LIBOR 0,18 1,18 10Y T-Note 10Y Gilt Bund Future Future 3,07 128,34 124,38 Nikkei 225 10042,34 -55,38 -0,55 Palladium 843,00 Zinc 2495,0 FTSE 100 5929,73 +4,47 +0,08 Platinum 1808,75 Tin 28350,0 1331,94 -5,49 -0,41 Silver 40,87

S&P 500

Industrial Metals Aluminium Lead Copper Nickel $ per ton 2613,0 2705,5 9778,0 24175,0 Sources: Bloomberg L.P., European Banking Federation, British Bankers Association, Dow Jones, Xetra, S&P, TSE, LSE, LME.

27 July 2011

Daily Currency Briefing

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