OFX Currency Review February 2019 - OFX.com
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OFX Currency Review February 2019 OFX CURRENCY REVIEW 1
FOREWORD
I’M DELIGHTED TO BRING With so much movement it’s a big challenge for businesses
YOU THE OFX CURRENCY to plan ahead, especially when it comes to foreign exchange
REVIEW FEBRUARY EDITION: exposure. In this edition, we pay extra attention to the events
INSIGHT INTO GLOBAL you need to have your eye on and some of the strategies to
CURRENCY MARKETS AND help you plan for the year ahead and consider how to mitigate
HOW YOUR BUSINESS CAN your FX risk, and take advantage of volatility.
PREPARE FOR 2019.
Inside you’ll also find a comprehensive review of the Pound,
It’s been a turbulent year for some of the major currencies Euro, US Dollar, Japanese Yen, and commodity currencies to
dominated by Brexit and the ongoing protectionist stance help you understand key market drivers and the impact on
being taken by Donald Trump, whose trade war with China is your business.
beginning to impact global growth as a whole. The Australian
Dollar ranked among the worst performers of G10 currencies We welcome any questions or feedback. Please reach us
when compared against the USD throughout 2018 as global on 1300 300 524. We’d love to hear how we can make the
growth concerns, burgeoning trade hostilities and an Currency Review work even harder for your business.
ever-increasing monetary policy gap, forced investors away
Kind regards,
from traditional risk plays toward haven assets and stronger
yield returns.
Having touched highs above 0.8113 in January 2018, the AUD
suffered a prolonged and protracted period of depreciation
throughout the following 12 months falling 11 cents, to touch
lows marginally above 0.7050, before tumbling through
MATT RICHARDSON
supports amid a short-term flash crash on January 2nd 2019.
Senior Corporate Client Manager and Currency Specialist
While the shock downturn was quickly reversed and largely
blamed on a breakdown in technical supports, driven by
algorithm lead trades, the fundamentals that triggered the
initial collapse were real and remain a concern leading into the
year ahead.
OFX CURRENCY REVIEW 2
EVENTS TO WATCH
FEB 8TH FEB 19TH & MAR 19TH FEB 20TH
RBA Quarterly Monetary Policy Statement RBA meeting minutes AUD quarterly Wage Price Index
FEB 21ST & MAR 21ST MAR 5TH MAR 7TH
Labour Market Data RBA rate statement and monetary policy Interest rate decision from
decisions (first Tuesday of each month) European Central Bank
MAR 19TH MAR 20TH MAR 22ND
Ministers will meet in an EU27 format in the Interest rate decision from US Federal Reserve The final summit that the UK is expected to
General Affairs Council (Art.50) to discuss attend as a member of the EU
issues relating to Brexit.
MAR 29TH MAR 29TH MAR 30TH
UK Parliament will have to pass the At 2300 GMT - The UK leaves the EU Ongoing US-China Trade Tariff Truce
European Union (Withdrawal Agreement)
Bill to implement the withdrawal agreement,
assuming it was approved by Parliament
beforehand
MAY 23-26TH
Elections for the European Parliament in 27 EU
OFX CURRENCY REVIEW 3
Burgeoning off-shore trade
hostilities, domestic wage &
interest rate growth are
all key drivers of Australian
Dollar direction
Throughout the latter half of 2018, Australian Dollar direction While the above analysis may seem dire, the Australian economy
was largely driven by offshore stimuli. The Federal Reserves is still among the top performers when compared with G20
systematic program of monetary policy tightening, increasing counterparts and the domestic economic performance has been
US-China Trade hostilities and broader global growth concerns largely positive despite a broader global downturn. That said,
all weighed on investors’ appetite for risk and subsequently these risks all play into our expectations for monetary policy.
drove the AUD lower. We explore these factors below, while Persistent softness across key growth indicators is likely to lead
assessing domestic growth expectations in reviewing the to increased demand for a shift from the current policy setting
possibilities for our local unit through the months ahead. and could act as a significant headwind neutralising AUD upside
and prompt a significant move to the downside.
Australian economic growth slowed through the second half of
2018, missing market and RBA estimates and raising broader Turning our attentions offshore, the US Federal Reserve
questions surrounding the outlook for Monetary Policy and the has moved away from its preset rate hike platform, to a data
path of interest rates through 2019. The latest data showed the dependent approach. In October/November last year the Federal
economy expanded just 2.8% through the previous 12 months, Open Market Committee (FOMC) shifted course acknowledging
down from 3.1% in 12 months to December 2017. The softening the adverse risks to US growth, downgrading its estimates
in domestic growth has forced investors, analysts and markets for additional monetary policy tightening through 2019. This
to review estimates and consider the possibility the next RBA correction weighed on the USD through the last quarter and has
monetary policy move may not be upward. forced markets to amend expectations for interest rates with
conservative estimates suggesting rates may be on hold through
Much of the slowdown can be attributed to a decline in June, while bearish analysts indicate the Fed will be forced
consumer spending and the RBA forecasts estimate growth to abstain from hiking rates throughout the year ahead. This
will recover through 2019 and 2020 to touch highs at 3.5%. downgrade in rate hike expectations has added some support
However, these estimates are heavily reliant on prices and to the AUD and precipitated a series of attempts to break
wages increasing in 2019, driven by a strong and strengthening through resistance at 0.7230 throughout recent weeks. While
labour market and the expected eventual flow-on effect this a sustained period of interest rate neutrality will help to negate
will have on wage growth. Herein lies the concern; these key demand for the USD as a carry trade favourite, the gap between
indicators have remained flat for much of the last 24 months with market estimates and Fed rhetoric does leave the door open
little sign of improvement in the near term and as global financial for increased volatility through the months ahead as markets
conditions tighten and stagflation plagues the global economy, it respond to key data points.
is becoming increasingly difficult to remain optimistic through the
short-term. Assuming these data points remain below estimates The US-China trade war remains a key driver of AUD direction
there is very little incentive for the RBA to increase its bench and we anticipate it will continue to cast a pall over AUD
mark interest rate and analysts have pushed back expectations expectations through this first quarter. Chinese growth is
for a rate hike into Q1/Q2 2020. In fact, the recent acceleration expected to fall toward 6.0% this year as the impact of the trade
in GDP softness has triggered a flurry of market commentators war and the broader global slowdown weighs on the domestic
calling for a rate cut. Should domestic macroeconomic drivers economy. Recent trade data has highlighted the severity of
fail to improve or domestic banks hike rates outside of the a trade war on demand for Chinese exports. However the
centralised monetary policy cycle, the Reserve Bank may be recognition that European and Japanese demand has also
forced to consider such a move in a bid to ease the burden on waned, speaks to a broader issue and suggests a prompt
households, increase disposable income, and stimulate an uptick resolution to trade hostilities does not necessarily mean an end
in consumer led growth. to headwinds plaguing the Chinese economy.
OFX CURRENCY REVIEW 4
The People’s Bank of China is implementing measures to trade between these broader ranges and remain conscious
stimulate growth, however initial analysis suggests these moves that volatility is likely to increase through the weeks ahead.
will only soften the landing and must be expanded upon if the Although cyclical pressures and a deeper US downtrend
economy is to rebound throughout 2019. Australia’s exposure mean the outlook through H2 2019 is perhaps more optimistic
to the Chinese growth narrative means ongoing softness and leaving the door open for an extension back toward 0.75.
heightened concerns for fiscal and economic stability will weigh
on the Australian Dollar and possibly see a test of the lower end
of recent ranges.
WHAT TO WATCH:
Taking into account these global and domestic pressures, we While our short-term estimates lilt toward a bearish
feel the risks for the AUD remain to the downside through the or neutral bias, the state of the current global financial
short-term with supports at 0.7140/50 crucial in determining environment makes it difficult to garner a true and
direction. A break below these levels could foster an extended meaningful read on medium term ranges. We anticipate
bearish run toward 0.7070/80 and the psychological 0.70 increasing volatility between key crosses (AUD/GBP,
handle. Upside resistance at 0.7230 remains in tact at time AUD/EUR and AUD/JPY) and encourage businesses
of writing, however a renewed and sustained period of risk to consider the impact larger swings may have on their
appetite appreciation driven by improvements in domestic bottom line, while keeping a constant eye on evolving
indicators and global markers could prompt a run back market conditions
toward 0.73/0.74. We anticipate the AUD will continue to
AUSTRALIAN DOLLAR VS. BRITISH POUND AND US DOLLAR 1.20
0.70
1.10
0.60 1.00
0.90
0.50
AUD vs GBP
0.80
0.40
0.70
0.30
AUD vs USD 0.60
0.20 0.50
1-Jan-18 1-Mar-18 1-May-18 1-Jul-18 1-Sep-18 1-Nov-18 1-Jan-19
Source: OFX
AUSTRALIAN DOLLAR VS. US DOLLAR FORECAST
0.9
0.9
0.85
0.85
HIGH
0.8
0.8
0.75 MEAN/MEDIAN
0.75
0.7 0.7
LOW
0.65 0.65
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Q1 19 Q2 19 Q3 19 Q4 19
Source: OFX, Bloomberg
OFX CURRENCY REVIEW 5
Fluctuations in global risk
appetite driving direction
for New Zealand Dollar
The New Zealand Dollar, like its antipodean counterpart, found meetings in February and March, leaving rates on hold at 1.75%
itself among the worst performers of 2018 when valued against through the year. At this point we do not anticipate rates will be
the worlds base currency. Driven by wide reaching global growth lowered, however further cuts to growth estimates could prompt
concerns, domestic softness and a sustained program of US us to revise this outlook, acting as a weight dragging the NZD
central bank monetary policy tightening, the NZD tumbled below full value estimates at 0.67 and back toward supports and
5.43% from highs approaching 0.74 to two and a half year lows year on year lows nearer 0.64.
marginally below 0.6440.
The New Zealand Dollar remains at the mercy of broader global
The following review will explore the main drivers through trends through this first quarter. Trade hostilities have eased
the first quarter of 2019 and the likelihood of a sustained through the last 6 weeks on optimism surrounding the
NZD recovery. US-China tariff war and as we move through the temporary
tariff truce and closer to the March 30 détente wind-up, headline
Having fallen almost 10 cents in the ten months to October, the risk will likely influence direction. Signals of a resolution should
NZD mounted a partial recovery through the final 3 months of foster improvements in risk demand and help bolster the NZD,
2018 advancing back through 0.69, before consolidating and fostering a move toward the higher end of recent ranges, while
entering tighter short-term range bound bonds between 0.6650 any indication the tit-for-tat program of tariff increases will
and 0.6850. Much of the NZD’s recovery can be attributed to continue to drive NZD softness.
the shift in US Federal Reserve rhetoric and the FOMC’s move
from a program of preset rate hikes. The Fed’s re-alignment to a While the long-term outlook suggests there is scope for further
data centric approach forced markets and investors to re-assess NZD upside, short and medium term moves will be largely range
expectations for monetary policy throughout 2019, fostering a bound as markets and investors continue to digest fluctuations
correction in the value of the world base unit, easing some of the in global growth concerns and a myriad of geopolitical pressures.
pressures that had plagued emerging markets and added to the While short-term estimates lilt toward a bearish to neutral bias,
broader risk off sentiment weighing on the NZD. The easing in the state of the current global financial environment makes it
these pressures should see the NZD trade close to 0.67 through difficult to garner a true and meaningful read on medium term
the first quarter of 2019, with fluctuations in global appetite for ranges. We anticipate increasing volatility between key crosses
risk driving direction. (NZD/GBP, NZD/EUR and NZD/JPY) and encourage businesses
to consider the impact larger swings may have on their bottom
Turning our attentions onshore, domestic economic softness line, while keeping a constant eye on evolving market conditions.
will likely prove to be a barrier to medium term NZD upside. As
persistent weakness across price pressures, GDP estimates,
wage growth and a distinct lack of corporate and consumer
optimism weigh on the Reserve Bank of New Zealand (RBNZ)
and force it to maintain its neutral policy bias. With little hope of a
reprieve through the short-term we anticipate the Reserve Banks
Policy setting Committee will maintain its dovish outlook through
OFX CURRENCY REVIEW 6
NEW ZEALAND DOLLAR VS. AUSTRALIAN DOLLAR AND. US DOLLAR
0.8 1.2
1.15
0.75
1.1
0.7
1.05
0.65 1
NZD vs USD
0.95
0.6
0.9
0.55
NZD vs AUD
0.85
0.5 0.8
1-Jan-18 1-Mar-18 1-May-18 1-Jul-18 1-Sep-18 1-Nov-18 1-Jan-19
Source: OFX
NEW ZEALAND DOLLAR VS. US DOLLAR FORECAST
0.8
0.8
0.78
0.78
0.76
HIGH
0.76
0.74
0.74
0.72
0.72
0.7 MEDIAN
0.7
0.68 MEAN
0.68
0.66
0.66
0.64
0.64
0.62 0.62
LOW
0.6 0.6
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Q1 19 Q2 19 Q3 19 Q4 19
Source: OFX, Bloomberg
OFX CURRENCY REVIEW 7
Lies, Brexit and the
British Pound: Time is
ticking on the UK’s exit
from the EU
One word has dominated the UK’s political and economic With the vote on January 14 rejecting May’s Brexit plan, followed
landscape for more than two years now: Brexit. by May surviving a vote of ‘no confidence” the next part of
the story is playing out. Evidently, forecasting what could be
We would have expected to be closer to some kind of resolution happening in the first and second quarter of 2019 is very difficult
by now, but alas, the turmoil and uncertainty will continue until at this stage, since we could even see a general election in the
a deal is reached and/or the March 29 European Union hard exit UK before it is due to leave the EU.
date is reached.
Other options being discussed include a second referendum, a
The uncertainty has had a major impact on sterling over the last ‘Norway Plus’ deal – which would see Britain achieve a similar
quarter, and it has fallen considerably over the period. At the start deal to Norway with a few additional bells and whistles – and
of the last quarter of 2018 on October 1, the Pound was worth revoking Article 50 altogether, which the European Court has
US$1.304 but by December 20 that had fallen to US$1.26487 confirmed categorically that Britain can do unilaterally.
– four cents down over three months. Yet even that is a slight
recovery from the US$1.2516 we saw on December 11 when Any one of these courses of action could shift sterling
the initial Brexit vote was supposed to have happened. A similar considerably, so businesses need to keep a watching brief and
pattern has occured with the Euro, with the Pound worth ensure they are in close contact with a currency specialist to
€1.1263 on October 1, but falling back to €1.1069 on make the best decisions to protect their bottom line.
December 20.
The Organisation for Economic Co-operation and Development
For now, the parliamentary shenanigans continue with no end (OECD) predicts that growth in the UK will grow slightly in
in sight. Prime Minister Theresa May has survived a vote of no 2019, but then drop in 2020 – although this is predicated on
confidence from her own party, essentially by agreeing to leave the UK having a smooth Brexit. If there is a no deal Brexit, the
her post before the next election. Labour’s Jeremy Corbyn is OECD said: “Temporary measures will be needed to cushion the
under increasing pressure to table a vote of no confidence in the economy and support displaced workers...”
Government, which if Labour is unable to form a government
would lead to an early general election. Only time will tell where the UK is for Q1 and Q2 in 2019
because so much depends on the country’s politicians, but at this
As we start 2019, there is real difficulty for any business working time we expect sterling to be at US$1.30 Q1 2019 and US$1.32
with companies in Great Britain, as the position they will be in for Q2 2019.
come March 30, 2019 – the day after the UK is due to formally
leave the EU – is no closer to being clear.
For now, all businesses can do is try to protect their currency WHAT TO WATCH:
position as best they can. The decisions here will be quite What happens in relation to Brexit is the biggest
complex, as the slightest bit of ‘good’ news in relation to Brexit
influence on sterling in the coming months. It is likely to
causes a sterling rally. Conversely, the slightest bad news
be volatile, so take advantage of any ups as they arise.
precipitates a considerable drop.
OFX CURRENCY REVIEW 8
BRITISH POUND VS. AUSTRALIAN DOLLAR AND US DOLLAR
1.9000 1.5000
1.8000 1.4500
1.4000
1.7000
GBP vs AUD
1.3500
1.6000
1.3000
1.5000
1.2500
1.4000
1.2000
1.3000
1.1500
1.2000
1.1000
1.1000 GBP vs USD 1.0500
1.0000 1.0000
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Source: OFX
BRITISH POUND VS. US DOLLAR FORECAST
1.55
1.55
1.50
HIGH
1.5
1.45
1.45
1.40
1.4
1.35 MEAN/MEDIAN
1.35
1.30
1.3
1.25 1.25
LOW
1.20 1.2
1.15 1.15
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Q1 19 Q2 19 Q3 19 Q4 19
Source: OFX, Bloomberg
OFX CURRENCY REVIEW 9
Trump’s trade war
hurts businesses,
markets and the US
Dollar, but a 90-day
truce remains fragile
Donald Trump’s economic honeymoon as President of the However, perhaps a greater concern is Trump’s ongoing
United States appears to be waning. We have seen greater trade war, primarily with China, which continues to cause
volatility amid the uncertainty and its precipitating some of the considerable concern for investors. His administration
biggest market falls in US history. It also presents an ongoing continues imposing import tariffs on European, Canadian, a
threat to the US Dollar value. nd Chinese goods. All have fought back with tit-for-tat tariffs
on US goods, which has started to hurt some producers,
Significant single-day falls in October – the third biggest including farmers who were big supporters of Trump on
single-day fall in the market’s history – and the beginning of the campaign trail.
December left the Dow Jones at levels not seen since before
the turn of the millennium. The Dow Jones Industrial Average What looked like something of a truce between the world’s two
actually hit 13-month lows following the Federal Reserve’s biggest economies was ‘agreed’ at the G20 in Buenos Aires in
quarterly announcement. December, although there is some confusion over what exactly
President Trump and President Xi Jinping had agreed on. What
Unsurprisingly, President Trump was quick to lay the blame was clear is that further tariffs on imports had been halted for
for the falls at the Fed’s door, which on the face of it has some 90 days as talks continued to try find a solution to end the
merit, since rates have started to tick up. They had been kept trade war.
artificially low to ensure the recovery from the ‘Great Recession’
could continue unabated, but could not be held there forever. Yet this fragile truce was put in jeopardy when Canadian
One of the major risks for the Dollar in 2019 comes from any authorities arrested the Chief Financial Officer of China’s
recession or downturn. The Federal Reserve crucially, at the biggest technology company Huawei at the request of US
end of the year, cut their forecasts for future hikes in 2019 authorities. Meng Wanzhou was held on suspicion of breaking
down to two from three previously. They also announced that the US trade embargo with Iran, and it remains to be seen how
the funds rate is now at the bottom end of the neutral range. this will affect the relationship between the two countries.
This ‘neutral’ rate is the rate at which the Fed would like to keep
things and halt any policy. Looking forward, according to the Either way, the combination of the two precipitated another
Fed dot plot we may see an interest rate cut in 2021. 800-point single-day fall in the Dow Jones.
OFX CURRENCY REVIEW 10Unsurprisingly, the US Dollar has been very volatile over the
same period, making it hard for those trading in the currency to
keep a handle on costs. The US Dollar weakened considerably
WHAT TO WATCH:
the day after the first of what became a series of near The biggest threat to US and global trade is the
800-point single-day falls, and was worth US$1.32093 to the potential for the trade war to continue apace with
Pound on October 10. Markets rallied somewhat, but it took the China. If this cannot be resolved, there is a real risk
greenback a few days to regain significant ground against other
that globally we will see a significant downturn. Keep
currencies. By October 30, it had recovered to US$1.271 to
an eye out as well for the yield curve and the spread
the Pound.
between 3-month and 10-year treasury yields. At
We expect the ongoing turbulence to hit US growth and the time of writing, this sits around 0.25% while the
forecast continued volatility in 2019, in contrast to the strong 2-year/10-year spread sits at 0.17%. Once the yield
growth seen in the first three quarters of 2018. US growth hit curve inverts a recession follows.
3% in 2018 and the inflation rate has returned to the 2% target.
This is one of the key indicators for the Federal Reserve, and it
is expected that interest rates will continue to rise.
In fact, some economists have an even darker view of the
prospects for the US economy, with one – Larry Summers,
a former Treasury official during the Clinton administration
– saying there was a nearly 50% chance that the US would
hit recession as soon as 2020. While that is one of the most
pessimistic views, he is certainly not alone in predicting such a
turnaround for the US economy before the end of the decade.
AUSTRALIAN DOLLAR VS. US DOLLAR FORECAST
0.9
0.9
0.85
0.85
HIGH
0.8
0.8
0.75 MEAN/MEDIAN
0.75
0.7 0.7
LOW
0.65 0.65
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Q1 19 Q2 19 Q3 19 Q4 19
Source: OFX, Bloomberg
(DXY) US DOLLAR INDEX
100
98
96
94
92
90
88
86
84
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Source: OFX
OFX CURRENCY REVIEW 11Trade wars and rising
nationalism are key
drivers of Euro prices
The Eurozone has faced a mixed bag of threats in the last The French economy is expected to grow at around 1.5%
quarter, with civil unrest in both France and Belgium, fuss over for 2019 and 2020 according to the OECD, as “financing
the Italian budget and pivotal political changes in Germany. conditions and business tax cuts” are set to boost business
investment in the country. Despite this, the country’s debt
German Chancellor Angela Merkel’s successor was announced levels remain at almost 100% of GDP, and inflation is set to
in December, although Annegret Kramp-Karrenbauer is unlikely rise as a result of an increase in wages and a firming up of
to take over from Merkel before 2021. The likelihood is that the economy.
Germany will retain the centrist stance cultivated by Merkel,
despite a recent resurgence of the right in Germany and other Particularly good news lifted the Eurozone when Italy’s populist
European countries. coalition government agreed to curb its spending plans. They
are more in line with what the EU had been hoping for. The
Germany’s economy, a key driver for the success of the newly formed government reduced its planned deficit from
Eurozone as a whole, stalled in Q3 2018. However, it is 2.4% to just over 2% in an effort to get the budget approved.
expected to pick up, albeit at a slower pace throughout 2019
according to an OECD forecast. This is despite export growth The European Commission was concerned about Italy’s budget
being affected by global trade policy uncertainties. The extra because of the country’s high level of debt. Italy’s national debt
tests on car emissions have affected German output too. was at 132% of its GDP at the end of 2017, which was still
behind Greece. This is much higher than the EU mandated goal
The OECD report continues: “Business confidence and the of 60% of GDP that countries should not exceed. In reality, Italy
appetite for investment are still strong due to high capacity is far from being the only country that breaches this threshold.
utilization and low credit costs. Immigration, rising household
incomes and low interest rates have boosted housing demand While the UK has focused on little other than Brexit, the same
and construction.” cannot be said of the EU. Yes, it has had to deal with difficult
negotiations, but the outcome has much less impact on the EU
France is in a similar position to Germany economically. than Britain. For now, everyone is waiting to see what the UK
Although the ‘Gilets jaune’ protests against tax rises have Parliament’s stance is, but it is clear the patience of the EU has
prompted President Emmanuel Macron to retreat on the worn paper thin on this issue.
proposed fuel tax rises. And although the fuel tax will no
longer happen, protests have continued.
OFX CURRENCY REVIEW 12Over the final quarter of 2018, the Euro had been trading
between US$1.1240 and US$1.1577. Towards the end of WHAT TO WATCH:
December, despite the US Federal Reserve increasing rates
once more, the Dollar weakened and helped push EUR/USD Brexit is going to have an impact on the Euro, but what
back through $1.14 again. Simultaneous good economic data this will be remains to be seen. Italy’s agreement with
in the EU boosted its position against other currencies too. This the EU on its budget plans needs to be implemented,
is a monumental moment for the Eurozone and could signal the and it seems Rome is pushing back on some of the
start of an interest rate hike cycle. More likely, is a ‘one hike and
EU dictates. Any escalation in civil unrest in France
wait and see approach’ from the European Central Bank and
could create difficulties for one of the EU’s biggest
this hike is expected in the summer of 2019.
economies, so it is vital businesses keep watch.
Going forward, we expect the Euro to strengthen further to
US$1.15 in Q1 and US$1.16 in Q2, but anyone trading in Euros
should keep in touch with their currency specialist to ensure
they protect themselves from any unexpected moves.
EURO VS. AUSTRALIAN DOLLAR AND US DOLLAR
1.7000 1.4000
1.3500
1.6000
1.3000
1.5000
EUR vs AUD 1.2500
1.4000
1.2000
1.3000
1.1500
1.2000
1.1000
1.1000
EUR vs USD 1.0500
1.0000 1.0000
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Source: OFX
EURO VS. US DOLLAR FORECAST
1.35
1.35
1.30 HIGH
1.3
1.25
1.25
1.20 MEAN
1.2
MEDIAN
1.15
1.15
LOW
1.10 1.1
1.05 1.05
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Q1 19 Q2 19 Q3 19 Q4 19
Source: OFX, Bloomberg
OFX CURRENCY REVIEW 13Natural disasters
shake Japan’s Yen,
but the economic
outlook remains
bright
Japan’s economy has been relatively resilient in 2018, The Yen has remained relatively stable in the past six months
despite starting the year with a fall in GDP, and then suffering against the US Dollar, yet the earthquake on September 6
further problems thanks to a series of natural disasters in the prompted a move to Y110.7565, but it has since shifted to
third quarter. Y108.53 at the time of writing.
The economy shrank back in the third quarter of 2018, with The forecast for the Yen for early 2019 is Y112 to the US Dollar
the 1.2% reduction shown in preliminary GDP data owing in Q1, strengthening to Y110 for Q2, so anyone who is set to be
much to the typhoon which shut Osaka’s main airport and the trading in Yen in the coming year, whether they are importing
6.7 magnitude earthquake which hit in early September and goods or services, should consider how they can access
caused a blackout in Hokkaido. These were just two in a series the best possible rate to protect themselves from any rise in
of natural disasters suffered by the country in 2018. Others business costs. USD/JPY tends to trade and move between
included floods, landslides and heatwaves. large significant and psychological levels and figures. Any
exposure to the Japanese Yen can therefore be managed by
Retail and service industries were most adversely affected, but utilising Limit Orders to target these round figures.
industrial production recovered well in October, rising 2.9% on
a month-by-month basis.
Despite the difficulties, Japan saw a relatively stable 2018, with WHAT TO WATCH:
growth currently projected to remain at around 1% for 2019
according to data from the OECD, with “record-high corporate Japan’s economic outlook is relatively bright, but there
profits and labor shortages driving business investment”. are some concerns about its level of government debt
relative to its GDP which could create difficulties if
Consumption is also expected to grow into next year on
not kept in check. A stronger Yen may increase prices
the back of higher wage growth, although the planned
consumption tax hike due in October 2019 is likely to put a for businesses trading with Japan, and speaking to a
temporary damper on demand. The Olympic Games in Tokyo in currency specialist can help businesses create the best
2020 is set to boost the economy the following year. strategy to keep costs down.
However, the high level of Japan’s government debt relative
to GDP remains a concern, as it has now reached the highest
level ever seen by the OECD. Its inflation level is expected to
rise 1.5% according to the OECD, but to achieve the target
rate of 2% it will need to continue with an “expansionary
monetary policy”.
OFX CURRENCY REVIEW 14JAPANESE YEN VS. AUSTRALIAN DOLLAR AND US DOLLAR
115 115
110 110
105 105
100 100
95 95
JPY vs USD
90 90
85 85
80 80
75 JPY vs AUD 75
70 70
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Source: OFX
US DOLLAR VS. JAPANESE YEN FORECAST
130
130
125
125
120
HIGH
120
115
115
110
110
MEAN
105 MEDIAN
105
100 100
LOW
95 95
1-Jan-18 1-Feb-18 1-Mar-18 1-Apr-18 1-May-18 1-Jun-18 1-Jul-18 1-Aug-18 1-Sep-18 1-Oct-18 1-Nov-18 1-Dec-18 Q1 19 Q2 19 Q3 19 Q4 19
Source: OFX, Bloomberg
OFX CURRENCY REVIEW 15Developers to be hit hard
as Singapore’s economic
growth expected to slow
further in 2019
Singapore has seen its economic growth slow in 2018, from In Q4 of 2018, the M&A activity in the country plummeted, and
4.1% in Q2 to 2.3% in Q3, below both market and government was more than 58% down on Q4 2017. The most active sectors
expectations, and growth is expected to slow further, according in the market were real estate – by far the biggest proportion
to the Ministry for Trade and Industry (MTI). at 43.8% - telecommunications, financials and industrials
collectively accounted for 80.3% of Singapore’s domestic
The official forecast for 2019 is for the country’s economic M&A deals.
growth to slow to between 1.5% and 3.5%, largely as a result of
the ongoing US-China trade war, which is having a major impact Developers are set to struggle in the coming year too, as the
on the Asia-Pacific region as a whole. impact of the rise in the Additional Buyer’s Stamp Duty (ABSD)
starts to suppress demand in the housing market. Singapore
Singapore’s MTI expects growth in the whole of the region to citizens and Singapore permanent residents kept the respective
“ease” for 2019 as its major trading partners – the US, China 0% and 5% ABSD on their first homes when the new rates
and the Eurozone – are also expected to see slowdowns in came into effect in July 2018, but all other private purchasers
their growth. now pay an additional 5 percentage points, and companies
10 percentage points.
It added: “Growth in the US economy is projected to moderate
in 2019, as the effect of the fiscal stimulus implemented earlier The forecast is for sales to fall by 20% this year in Singapore,
this year starts to fade and monetary policy tightens further. according to DBS Equity Research, which is bad news for
However, private consumption is expected to continue to developers, but could also impact on associated businesses.
support growth on the back of strong labour market conditions
and healthy wage growth. There is also an ongoing threat from China’s renewed approach
to its so-called ‘zombie’ companies, which up to this point have
“Meanwhile, the Eurozone economy’s growth is likely to ease been bolstered by the Chinese government and not allowed to
slightly in 2019. Growth is expected to be supported by fail. (See Emerging Markets). Singaporean companies working
firm domestic demand on the back of an improving labour with Chinese firms should be aware of the dangers.
market, healthy business and consumer sentiments, as well as
favourable financing conditions. For much of the last six months, the Singapore Dollar has been
trading at around US$1.36 to US$1.37, falling briefly to be in the
“In Asia, China’s growth is also projected to moderate in 2019 on US$1.38 range for the first week in October, and then largely
account of a continued moderation in credit growth and softer maintaining that level until the end of 2018.
external demand, although accommodative macroeconomic
policies and stable domestic demand are likely to provide However, the US government shutdown caused by the fight
some support to growth. Similarly, growth in the key ASEAN between President Trump and the Democrats who are refusing
economies is expected to ease or remain unchanged in 2019, to sign off on his demands for US$5.7 billion to build the Mexican
supported by resilient domestic demand even as growth in border wall, has weakened the US Dollar. It means that from
merchandise exports moderates.” December 27, 2018 onwards, the Singapore Dollar was relatively
stronger, and trading at US$1.35 at the beginning of 2019.
Merger and acquisition activity in Singapore in 2018 fell by
almost a third year-on-year, to SGD$90.86 billion – the lowest
figure since 2013 – according to a report from Refinitiv, the
financial and business risk arm of Thomson Reuters.
OFX CURRENCY REVIEW 16There is no doubt that a global growth slowdown is happening,
but with the US and China specifically facing headwinds, WHAT TO WATCH:
Singapore has some potential difficulties ahead.
The coming year could be a difficult one for businesses
Businesses need to watch currency moves carefully, and make in Singapore as a general slowdown is anticipated, but
the most of the ups when they arise. The best way to do this is particular sectors – such as real estate developers –
to work with a currency specialist to ensure you make the best could see significant difficulties in business conditions
of any moves in your favour to maximise profits and minimise this year.
currency exchange risk.
The US-China trade war cannot be ignored, but it
will specifically be the APAC performance as a whole
that will have the greatest effect on the economy.
Businesses should make moves as soon as possible to
mitigate any risks they can, especially currency risks
when dealing with import and export costs.
SINGAPORE DOLLAR VS. AUSTRALIAN DOLLAR AND US DOLLAR
1.5
1.09
1.45
1.4 1.07
1.35
1.05
1.3
SGD vs USD 1.03
1.25
1.2 1.01
1.15
0.99
1.1
0.97
1.05 SGD vs AUD
1 0.95
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19
Source: OFX
OFX CURRENCY REVIEW 17Conclusion
There are serious headwinds facing the global economy The difficulties this presents for companies who are exposed
throughout the coming year, and it is difficult to see just which to the value of the Pound and the Euro are considerable, and
direction they will be strongest. the uncertainty is doing nothing to help them make the right
decisions on currency exchange moving forward. If Britain
The ongoing US-China trade war and broader Chinese growth leaves the EU without a deal on March 29, 2019, it is likely to
concerns will likely present the biggest risks and opportunities be open season on sterling. If a deal is agreed beforehand,
for the AUD, NZD and Asian markets in general. While the or Article 50 is revoked, or the divorce date extended, then
fragile truce will prevent any further trade – tariffs being sterling should spike.
imposed through the coming two months – officials from both
countries will continue talks in Beijing and Washington with Given the significance of ongoing geo-political exposures
headline news driving short-term direction. An end to the through this first quarter, it is difficult to generate a true and
tit-for-tat trade tariffs should boost the global economy, as the accurate assessment of medium term ranges. Businesses need
US and China are such big players. However the slowdown to make decisions that will protect their exposures, and at OFX
in China’s economy should not be underestimated, and a we’re here to develop currency risk strategies.
resolution to the trade war does not mean an immediate end to
Global growth concerns and the headwinds facing the Chinese
economy. Companies dealing with Chinese firms should look to
factor in and consider the effect on their bottom-line if a major
supplier were to be impacted.
In Europe, and the UK especially, Brexit continues to have
the most significant influence on sterling’s value in the
short-term. The Prime Minister has been clear that if her deal
is not approved through Parliament – as is expected – then the
UK will be entering uncharted territory.
OFX CURRENCY REVIEW 18Contributing experts
ALISON STEED MATT RICHARDSON MICHAEL JUDGE
OFX Writer & Contributor Senior Corporate Client Head of ANZ
Manager and Currency Specialist
Michael Judge leads a team of FX
Alison is a leading personal finance Matt Richardson is an expert on global Specialists as Head of ANZ. As an
journalist and broadcaster, having currency markets. With 10 years of accredited AFMA foreign exchange
worked on The Daily Telegraph’s experience Matt manages a portfolio of dealer, holding a Bachelor of Commerce
personal finance desk and in the City corporate clients at OFX specialising in from Macquarie University as well as a
office for nearly seven years from 2000 providing market insights and expertise Diploma in Financial Services Michael
to late 2006, becoming the deputy to help guide and inform their decisions brings a wealth of knowledge and
personal finance editor in 2004. to mitigate the volatility of the currency experience to our Australian customers.
markets and protect their bottom-line.
She has written for most national His focus is mitigating the foreign
papers, including The Times, The Additionally, Matt is a go to for market exchange risks faced by medium and
Sunday Times, The Daily and Sunday commentary and on top of his weekly institution based corporates through
Telegraph, the Daily and Sunday Sky News commitments has supplied an inherent interest in the intricacies of
Express and The Sun. She has also analysis for Bloomberg Radio, the AFR market analysis.
made a number of appearances on and other local media outlets.
On top of the day-job, Michael is a
TV and radio, including numerous
Email Matt at regular spokesperson for the
appearances on Sky News, the Jeremy
matt.richardson@ofx.com business, regularly providing insights
Vine Show on BBC Radio 2, Channel
and commentary to the broader
4 News and various local and national
business community and media
radio stations, and was the financial
including Business Insider, AFR,
journalist behind the hit Channel 4
Macquarie Media, BBC, Sky News
personal finance show Superscrimpers
and other outlets.
for the first five series.
Email Michael at
She is a multi-award winning writer,
michael.judge@ofx.com
having won eight journalism awards,
including Personal Finance Journalist of
the Year from the Association of British
Insurers four times in a row, which was
a record at the time.
OFX CURRENCY REVIEW 19Get in touch
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businesses develop and manage a sustainable currency shaped by years of market expertise, built around the unique
strategy, particularly when the markets are unpredictable. We needs of your business.
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OFX CURRENCY REVIEW 20OzForex Limited trading as “OFX”. ABN 65 092 375 703; AFSL 226 484. This information has been prepared without taking into account the investment objectives, financial situation and particular needs of any particular person. OFX and its subsidiaries make no recommendations as to the merits of any financial product referred to in this document. Please read our Product Disclosure Statement and our Financial Services Guide at ofx.com. OFX is regulated in Australia by ASIC. OFX CURRENCY REVIEW 21
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