USD not running away - DBS Bank...GBP /usd 1.2180 1.17 1.14 1.11 1.08 Consensus 1.25 1.24 1.25 1.27 ... before the Fed hike in Dec 2015. Global risks could return to temper the Fed

USD not running away 1 Nov 2016

1

USD not running awayDBS Group Research 1 November 2016

Mid-quarter FX update

Philip Wee • (65) 6878-4033 • [email protected]

Asia Renewed Fed hike expectations lifted the USD in Oct

Relative value favors USD amongst the G3 currencies

But conviction to take USD to new heights is lacking

CNY More depreciation than expected

HKD No panic over weaker CNY

TWD Growth returns

KRW Multiple challenges

SGD Disappointing, like the economy

MYR Slowing growth

THB Mourning

IDR Optimistic

PHP Doubts

VND Stable

INR To remain within a 65-70 band

USD DXY still in its 93-100 range

JPY The yen isn’t weaker, the dollar is stronger

EUR Range-bound between 1.05 and 1.15

GBP Another historical low

AUD Flat

USDAUDNZDCHFCADEURJPYGBPBRLRUBINRZARCNYHKDIDRVNDPHP

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1.7

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USD

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NZD CH

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EUR

JPY

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PHP

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SGD

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Renewed Fed hike expectations bolstered the USD in October

% change vs USD, 28 Oct 2016 vs 30 Sep 2016

MAJOR CURRENCIES EMERGING ASIAN CURRENCIESB R I C S

* USD is performance of DXY index

Refer to important disclosures at the end of this report


2

Currency forecasts

28-Oct 4Q16 1Q17 2Q17 3Q17

EUR /usd 1.0983 1.10 1.10 1.10 1.10Consensus 1.10 1.09 1.09 1.10

Forwards 1.10 1.10 1.11 1.11

usd/ JPY 104.69 105 105 105 105Consensus 104 103 104 105

Forwards 105 105 104 104

usd/ CNY 6.7810 6.82 6.91 7.00 7.08Consensus 6.75 6.80 6.82 6.85

NDF 6.83 6.87 6.91 6.95

usd/ HKD 7.7543 7.78 7.78 7.78 7.78Consensus 7.76 7.76 7.76 7.76

Forwards 7.75 7.75 7.75 7.75

usd/ TWD 31.624 31.4 31.5 31.5 31.6Consensus 32.0 32.4 32.5 32.6

NDF 31.7 31.6 31.5 31.5

usd/ KRW 1146 1142 1145 1147 1149Consensus 1138 1140 1150 1160

NDF 1147 1147 1146 1146

usd/ SGD 1.3918 1.38 1.39 1.39 1.40Consensus 1.38 1.38 1.39 1.40

Forwards 1.39 1.39 1.39 1.39

usd/ MYR 4.1970 4.13 4.17 4.20 4.24Consensus 4.11 4.10 4.11 4.19

NDF 4.11 4.12 4.13 4.14

usd/ THB 35.051 35.1 35.2 35.4 35.5Consensus 35.0 35.0 35.2 35.2

Off fwd 35.1 35.2 35.2 35.3

usd/ IDR 13048 13160 13339 13518 13697Consensus 13100 13150 13200 13225

NDF 13183 13355 13544 13742

usd/ PHP 48.545 49.4 49.8 50.2 50.7Consensus 47.7 48.0 48.1 48.3

NDF 48.7 48.9 49.1 49.4

usd/ INR 66.790 67.4 67.5 67.6 67.7Consensus 67.5 67.4 67.7 67.5

NDF 67.3 68.2 69.0 69.9

usd/ VND 22283 22243 22243 22243 22243Consensus 22400 22400 22500 22500

Forwards 22470 22612 22754 --

AUD /usd 0.7595 0.76 0.76 0.76 0.76Consensus 0.75 0.74 0.73 0.74

Forwards 0.76 0.76 0.75 0.75

GBP /usd 1.2180 1.17 1.14 1.11 1.08Consensus 1.25 1.24 1.25 1.27

Forwards 1.22 1.22 1.22 1.22

DBS forecasts in red. Consensus and forwards from Bloomberg as at 28 Oct 2016


3

USD higher on renewed Fed hike expectations

The US dollar made a comeback after the FOMC meeting on 22 Sep. With GDP growth higher and inflation resuming its rise, markets price a 70% chance of a Fed hike in December. The DXY (USD) Index has rallied strong-ly towards the ceiling of its 93-100 range established since early 2015.

Yet it remains to be seen if the DXY can set a new appreciation path above 100. Fed Fund futures are not convinced that the Fed can hike more than once a year. The recent rally could fade like like the one just before the Fed hike in Dec 2015. Global risks could return to temper the Fed again. For example, Britain is looking to invoke Article 50 by Mar 2017. France will hold a presidential election around Apr/May. Germany’s federal elections follow around Aug-Oct.

The Fed has also signaled its preference for more fiscal spending to sup-port growth whilst it hikes rates. The next budget will, however, only come after the next US President takes office in Jan 2017. Hence, the risk of the Fed turning patient after the Dec hike cannot be discounted.

Latest

Jan-10Feb-10Mar-10Apr-10

May-10Jun-10Jul-10

Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11

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G3 policymakers want higher long bond yields

10Y govt bond yield, % pa

US

Japan

Eurozone

Fed tapertantrums

Latest


May-10Jun-10Jul-10

Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11

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1.25

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US rate hike vs NIRP in Japan & Eurozone

3M rates, % pa

US

Japan

Eurozone

Fed tapertantrums

2-Jan-155-Jan-156-Jan-157-Jan-158-Jan-159-Jan-15

12-Jan-1513-Jan-1514-Jan-1515-Jan-1516-Jan-1519-Jan-1520-Jan-1521-Jan-1522-Jan-1523-Jan-1526-Jan-1527-Jan-1528-Jan-15

90

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94

96

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100

102

Jan-15 Jul-15 Jan-16 Jul-16

DXY (USD) Index is still trapped within its 93-100 range

ECB QE

1stFedhike

Sep 22FOMC

Brexit

Patient &cautious Fed

Patient Fed

CNYdeval

CNYpanic

-2

-1

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1

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10 11 12 13 14 15 16

US growth & inflation firmer, supporting Fed hike

Fed Funds Rate% pa

US real GDP% QoQ

US CPI% YoY

Fed's 2-2.5%inflation target


4

US presidential election & Brexit uncertainties

The US presidential election on 8 Nov is unlikely to shock like the Brexit refer-endum did on 23 Jun. Britain’s decision to leave the European Union was based on a simple majority vote. To become the next US president, Hillary Clinton or Donald Trump will need to win 270 out of the 538 electoral college votes. Ac-cording to popularity and electoral college polls, Clinton has a wide lead over Trump in the race to the White House.

Post-Brexit GBP/USD extended its fall towards 1.20 from around 1.30 after the flash crash on 7 Oct. While EUR/USD fell below 1.10 from mid-Oct, it remained within the stable 1.05-1.15 range established after the European Central Bank (ECB) launched its quantitative easing (QE) program in Mar 2015.

The ECB must balance several factors when it meets on 8 Dec to decide on its QE program when it expires in Mar 2017. This is also the month that Britain is expected to invoke Article 50. The ECB is expected extend QE but roll back its asset purchases to EUR 60bn from the current pace of EUR 80bn a month. The ECB also finds negative rates problematic for banks and wants long bond yields higher. Inflation has also risen from the rebound of oil prices from its low. Over-all, the ECB is seen as having less room for maneuver. Hence, it is premature to conclude that EUR/USD will fall below 1.05 for now.

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Oct-15 Jan-16 Apr-16 Jul-16 Oct-16

RealClearPolitics: Clinton widens lead against Trump

Poll average as of 28 Oct

Donald Trump28 Oct: 42.1

Hillary Clinton28 Oct: 47.3

0

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Clinton Trump

Solid Likely Leaning Toss up

Electoral college votes – Clinton leads Trump

Number of electoral votes as of 28 Oct

Candidate needs to win 270 votes to become the next US President

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1.80

Jan-14 Jan-15 Jan-16

EUR has been resilient to Brexit so far this year

GBP/USD EUR/USD

Brexit referendum

Flash crash

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Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

EUR/USD supported if oil prices rise further

Spot rate USD per barrel

WTI oil prices(right)

EUR/USD(left)


5

Asia ex-Japan currencies – important to differentiate them

While Asia ex-Japan (AXJ) currencies weathered the Brexit referendum well, they have not been spared from the renewed Fed hike expectations since the FOMC meeting on 22 Sep. This should not surprise. The USD was soft because the Fed adopted a cautious and patient hike stance to stabilize global markets after Britain’s shocking vote to leave the European Union.

There is a need to differentiate the stronger currencies from the weaker ones within AXJ. The most resilient AXJ currencies belong to India, Indonesia and Vietnam, countries where foreign investors are attracted to their high growth potential. Conversely, growth disappointments in Singapore, Malaysia and Ko-rea, led their currencies to return some of this year’s appreciation. Taiwan was a turnaround recession-to-recovery story.

The two weakest AXJ currencies were the CNY and PHP. The CNY resumed its depreciation after the CNY officially became part of the International Mon-etary Fund’s (IMF) Special Drawing Rights (SDR) from 1 Oct. While the Philip-pines had the fastest growing economy in Southeast Asia, the anti-US foreign policy of newly elected President Rodrigo Duterte has become a concern with foreign investors.

IDRINR

TWDTHBPHPCNYEUR

MYRSGDJPY

KRW

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1

IDR INR TWD THB PHP CNY EUR MYR SGD JPY KRW

Asian currencies hurt by Fed hike expectations

% change vs USD, 28 Oct 2016 vs 22 Sep 2016

1-Jan-164-Jan-165-Jan-166-Jan-167-Jan-168-Jan-16

11-Jan-1612-Jan-1613-Jan-1614-Jan-1615-Jan-1618-Jan-1619-Jan-1620-Jan-1621-Jan-16

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Jan-16 Apr-16 Jul-16 Oct-16

Asia ex Japan currencies that depreciated this year

% YTD vs USD

CNY

Brexit Sep 22 FOMC

PHP

INR

-4

-2

0

2

4

6

8


Resilient Asia ex Japan currencies this year

% YTD vs USD

IDR

TWD

VND

INR

Brexit Sep 22 FOMC

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-4

-2

0

2

4

6

8

10

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Asia ex Japan currencies that have disappointed

% YTD vs USD

KRWTHBMYRSGD

Brexit Sep 22 FOMC


6

Real GDP growth, % YoY

Cty 2015 2016f 2017f 1Q16 2Q16 3Q16US 2.6 1.5 2.1 1.6 1.3 1.5EU 2.0 1.5 1.3 0.5 0.3 --UK 2.2 1.8 0.9 1.9 2.1 2.3JP 0.6 0.6 0.8 0.2 0.8 --CN 6.9 6.7 6.4 6.7 6.7 6.7IN 7.3 7.7 7.8 7.9 7.1 --HK 2.4 1.3 1.7 0.8 1.7 --TW 0.6 1.0 1.8 -0.3 0.7 2.1KR 2.6 2.7 2.7 2.8 3.3 2.7SG 2.0 1.7 1.9 2.0 2.0 0.6MY 5.0 4.1 4.4 4.2 4.0 --TH 2.8 3.1 3.3 3.2 3.5 --ID 4.8 5.0 5.3 4.9 5.2 --PH 6.3 6.4 6.3 6.8 7.0 --VN 6.7 6.0 6.4 5.5 5.5 5.9

"FY is Apr-Mar; Forecasts is consensus as at 28 Oct

Slower growth in red; Faster growth in bold blue

Asia ex-Japan currencies – Fed hikes vs cyclical recovery

Based on our expectation for a US rate hike every quarter next year, the USD should be firmer against Asia ex-Japan (AXJ) currencies going forward. The greenback’s ascension is, however, unlikely to be a smooth one. We expect the USD’s appreciation to be gentler compared to the emerging market volatility in 2013-15.

The ability of the Fed to carry out more than one hike a year implies an improv-ing global economy. World exports have shown signs of bottoming this year. Some AXJ economies have already surprised with better growth performances in spite of slower G3 economies. Inflation is also starting to show signs of bot-toming, and this has kept bond markets nervous in the past month. Overall, the cyclical recovery should help to balance the Fed hikes that keep the USD strong.

There are event risks next year. UK is expected to start its negotiations to exit from the European Union (EU) amidst the elections in France and Germany. On a brighter note, this should help to foster a more balanced “emerging markets vs developed market” landscape. On a negative note, there are now more wor-ries about weak leadership in the advanced economies and growing protec-tionism around the globe.

CPI inflation, % YoY

Cty 2015 2016f 2017f 1Q16 2Q16 3Q16US 2.6 1.5 2.1 1.1 1.0 1.1EU 0.0 0.2 1.3 0.0 -0.1 0.3UK 0.0 0.7 2.3 0.4 0.4 0.7JP 0.8 -0.2 0.5 0.0 -0.4 -0.5CN 1.4 2.0 2.0 2.1 2.1 1.7IN 4.9 5.1 5.0 5.3 5.7 5.1HK 3.0 2.5 2.5 2.8 2.6 3.1TW -0.3 1.1 1.0 1.8 1.3 0.7KR 0.7 0.9 1.5 1.0 0.9 0.8SG -0.5 -0.5 1.0 -0.8 -0.9 -0.4MY 2.1 2.3 2.6 3.4 1.9 1.4TH -0.9 0.5 1.9 -0.5 0.3 0.3ID 6.4 3.7 4.5 4.3 3.5 3.0PH 1.4 1.8 3.0 1.1 1.5 2.0VN 0.6 2.5 3.9 1.3 2.2 2.8

"FY is Apr-Mar; Forecasts is consensus as at 28 Oct

Slower inflation in red; Faster inflation in bold blue


May-08Jun-08Jul-08

Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09

May-09Jun-09Jul-09

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Trade recovery to help offset Fed hike pressures

USD billion

Asia ex Japancurrency index(right)

World exports(left)

ADXY index55555555

18-Apr-0825-Apr-082-May-089-May-08

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AUD is a good proxy for Asian currencies

AUD/USD

ASEAN+3 currency index (right)

ASEAN: SGD, MYR, THB, IDR, PHP+3 are CNY, JPY & KRW

AUD/USD(left)

ASEAN+3 index


7

US dollar

It is premature to assume that the DXY index would break above its 21-mth range between 93 and 100

• TheDXY(USD)Indexappreciated3%to98.348inOctober. The last time it appreciated this strongly in a single month was in May. In both episodes, the USD was lifted by Fed hike expectations.

• USeconomicindicatorshaveimprovedfortheFedto hike rates again. The Fed is unlikely to move at its FOMC meeting on 3 Nov because of the US presi-dential election on 8 Nov. Instead, the Fed Funds Rate is likely to be lifted by 25bps to 0.50-0.75% at the following meeting on 14 Dec.

• Aswitnessedafter thefirstFedhike inDec2015,this did not mean that DXY index is about to break above its 93-100 range established since early 2015. To do so, markets need convincing that the Fed can hike more than once a year.

• The Fed believes that government spending canhelp to fight low growth. Fed Vice Chairman Stan-ley Fischer reckoned that an increase in government spending of 1% of GDP can allow interest rates to rise by 0.50%. Unfortunately, the next budget will have to wait until after the new US president as-sumes office in Jan 2017.

Japanese yen

We have lifted our flat projected trading band for USD/JPY to 100-110 from 97-105 previously

• USD/JPYplunged to the year’s lowof99.08 from106.81 on 24 Jun, one day after Britain’s shocking vote to leave the European Union. The JPY shed its safe haven status once it became evident that Brexit was not a repeat of the 2008 global crisis.

• Since then,USD/JPY triedand failed tobreakbe-low its psychological 100 level. This was consistent with USD/JPY’s track record of consolidating after a sharp move. Lest we forget, USD/JPY fell some 18% from its peak above 120 in Jan.

• DuringtheGBP’sflashcrashon7Oct,USD/JPY’sfallwas shallower to 102.84 from 104.03. Unlike late June, the USD was strong globally from renewed hopes of a Fed hike in Dec. This trend started after the FOMC meeting on 22 Sep.

• USD/JPY subsequentlybouncedoff its 100 low to105 by end-Oct. This was accompanied by the Nik-kei 225 breaking above its 17,000 level. The “high-er USD/JPY, higher Nikkei” move brought back a sense of Abenomics. Unless the Fed disappoints by holding rates steady for the rest of 2016, the odds of USD/JPY extending its rise above 105 cannot be dismissed.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 98.3480 96.7 96.7 96.7 96.7Consensus 97.6 98.1 98.1 97.4

Projected trading bandCeiling 100.33 100.3 100.3 100.3 100.3Floor 93.135 93.1 93.1 93.1 93.1Slope 0.0% depreciation a year for USDWidth 3.9% around mid

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DXY (USD) Index – in upper half of 93-100 range

BOJ QQE1

BOJ QQE2

ECBQE

CNY deval

Fedhike

Fedtaper

US losesAAA

Brexit

DBSfConsensus

Projected trading range

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 104.69 105 105 105 105Consensus 104 103 104 105

Projected trading bandCeiling 110.00 110 110 110 110Floor 100.00 100 100 100 100Slope 0.0% depreciation a year for JPYWidth 5.0% around mid

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USD/JPY – 100 support level held up

US loses AAA

Fed taper

BOJ QQE2

BOJ QQE1

ECB QE

CNY deval

Fed hike

Brexit

DBSfConsensus



8

Euro

EUR/USD returns into the lower half of its 1.05-1.15 range for the rest of 2016

• EUR/USDstartedtotradebelow1.10frommid-Oct.It is, however, uncertain that the three factors cited below would eventually lead EUR/USD to trade be-low its 1.05-1.15 range.

• First, Brexit fears returned and triggered a flashcrash in GBP/USD on 7 Oct. The last time EUR/USD tried to break below 1.10 was during the first month after the Brexit referendum on 23 Jun. ECB President Mario Draghi believed that Britain’s vote to leave the European Union (EU) could eventually hurt the Eurozone economy by up to 0.5%.

• Second,theECBwilldecideatitsmeetingon8Decwhat to do with its QE program when it expires in Mar 2017. Due to UK’s plan to invoke Article 50 and political uncertainties surrounding elections in France and Germany next year, the ECB could ex-tend its QE program but slow asset purchases back to EUR 60bn a month from EUR 80bn presently.

• Thirdly, expectations for a Fed hike at the FOMCmeeting on 14 Dec returned to lift the USD. Unless the market price in more hikes in 2017, the USD could give up its gains after this hike.

British pound

GBP/USD is likely to have moved into a lower descend-ing price channel

• BritainvotedtoleavetheEuropeanUnion(EU)atthe Brexit referendum on 23 Jun. The shocking out-come led GBP/USD to plunge from a high of 1.5018 to a low of 1.2796 on 6 Jul. Thereafter, GBP/USD settled into a 1.2850-1.3480 until Oct.

• PMTheresaMayannouncedon2OctthatArticle50will be triggered by Mar 2017 to start the two-year process for UK to exit the EU. This set the stage for a flash crash in GBP/USD on 7 Oct. GBP/USD briefly fell below 1.20 that day.

• Since then, GBP/USD has been consolidating in anew and lower range between 1.2086 and 1.2372 which is in the lower half of its descending price channel. Unlike consensus, we see more risk for GBP/USD to fall below than rise above this range.

• The Bank of England (BOE) is likely to look pastthe higher inflation from the GBP’s sharp deprecia-tion. The central bank’s priority is to safeguard jobs and growth from the difficult Brexit negotiations ahead. Until Britain allays fears of a hard Brexit, UK’s sovereign debt ratings remain at risk to fur-ther downgrades.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 1.0983 1.10 1.10 1.10 1.10Consensus 1.10 1.09 1.09 1.10

Projected trading bandCeiling 1.1500 1.15 1.15 1.15 1.15Floor 1.0500 1.05 1.05 1.05 1.05Slope 0.0% depreciation a year for EURWidth 4.8% around mid

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EUR/USD – back around mid-pointof 1.05-1.15 range

BOJ QQE1

BOJ

ECB QE

CNY Fedhike

Fedtaper

US losesAAA

Brexit

DBSfConsensus


28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 1.2180 1.17 1.14 1.11 1.08Consensus 1.25 1.24 1.25 1.27

Projected trading bandCeiling 1.2743 1.25 1.23 1.20 1.17Floor 1.1012 1.08 1.05 1.02 0.99Slope -9.4% depreciation a year for GBPWidth 8.3% around mid

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GBP/USD – a new & lower range after the flash crash

BOJ QQE1

BOJ

ECB QE

CNY

Fedhike

Fedtaper

US losesAAA

Brexit

DBSfConsensus



9

Chinese yuan

The slope of the ascending price channel for USD/CNY is likely to be steeper than originally thought

• TheCNYfellto6.7810againsttheUSDon28Oct,its weakest level since Sep 2010. Posting a 4.2% YTD depreciation, the CNY has become the worst performing Asia ex Japan currency this year.

• Unlike the start of the year, there was no panicfrom the CNY’s continued depreciation. After Chi-na returned from its week-long holidays on 10 Oct, both the offshore USD/CNH and the onshore USD/CNY rates stayed very close (±0.1%) to the central parity rate.

• TheUSTreasuryDepartmentmayremovetheCNYfrom its currency monitor list. China’s current ac-count surplus has narrowed to 2.4% of GDP in 2Q16, down from 2.6% in 1Q16, below the 3% criteria set by the monitor list. Neither has China intervened to weaken its currency. Foreign reserves fell to $3.17trn in Sep16 from $3.33trn at end-2015.

• Rather,2016wasthefirstyearthatoutwarddirectinvestments from China surpassed foreign direct investments into the country. CNY depreciation expectations were also reflected by withdrawals in the CNY deposits of offshore CNY centres in Hong Kong, Singapore and Taiwan.

Hong Kong dollar

Fed hikes could lift USD/HKD from its stable 7.75-7.76 range established since mid-2016

• TherewasnopanicovertheCNY’scontinuedde-preciation in the territory. Unlike the start of the year, USD/HKD did not rise into the upper half of its 7.75-7.85 convertibility band. Instead, USD/HKD has been stable within a tight 7.75-7.76 range since mid-2016.

• The weaker CNY was better reflected in the re-duced pool of CNY deposits in Hong Kong. These deposits first fell below CNY 800bn in Aug15, the month when China surprised with a one-off de-valuation. Over the next 12 months, these deposits dwindled to CNY 456bn in Aug16.

• HongKongwasthebestperformingstockmarketin Asia ex Japan and China since the Brexit refer-endum on 23 Jun. Prior to UK’s vote to leave the European Union, the HSI was the worst performer this year. After a six-month fall of 11.3%, the resi-dential property price index bottomed in Mar16 and increased 6% by Aug16.

• Lookingahead,USratehikes,whentheyeventu-ally arrive, could lift USD/HKD towards 7.78 again. During the past two Fed hike cycles in 1999-00 and 2004-06, USD/HKD rose towards 7.80.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 6.7810 6.82 6.91 7.00 7.08Consensus 6.75 6.80 6.82 6.85

Projected trading bandCeiling 6.8777 6.94 7.03 7.11 7.20Floor 6.6394 6.70 6.79 6.88 6.96Slope 5.1% depreciation a year for CNYWidth 1.7% around mid

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USD/CNY – moving into a steeper price channel

BOJ QQE1

BOJ QQE2

ECB QE

CNY deval

Fed hike

Fed taper

Brexit

DBSfConsensus


28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 7.7543 7.78 7.78 7.78 7.78Consensus 7.76 7.76 7.76 7.76

Projected trading bandCeiling 7.8000 7.80 7.80 7.80 7.80Floor 7.7500 7.75 7.75 7.75 7.75Slope 0.0% depreciation a year for HKDWidth 0.3% around mid

7.70

7.75

7.80

7.85

7.90

7.70

7.75

7.80

7.85

7.90

11 12 13 14 15 16 17

USD/HKD – in the lower half of its convertibility band

BOJ QQE1

BOJ QQE2

ECB QE

CNY deval

Fedhike

Fedtaper

US losesAAA

Brexit

DBSfConsensus



10

Taiwan dollar

USD/TWD to remain in the lower half of its ascending price channel

• USD/TWDhasbeenstablebetween31.1and31.8after it bottomed at 31.051 on 10 Aug. The TWD’s resilience was notable during the USD’s resurgence in Oct fanned by Fed hike bets.

• Theworstisoverfortheeconomy.RealGDPgrowthturned positive at 0.7% YoY in 2Q16 after contract-ing for three straight quarters. Growth accelerated to 2.06% YoY in 3Q16, its fastest in 1.5 years. Look-ing ahead, the TWD is likely to be underpinned by an export recovery. Export orders turned positive in Aug-Sep16 after 18 months of contraction.

• Understandably,thecentralbankhelditsdiscountrate steady after lowering it for four straight quar-ters by a total 50bps to 1.375% into June.

• Taiwan’stwinbalancesremainedstrong.Fitchup-graded, on 12 Oct, the country’s long-term foreign currency debt rating by one notch to “AA-”. This was a strong testimony to its sound fiscal profile despite its growth challenges. Taiwan’s current ac-count surplus remained strong at 14.7% of GDP in 2Q16. Foreign reserves reached a new record high of $437bn as of Sep16.

Korean won

We have lifted the our projected trading band for USD/KRW

• USD/KRWroseto1146byend-Octafter itconsoli-dated between 1090 and 1127 from late Jul to mid-Oct. Apart from renewed Fed hike expectations that buoyed the USD globally, Korea’s economic outlook dimmed again. Hence, we have lifted the centre of our projected trading band for USD/KRW to the mid-point of its medium-term ascending price channel.

• Korea’s real GDP growth slowed to 2.7% YoY in3Q16 from 3.3% in the previous quarter. Consensus expects subdued GDP growth of 2.3-2.7% over the next four quarters.

• Thechallenges facingtheeconomyarecorporaterestructuring, the anti-graft law and protectionist pressures abroad. Short-term production has been affected by the discontinuation of Samsung’s Gal-axy Note 7. The Bank of Korea (BOK) sees a poten-tial slowdown in the construction sector.

• Not surprisingly, consensus isalso looking for theBOK to deliver one more rate cut. The 7D repo (policy) rate has fallen by a total 200bps to 1.25% between Jul 2012 and Jun 2016.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 31.624 31.4 31.5 31.5 31.6Consensus 32.0 32.4 32.5 32.6

Projected trading bandCeiling 31.863 31.9 32.0 32.0 32.1Floor 30.843 30.9 30.9 31.0 31.1Slope 0.8% depreciation a year for TWDWidth 1.6% around mid

28

29

30

31

32

33

34

28

29

30

31

32

33

34

10 11 12 13 14 15 16 17

USD/TWD – into the lower half of its price channel

US loses AAA

Fed taper

BOJ QQE2

BOJQQE1

ECB QE

CNY deval

Fed hike

Brexit


DBSfConsensus

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 1146 1142 1145 1147 1149Consensus 1138 1140 1150 1160

Projected trading bandCeiling 1195 1196 1199 1201 1204Floor 1086 1088 1090 1093 1095Slope 0.9% depreciation a year for KRWWidth 5.0% around mid

1000

1050

1100

1150

1200

1250

1000

1050

1100

1150

1200

1250

11 12 13 14 15 16 17

USD/KRW – volatile in a wide 1100-1200 range

US losesAAA

Fedtaper

BOJQQE2

BOJQQE1

ECB QE

CNY deval

Fedhike

Brexit

DBSfConsensus



11

Singapore dollar

USD/SGD has bounced off the floor of our projected trading band

• TheMonetaryAuthorityofSingapore(MAS)main-tained the status quo for its neutral SGD policy stance at its policy review on 14 Oct. There was no change to the slope, width and mid-point of the SGD nominal effective exchange rate policy band.

• ThedecisioninApriltoendtheSGDappreciationpolicy and shift to a neutral policy stance had al-ready factored in the slowdown in real GDP growth to 0.6% YoY in 3Q16 from 2% in 2Q16. Unless the global economy deteriorates significantly, the MAS is not thinking about easing the SGD policy again.

• The MAS believed that CPI inflation, while stillnegative since Nov14, will turn positive next year to 0.5-1.5% in 2017. The central bank sees core inflation modestly firmer at 1-2% in 2017 from a projected 1% this year. Instead of easing, the MAS concluded that the neutral stance will be needed for an extended period to ensure price stability in the medium-term.

• Lookingahead,USD/SGDislikelytostayfirmfroma disappointing Singapore economy amidst specu-lation for a Fed hike in Dec.

Malaysian ringgit

USD/MYR resumed uptrend on slowing growth chal-lenges and a stronger USD globally

• IncontrasttoitsSoutheastAsianpeers,USD/MYRbottomed earlier at 3.8620 on 20 Apr. Since then, USD/MYR has resumed its rise within our projected trading band. The Malaysia stock market did not participate in the equity rally of emerging markets. The Kuala Lumpur Composite Index fell, as of 28 Oct, by 1.3% YTD this year.

• Externally,theUSDwasbuoyedworldwidebyex-pectations for a Fed hike in Dec. In reality, this only came into play after the FOMC meeting on 21 Sep. The knock to investor confidence, however, arrived earlier. The US Department of Justice announced on 20 Jul that it had filed a civil lawsuit against 1Malaysia Development Berhad (1MDB). The DOJ is seeking to seize more than $1bn of assets allegedly embezzled from 1MDB.

• TheMYR’s weakness was also home-grown. RealGDP growth decelerated for the fifth straight quar-ter to 4.0% YoY in 2Q16, its lowest growth rate since 3Q09. CPI inflation plunged to 1.1% YoY in Jul16 from 4.2% in Feb16. Bank Negara Malaysia (BNM) responded, on 13 Jul, with a 25bps cut in its overnight policy rate to 3.00%.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 1.3918 1.38 1.39 1.39 1.40Consensus 1.38 1.38 1.39 1.40

Projected trading bandCeiling 1.4199 1.42 1.43 1.43 1.44Floor 1.3424 1.35 1.35 1.35 1.36Slope 1.2% depreciation a year for SGDWidth 2.9% around mid

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

11 12 13 14 15 16 17

USD/SGD – off the floor of its projected trading range

BOJ QQE1

BOJ QQE2

ECB

CNY

Fedhike

Fedtaper

US losesAAA

Brexit

DBSfConsensus


28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 4.1970 4.13 4.17 4.20 4.24Consensus 4.11 4.10 4.11 4.19

Projected trading bandCeiling 4.2742 4.30 4.33 4.37 4.41Floor 3.9371 3.96 4.00 4.03 4.07Slope 3.4% depreciation a year for MYRWidth 4.2% around mid

2.80

3.00

3.20

3.40

3.60

3.80

4.00

4.20

4.40

4.60

2.80

3.00

3.20

3.40

3.60

3.80

4.00

4.20

4.40

4.60

11 12 13 14 15 16 17

USD/MYR – rising in a channel again

BOJ QQE1

BOJ QQE2

ECB QE

CNY deval

Fed hike

Fed taper

US losesAAA

Brexit

DBSfConsensus



12

Thai baht

USD/THB tried and failed to fall into the lower half of our projected trading band

• October was a volatile month for Thailand. TheTHB depreciated against the USD to 35.73 from 34.62 between 3 Oct and 12 Oct before the death of revered King Bhumibol Adulyadej on 13 Oct.

• Calm returned when succession doubts werecleared amidst signs that there would be no tur-moil during the year-long mourning period. Crown Prince Maha Vajiralongkorn announced that he would grieve his father’s death with the country for a year before ascending the throne. USD/THB fell back to 34.87 on 19 Oct on prospects for an orderly succession before entering into range be-tween 34.90 and 35.17.

• PremTinsulanonda,theleaderofthePrivyCouncil,has assumed the role of “regent pro temopora” to handle royal affairs during this interim period. The Finance Ministry will be mulling additional stimu-lus, if necessary, to meet its 3.3% growth target for 2016. The Bank of Thailand (BOT) may also recon-sider its stance to refrain from rate cuts if capital inflows and investments slow more than expected. For now, the BOT appears more concerned about the THB’s strength hurting exports.

Indonesian rupiah

USD/IDR is holding up around the mid-point of our projected trading band

• Indonesia stocks and the IDR performed best inAsia ex Japan (AXJ) this year. As of 28 Oct, the Ja-karta Composite Index rose 17.8% YTD this year, while the IDR appreciated 5.6% against the USD.

• UnlikeotherAXJcurrencies,IDRdidnotcomeun-der selling pressure from Fed hike expectations buoying the USD. Rather, USD/IDR tried and failed to trade below its psychological 13000 level. For-eign reserves increased strongly to $115.7bn in Sep16 from $103.6bn in May16 from trade surplus-es and inflows from the tax amnesty program.

• Optimism is high that the economy may haveturned the corner on its five-year slowdown. After bottoming at 4.66% YoY in 2Q15, real GDP growth improved to 5.18% in 2Q16. Consensus expects growth to hold steady at 5.1% in 2H16 before ris-ing to 5.2-5.4% in 2017.

• Therewasalsoprogressintaminginflation.Exceptfor the 2.79% YoY reading in Aug16, CPI inflation has been within the official 3-5% target band since Nov15. This allowed Bank Indonesia (BI) to cut the 7D reverse repo rate three times – on 16 Jun, 22 Sep and 20 Oct – by a total 75bps to 4.75%.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 35.051 35.1 35.2 35.4 35.5Consensus 35.0 35.0 35.2 35.2

Projected trading bandCeiling 36.050 36.2 36.3 36.5 36.6Floor 33.870 34.0 34.1 34.3 34.4Slope 1.8% depreciation a year for THBWidth 3.2% around mid

28

29

30

31

32

33

34

35

36

37

28

29

30

31

32

33

34

35

36

37

10 11 12 13 14 15 16 17

USD/THB – resisting further falls

US loses AAA

Fed taper

BOJ QQE2

BOJQQE1

ECB QE

CNY deval

Fed hike

Brexit


DBSfConsensus

31-Aug30-Sep

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 13048 13160 13339 13518 13697Consensus 13100 13150 13200 13225

Projected trading bandCeiling 13849 13973 14152 14331 14510Floor 12223 12347 12526 12705 12884Slope 5.3% depreciation a year for IDRWidth 6.4% around mid

8000

9000

10000

11000

12000

13000

14000

15000

8000

9000

10000

11000

12000

13000

14000

15000

11 12 13 14 15 16 17

USD/IDR – also resisting further falls

US loses AAA

Fed taper

BOJ QQE2

BOJ QQE1

ECB QE

CNY deval

Fed hike

Brexit

DBSfConsensus



13

Philippine peso

We have lifted our projected trading band for USD/PHP into the upper half of the rising price channel

• ThePHPwas,asat28Oct, thesecondworstper-forming currency in Asia ex Japan (AXJ) this year. After consolidating between 45.85 and 47.37 in Mar-Sep, USD/PHP rose to 48.702 to 11 Oct, its high-est level since Sep 2009.

• Thetwinbalanceshavedeteriorated.Thebudgetdeficit increased to PHP 138.5bn in Jan-Aug16, wider than the full-year PHP 121.7bn (or 0.9% of GDP) deficit seen for the whole of 2015. At $33bn in 1H16, the current account surplus is well below the full-year $128bn (2.6% of GDP) surplus in 2015.

• Thereisscopeforthecurrentaccountsurplusestoreverse into deficits if the trade deficits continue to increase at a faster pace than overseas foreign worker (OFW) remittances. The $14bn trade deficit in Jan-Jul16 was already wider than the full-year $12.2bn deficit in 2015. OFW remittances increased modestly to $17.6bn in Jan-Aug16 from $16.9bn in the same period last year.

• Finally,investorsentimenthasturnedcautiousfromPresident Rodrigo Duterte’s constant rants against the US, and his foreign policy shift towards China.

Vietnam dong

Spot VND is stable on investor confidence in spite of a weaker mid-point from a stronger USD

• Between5Augand28Oct, themid-pointof theofficial trading band for USD/VND has risen 1% to 22045 from its low of 21828.

• The drag on the VND mid-point came primarilyfrom a higher USD against its reference basket of currencies such as the EUR, JPY, CNY, SGD, KRW, TWD and THB.

• TheweakerVNDmid-pointwasalso viewedasadowngrade with its economic outlook. On 20 Oct, the government lowered its 2016 GDP growth fore-cast to 6.3-6.5% from 6.7%. The target for export growth this year was decreased to 6-7% from 10% previously. Inflation is now seen averaging 4% in 2016 instead of 5% previously.

• DespitetheweakerVNDmid-point,spotVNDwasstable. Spot USD/VND remained within a tight 0.2%-wide trading range between 22284 and 22338 between 5 Aug and 25 Oct. The State Bank of Vietnam (SBV) reported on 20 Oct that foreign reserves reached a new record high of $40mn from $28bn at end-2015. The Vietnam stock market has, as at 28 Oct, led the rally in Asia ex Japan this year.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 48.545 49.4 49.8 50.2 50.7Consensus 47.7 48.0 48.1 48.3

Projected trading bandCeiling 50.008 50.3 50.7 51.1 51.5Floor 48.252 48.5 49.0 49.4 49.8Slope 3.3% depreciation a year for PHPWidth 1.8% around mid

40

41

42

43

44

45

46

47

48

49

50

51

40

41

42

43

44

45

46

47

48

49

50

51

10 11 12 13 14 15 16 17

USD/PHP – into the upper half of trading band

US loses AAAFed taper

BOJ QQE2

BOJ QQE1

ECB QE

CNY deval

Fed hike

BrexitProjected

trading range

DBSfConsensus

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 22283 22243 22243 22243 22243Consensus 22400 22400 22500 22500

Projected trading bandCeiling 22571 22571 22571 22571 22571Floor 21914 21914 21914 21914 21914Slope 0.0% depreciation a year for VNDWidth 1.5% around mid

20500

21000

21500

22000

22500

23000

23500

20500

21000

21500

22000

22500

23000

23500

12 13 14 15 16 17

USD/VND – remarkably stable despite higher mid-rate

Fed taper

BOJ QQE2BOJ

QQE1

ECBQE

CNY deval

Fed hike

Brexit

DBSfConsensus



14

Indian rupee

No change to our projected trading range; USD/INR to remain stable between 65 and 70

• Asexpected, INRwas fairly stable.AlthoughUSDwas strong globally from Fed hike expectations af-ter the FOMC meeting on 22 Sep, USD/INR was re-markably calm between 66.5 and 67.0.

• Indiaremainedthefastestgrowingeconomywithstable inflation in Asia ex Japan. Real GDP growth surpassed 7% YoY for the fifth consecutive quarter in 2Q16. Except for Jul16, CPI inflation remained within the Reserve Bank of India’s (RBI) inflation target of 4±2% since Sep14. As inflation eased back to 4.31% YoY in Sep16 from 6.07% in Jul16, the RBI cut rates, on 4 Oct, for the third time this year.

• Thetradedeficitnarrowedto$43bnin1H16from$68bn the same period a year ago. The contraction in exports slowed significantly to 1.8% YoY in 1H16 vs 17.2%. Imports fell by 13.6% in 1H16, barely changed from the 13.8% decline in 1H15.

• The redemption of Foreign Currency Non-Resi-dent (Bank) or FCNR(B) deposits over Sep-Nov has started. Despite the fall to $367bn on 21 Oct from $372bn on 30 Sep, foreign reserves are still at end-Aug levels. USD/INR is unlikely to move out of our projected trading range between 65 and 70.

Australian dollar

Our neutral stance is reflected by our new and flat projected trading band for AUD/USD

• AUD/USD has been trapped between 0.7439 and0.7734 after its rally from 0.7142 to 0.7756 in May-Aug. The AUD has, during this period, balanced selling pressures from Fed hike expectations with buying pressures from higher commodity prices.

• Reserve Bank of Australia (RBA) Governor PhilipLowe said on 18 Oct that the current levels of the AUD and interest rates were appropriate for the economy. While the RBA has stopped pushing for more AUD depreciation, it does not want a stron-ger AUD complicating the economic rebalancing ei-ther. There is, however, little the RBA can do when rising commodity prices push the AUD higher.

• Theprospectforathirdratecutthisyearhasless-ened. The RBA acknowledged that central banks worldwide are approaching their limits in easing monetary policy. The RBA is also mindful that it needs to balance between its goal to meet its infla-tion target, and guard against fuelling a housing bubble and pushing rates too low for savers.

• Overall,theprospectoftheAUD/USDreversingits2013-15 downtrend cannot be totally discounted.

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 66.790 67.4 67.5 67.6 67.7Consensus 67.5 67.4 67.7 67.5

Projected trading bandCeiling 69.912 70.0 70.1 70.1 70.2Floor 64.749 64.8 64.9 65.0 65.1Slope 0.5% depreciation a year for INRWidth 4.0% around mid

40

45

50

55

60

65

70

75

40

45

50

55

60

65

70

75

10 11 12 13 14 15 16 17

USD/INR – flattened around mid of 65-70 range

US loses AAA

Fedtaper

BOJQQE2

BOJQQE1

ECB QE

CNY deval

Fed hike Brexit


DBSfConsensus

28-Oct 4Q16 1Q17 2Q17 3Q17

DBS 0.7595 0.76 0.76 0.76 0.76Consensus 0.75 0.74 0.73 0.74

Projected trading bandCeiling 0.8000 0.80 0.80 0.80 0.80Floor 0.7200 0.72 0.72 0.72 0.72Slope 0.0% depreciation a year for AUDWidth 5.6% around mid

0.60

0.70

0.80

0.90

1.00

1.10

1.20

0.60

0.70

0.80

0.90

1.00

1.10

1.20

11 12 13 14 15 16 17

AUD/USD – has it seen its low for the cycle?

BOJ QQE1

BOJ

ECB CNY Fedhike

Fedtaper

US losesAAA

Brexit

DBSfConsensus



15

Disclaimer:The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reli-able, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or cor-rectness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further commu-nication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other inter-ests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.

Recent Research

SG: down but not out 1 Nov 16

Rates: Global rates roundup / chart-pack 31 Oct 16

TW: diversifying into Southeast Asia 21 Oct 16

CN: cyclical bottom 19 Oct 16

IN: assessing current account 18 Oct 16 improvement

PHgov bonds: expensive (still) 11 Oct 16

SGD: sticking to neutral 7 Oct 16

EZ: not taper time yet 7 Oct 16

CN: avoiding the Minsky moment 6 Oct 16

IN: monetary policy committee lowers rates 4 Oct 16

Qtrly: Economics-Markets-Strategy 4Q16 15 Sep 16

CNH: SDR inclusion - right time, right place 8 Sep 16

IN: savings rate in need of a boost 2 Sep 16

IDR: towards further resilience 1 Sep 16

SGS: on Fed watch 30 Aug 16

Global growth: redefining strength 26 Aug 16

TW: 5 things you need to know about the 18 Aug 16aging population

SG: risks beneath the GDP figures 18 Aug 16

CN: the risk of keeping status quo 17 Aug 16

CN: why falling private investment growth 12 Aug 16is a worry

ID: tax revenues slipping 11 Aug 16

SG: labour market pain 10 Aug 16

IN: monetary policy in transition 8 Aug 16

FX: DM vs EM - a more balanced story 1 Aug 16

Rates: Global rates roundup / chart-pack 1 Aug 16

IN: Hopes high for GST 26 Jul 16

JP: will the helicopters fly? 20 Jul 16

ID rates: steepening risk 18 Jul 16

IN: more consumption-led growth 13 Jul 16

FX: revisions to GBP & JPY 8 Jul 16

TW & KR: how low can rates go? 7 Jul 16

US: a risky mantra 4 Jul 16

PH: Duterte’s game plan 4 Jul 16

EZ: dealing with post-Brexit blues 30 Jun 16

SG: Brexit impact limited for now 28 Jun 16

Britain’s Great Leap Backward 27 Jun 16

Brexit – first impact 24 Jun 16

IN: maturing FCNR (B) deposits a molehill, 10 Jun16not a mountain Qtrly: Economics-Markets-Strategy 3Q16 9 Jun 16

HK: cautious outlook 27 May 16

IN: monitoring external fault lines 25 May 16

TH: manufacturing gone cold 25 May 16

SGS: bracing for the Fed 24 May 16

Global: Where lies north? 16 May 16

CN: outbound investments intact 5 May 16

JP: perception gap widens 5 May 16

FX: USD down but not out 3 May 16

Documents

USD not running away - DBS Bank...GBP /usd 1.2180 1.17 1.14 1.11 1.08 Consensus 1.25 1.24 1.25 1.27 ... before the Fed hike in Dec 2015. Global risks could return to temper the Fed