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					 Foreign Exchange
A New Decade, A New Dollar?
Nick Bennenbroek
Head of Currency Strategy
April 2010
2009: Weak Dollar, Strong Stockmarket


                               U.S. Dollar Index vs. U.S. Equities
                   92                                                     400




                   84
                                                                          800


                   76


                                                                          1200
                   68

                                         U.S. Dollar Index, left scale
                                         S&P 500, right scale, inverted
                   60                                                     1600
                        2008            2009             2010




  In 2008 and 2009 the dollar moved in the opposite direction to equities.
  Safe haven and liquidity factors in play.


                                                                                 1
2010: Stronger Dollar, Shifting Markets


                                    FX & Interest Rate Correlation
                      100%              60-day rolling correlation




                      50%




                       0%
                                                             EUR/USD vs. 2-yr
                                                             Govt Bond Spread
                                                             USD/JPY vs. 2-yr
                                                             Govt Bond Spread
                      -50%
                             2009                             2010




  Economic trends and interest rate expectations have become more influential
   for the dollar.


                                                                                 2
Hints of U.S. Recovery Boosting the Buck


                   600               U.S. Labor Market               11%
                         thousands
                   400

                                                                     9%
                   200


                    0
                                                                     7%
                  -200


                  -400
                                                                     5%

                  -600             Payrolls change, m /m ,
                                   left scale
                                   Jobless rate, right
                  -800                                               3%
                                   scale
                         2000   2002     2004  2006    2008   2010



 GDP growth rebounding, job growth positive and unemployment stable.




                                                                           3
Relative Growth Trends to Favor the U.S.


                                       G3 GDP Growth
                   6%                       % year/year      Forecast


                   3%



                   0%


                   -3%           U.S.
                                 Eurozone
                                 Japan
                   -6%

                           Note: 2010 & 2011 are
                   -9%     calendar year forecasts
                         2000        2004            2007   2010




 U.S. economy should outperform other major regions.




                                                                        4
Fed to Tighten Ahead of ECB, Bank of Japan




                            G3 Short-Term Interest Rates

              4%                           Note: Historical rates
                                           and consensus forecasts


              3%                                    U.S.
                                                    Eurozone
                                                    Japan

              2%



              1%



              0%
                   Jul-08      Jul-09      Jul-10        Jul-11




                                                                     5
Peripheral Eurozone Countries Face Fiscal Strains…


                               Eurozone 10-year Govt Bond Spreads
                      5.00%           to 10-year German Govt Bonds

                                        Greece           Ireland
                      4.00%             Italy            Portugal
                                        Spain
                      3.00%


                      2.00%


                      1.00%


                      0.00%


                      -1.00%
                               2008               2009               2010




 Widener Eurozone bond spreads are a reflection of fiscal troubles in the weaker
  European economies



                                                                                    6
…Which Could Still Weigh on the Euro Going Forward


                          EUR/USD vs. Eurozone Govt Bond Spread
                           10-yr govt yield spread: Peripheral less Germany
                   1.55                                                       0.50%


                   1.48
                                                                              0.95%

                   1.41
                                                                              1.40%
                   1.34

                                            EUR/USD, left scale               1.85%
                   1.27
                                            Peripheral/Bund spread,
                                            inverted, right scale
                   1.20                                                       2.30%
                           Jan-09         Jul-09          Jan-10




 Will the European Union/IMF financial aid package give the euro some
  temporary breathing space?


                                                                                      7
Rising Productivity and Capital Inflows?


                             Productivity and Capital Flows
                           Net U.S. Long-term Investm ent Flow s (4q ave)

                        U.S. vs. OECD Productivity Grow th (y/y, 4q ave,
                 120    advanced by 8 quarters)                          2%
                       $Bn
                  90

                  60                                                     1%

                  30

                  0                                                      0%

                 -30

                 -60                                                     -1%
                    1997         2000       2004       2007       2011




 The gap in productivity growth between the US and other developed economies
  is at historic highs
 Foreign capital flows should improve as the US economy recovers


                                                                                8
Dollar Cycles Are Usually Long Lasting




                     Real (Broad) Trade Weighted U.S. Dollar
               130


               120


               110


               100


               90


               80
                     1970   1978   1986    1994   2002    2010




                                                                 9
China Driving The Asian Recovery



                                 Chinese Growth & Inflation
                    13%                                           10%
                                          % year/year

                    12%          GDP, left scale                  8%
                                 CPI, right scale
                    11%
                                                                  6%
                    10%
                                                                  4%
                    9%
                                                                  2%
                    8%

                    7%                                            0%


                    6%                                            -2%
                          2000        2003          2006   2009



 The economy has rebounded strongly, though rise in inflation has been
  limited so far.


                                                                          10
China: Exports Surging, Trade Balance Easing



                      400            Chinese Trade Surplus
                                   US$ billion, 12-month rolling sum


                      300



                      200



                      100



                       0
                            2000       2003          2006          2009


 The decline in China’s trade surplus has forestalled a currency shift to date.




                                                                                   11
Shift in FX Policy Just a Matter of Time

                       Expected Renminbi gain in next 12 months


                 12%



                  8%



                  4%



                  0%



                 -4%
                        2006   2007    2008   2009    2010




 Expect a shift towards CNY appreciation policy by (or before) the second half
  of 2010


                                                                                  12
Some Asian Countries are Already Raising Rates




                            India & Malaysia Policy Rates
               10%


               8%



               6%


               4%



               2%
                              India Repo Rate
                              Malaysia Overnight Rate
               0%
                     2006    2007     2008      2009    2010




                                                               13
Others Should Follow Soon



                      60%     Asian Industrial Sector Growth
                                   % year/year, three-month average

                      40%



                      20%



                      0%



                     -20%               Taiw an, Industry
                                        Korea, Industry
                                        Thailand, Manufacturing
                     -40%               Philippines, Manufacturing
                            2000          2003        2006            2009



 Growth moving higher, inflation should follow.
 Central bank policy tightening to support the regional currencies.


                                                                             14
Valuations Point to Room for Asian FX Gains




                        Real Effective Exchange Rates
               150                                                  120


               130
                                                                    110

               110

                                                                    100
               90

                                                                    90
               70                   Korean w on
                                    Ringgit
                                    Indian Rupee (right scale)
               50                                                   80
                     1994    1998      2002       2006       2010




                                                                          15
Wells Fargo FX Forecasts




                        Current    3M        6M        12M       18M
           vs. Dollar
       EUR/USD            1.3493    1.3400    1.3000    1.2500    1.2250
       USD/JPY             91.96     94.00     95.00    100.00    105.00
       GBP/USD            1.5393    1.5250    1.5000    1.4500    1.4000
       USD/CNY            6.8261    6.8000    6.7000    6.5000    6.3000
       USD/KRW           1113.05   1100.00   1075.00   1050.00   1050.00
       USD/INR             44.33     44.00     43.00     41.50     41.00




                                                                           16
Wrapping It Up



 Economic fundamentals starting to drive FX moves again.


 Higher U.S. growth and inflation should support the dollar against other major
  currencies, while longer term dollar prospects are also good.


 China enjoying a strong rebound, FX move a matter of time.


 Some central bank have tightened, others will follow soon – both will support
  Asian FX gains.




                                                                                   17
Disclaimer



 The information in this presentation has been obtained or developed by
 Wells Fargo from sources that Wells Fargo believes to be reliable.
 However, Wells Fargo has not independently confirmed the reliability of
 such information and does not guarantee its accuracy or completeness or
 the reliability of its source. The information was used by Wells Fargo to
 develop its opinions in the presentation and, as a result, such opinions may
 not be appropriate for some or any of your activities. Wells Fargo makes
 no express or implied promises, commitments, guarantees,
 representations, or warranties with respect to such information or
 opinions, including any express or implied warranty of fitness for a
 particular purpose. Wells Fargo strongly recommends that you seek your
 own independent professional advice before acting on such information or
 opinions.




                                                                                18

				
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