FYI | Oct 27 2008
By Chris Shaw
To reflect what it regards as extraordinary developments in foreign exchange markets in recent sessions, Danske Bank has revised its forex forecasts earlier than usual, factoring in de-leveraging and the fund flows associated with the process and the changes in risk premiums this has created.
In general terms, the group suggests the recent trends and the changes to risk premiums adds support to the US dollar, the Japanese yen and the Swiss franc, while it acts against emerging market currencies generally and the more traditional carry trade currencies, which has been seen in the sharp falls in the Australian and New Zealand dollars of late.
As well, Danske Bank points out the downward pressure on oil prices has been more intense than it expected and with price risks remaining to the downside, in its view, it sees further upside potential for the US dollar against both its Canadian counterpart and the euro.
It expects the de-leveraging process currently underway will continue into 2009, but one positive in the group’s view is that the financial rescue packages announced globally in recent weeks are slowly improving money market conditions, which will be a positive in dealing with the crisis going forward.
The most notable revision to Danske Bank’s forecasts are increases to its US dollar estimates, while it also expects both the yen and Swiss franc to benefit from a continuation of the de-leveraging process noted above, though these calls are more short-term than its US dollar outlook.
In terms of specific numbers, the bank is now forecasting a euro/US dollar rate of 1.21 in three months time and 1.16 in 12 months, which compares to a spot rate at present of around 1.26. The run in the yen against the US dollar is expected to stabilise somewhat in coming months, the bank predicting a rate of 90 in three months time and 95 in 12 months against just under 94 now.
Against the euro it is forecasting a yen rate of 109 in three months and 110 in 12 months and with the spot rate currently at around 118 it means there is further to go in what has been a dramatic turnaround for the Japanese currency in recent months.
For the Australian and New Zealand dollars, the bank sees modest further weakness, forecasting three and 12-month rates against the US dollar of 60c and 58c for the Aussie and 52c and 50c for the Kiwi dollar respectively. This compares to current spot rates of close to 62c for the Aussie and 55.6c for the New Zealand currency.
