PNC Currency Review, August 2021 - Prior Quarter May 2021 - July 2021
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PNC Currency Review, August 2021 Prior Quarter May 2021 – July 2021
Summary
DXY Major Currencies Dollar Index
The dollar appreciated 1.0% on net in the May-to-July quarter of 2021.
2 year history : 1 year forecast
104
102
DXY US Dollar Index
100
98
96
94
+1.0%
92
90
88
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
94
▪ The DXY dollar index depreciated through mid-May as
vaccinations accelerated outside the U.S. and commodity prices
93 surged, pushing up U.S. inflation expectations and reducing real
DXY US Dollar Index
interest rates (net of expected inflation).
92
▪ The DXY rallied through the end of July as commodity prices
came off the May highs, financial markets anticipated an earlier
91 start to the Fed’s rate hikes, and inflation expectations cooled.
Currency Outlook
90
▪ PNC expects the dollar to continue to strengthen modestly over
the forecast horizon and reverse some of 2020’s depreciation, as
89 2021’s inflation shock fades, and as the Fed starts to normalize its
May-21 Jun-21 Jul-21 policy stance. The consensus anticipates a slightly weaker dollar.
Previous Quarter ▪ If foreign economies recover faster than expected, the dollar could
be weaker than forecasted. On the other hand, another major
global shock could cause the dollar to appreciate even more.
Source: BloombergCurrency Update
Euro
The euro depreciated 1.3% on net in the May-to-July quarter.
1.25
2 year history : 1 year forecast
US dollars per euro
1.20
-1.3%
1.15
1.10
1.05
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
1.24 Previous Quarter Recap
3 month history
▪ The euro depreciated a net 1.3% in the May-to-July quarter. It rose
1.22
through late May as vaccinations accelerated in the EU.
US dollars per euro
▪ The euro fell in June and July. The Fed’s June dot plot signaled
U.S. policymakers were pulling forward their expectations for when
1.20 they would hike U.S. rates, while the ECB made their interest rate
guidance more dovish at their July decision.
1.18 Currency Outlook
▪ PNC forecasts for the euro to depreciate modestly over the
1.16
forecast horizon, while the consensus forecast anticipates euro
May-21 Jun-21 Jul-21 appreciation.
Previous Quarter ▪ If there is another major global shock, either from the pandemic or
an unrelated cause, the euro could be weaker than forecasted.
Source: BloombergCurrency Update
Great British Pound
Pound sterling edged up 0.6% in the May-to-July quarter as UK-EU trade tensions resurfaced.
2 year history : 1 year forecast
1.45
US dollars per British pound
1.40
1.35 +0.6%
1.30
1.25
1.20
1.15
1.10
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
▪ Pound sterling edged up 0.6% in the May-to-July quarter. It
1.42 reached its strongest level since the first half of 2018 in May as
US dollars per British pound
the UK’s vaccine drive outpaced other advanced economies and
its economic recovery gained traction.
1.40 ▪ Pound sterling depreciated in June and July as financial markets
anticipated an earlier start to the Fed’s rate hikes, and as UK-EU
tensions over trade across the Irish border resurfaced.
1.38
Currency Outlook
▪ PNC forecasts for the pound to be modestly lower through the end
1.36
of 2021 as the Fed begins to normalize U.S. monetary policy; the
May-21 Jun-21 Jul-21 consensus forecasts anticipates modest pound appreciation.
Previous Quarter ▪ If there is another major global shock, either from the pandemic,
ongoing UK-EU economic frictions, or another cause, pound
sterling would likely be weaker than forecasted.
Source: BloombergCurrency Update
Canadian Dollar
The Canadian dollar reached a six-year high in early June but lost momentum in July.
2 year history : 1 year forecast
1.50
Canadian dollars per US dollar
1.45
1.40
1.35
1.30
-1.5%
1.25
1.20
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
1.28
▪ The Canadian dollar depreciated 1.5% in the May-to-July quarter.
Canadian dollars per US dollar
It reached the strongest level since 2015 in June, thanks to a
1.26
faster than expected economic recovery, rising crude oil prices,
and a more hawkish stance from the Bank of Canada.
▪ The Bank of Canada announced an adjustment to its QE program
1.24 in July, reducing its weekly bond purchases from C$3 billion to
C$2 billion. Even after the depreciation of the last quarter, the
Canadian dollar is the best performing G10 currency this year.
1.22
Currency Outlook
▪ PNC expects the Canadian dollar to depreciate modestly over the
1.20 forecast horizon as the Fed begins to taper its QE program; the
May-21 Jun-21 Jul-21 consensus forecast anticipates some appreciation.
Previous Quarter ▪ If the BOC tapers faster than financial markets anticipate, the
Canadian dollar is likely to be stronger than forecasted.
Source: BloombergCurrency Update
Mexican Peso
The peso was little changed in the May-to-July quarter of 2021 as the global recovery advanced.
2 year history : 1 year forecast
26
Mexican pesos per US dollar
24
22
20
+1.9%
18
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
21.0
▪ The Mexican peso was volatile in the May-to-July quarter, but
appreciated 1.9% on net.
Mexican pesos per US dollar
▪ The peso briefly spiked to more than 20.5 per U.S. dollar the
20.5 week of the June Fed decision, which showed Federal Open
Market Committee members were pulling forward their plans for
raising U.S. interest rates. The peso recovered within a few days
as markets realized they had overreacted.
20.0
Currency Outlook
▪ PNC forecasts for the peso to depreciate over the next few
quarters while the consensus forecast is for the peso to be little
19.5 changed.
May-21 Jun-21 Jul-21
▪ PNC forecasts for the Federal Reserve to begin tapering its
Previous Quarter quantitative easing program in early 2022; this, as well as
Mexico’s domestic economic challenges, are downside risks to
the peso.
Source: BloombergCurrency Update
Japanese Yen
The yen depreciated in the May-to-July quarter as the pandemic hindered Japan’s economic recovery.
2 year history : 1 year forecast
114
Japanese yen per US dollar
112 -0.4%
110
108
106
104
102
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
112
▪ The yen depreciated 0.4% in the May-to-July quarter of 2021.
Japanese yen per US dollar
▪ The yen reached its high for the year on the day of the Georgia
run-off elections in January, then depreciated as the U.S.’s fiscal
stimulus and faster vaccination drive lifted U.S. long-term interest
rates. In the last few months, the pandemic’s spring wave and
110 Japan’s frustratingly slow vaccination drive have hindered
Japan’s economic recovery and weighed on the yen.
Currency Outlook
▪ PNC and the consensus forecast both expect the yen to
108 depreciate modestly in coming quarters.
May-21 Jun-21 Jul-21
▪ If there is another major global shock, either from the pandemic
Previous Quarter or an unrelated cause, the yen is likely to be stronger than
forecasted.
Source: BloombergCurrency Update
Chinese Renminbi
The renminbi appreciated in the May-to-July quarter of 2021 despite volatile Chinese equity markets.
2 year history : 1 year forecast
7.25
Chinese renminbi per US dollar
7.00
6.75
+0.2%
6.50
6.25
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
6.55
▪ The renminbi modestly appreciated 0.2% in the May-to-July
Chinese renminbi per US dollar
quarter of 2021, with a decline in June and July.
6.50 ▪ The renminbi appreciated in April and May as higher commodity
prices caused the U.S. dollar to weaken. The renminbi then
depreciated through quarter-end as commodity prices came off
6.45 of their highs, the Fed’s June dot plot pulled forward the
expected date of the first fed funds rate hike, and Chinese equity
markets fell in late July.
6.40
Currency Outlook
6.35 ▪ PNC forecasts for the renminbi to depreciate modestly over the
May-21 Jun-21 Jul-21 forecast horizon, while the consensus anticipates little net change.
Previous Quarter ▪ The global economic recovery is an upside risk to the renminbi,
while the eventual tightening of U.S. monetary policy and potential
trade or geopolitical tensions are downside risks.
Source: BloombergCurrency Update
Australian Dollar
The Australian dollar depreciated in the trailing quarter amid a new coronavirus outbreak.
2 year history : 1 year forecast
0.80
US dollars per Australian dollar
-4.7%
0.75
0.70
0.65
0.60
0.55
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
0.79
▪ The Australian dollar depreciated 4.7% in the trailing quarter amid
US dollars per Australian dollar
0.78 a new coronavirus outbreak, new lockdown measures and slower
Chinese economic growth.
0.77 ▪ At its July meeting, the RBA announced the adjustment of its QE
bond buying program from A$5 billion to A$4 billion weekly
0.76 starting in September 2021, but a resurgence of the virus may
change the RBA’s stance.
0.75
Currency Outlook
0.74
▪ PNC anticipates little net change in the Australian dollar over the
next few quarters, while the consensus forecast expects a slight
0.73
appreciation of the currency.
May-21 Jun-21 Jul-21
Previous Quarter
▪ If Australia’s economic fundamentals deteriorate in the near term
or China’s economy weakens, the Australian dollar is likely to be
weaker than forecasted.
Source: BloombergCurrency Update
New Zealand Dollar
The New Zealand dollar depreciated in the trailing quarter as China’s economic recovery slowed.
2 year history : 1 year forecast
0.75
US dollars per New Zealand dollar
0.70
-2.4%
0.65
0.60
0.55
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
0.73
▪ The New Zealand dollar depreciated 2.4% in the trailing quarter,
US dollars per New Zealand dollar
reaching its lowest level since November 2020 in July. A slow
0.72 global vaccine rollout and the spread of the Delta variant weighed
on the risk-sensitive New Zealand dollar.
▪ The New Zealand dollar regained momentum briefly in late July
0.71 after The Reserve Bank of New Zealand’s surprise announcement
that they will end their QE program.
0.70 Currency Outlook
▪ PNC forecasts little net change in the New Zealand dollar over
the next few quarters, while the consensus forecast anticipates
0.69 some appreciation.
May-21 Jun-21 Jul-21
▪ If the vaccine rollout proceeds faster than expected, commodity
Previous Quarter prices move higher, or New Zealand’s central bank lifts off
quicker than markets expect, the New Zealand dollar is likely to
be stronger than forecasted.
Source: BloombergCurrency Update
Indian Rupee
The Indian rupee depreciated in the trailing quarter as the domestic economic outlook worsened.
2 year history : 1 year forecast
78
Indian Rupees per US Dollar
76
-0.5%
74
72
70
68
Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22
Historical Previous Quarter 2-Year Moving Average Bloomberg Consensus Forecast PNC Forecast
3 month history Previous Quarter Recap
75.5
▪ The Indian rupee edged down 0.5% on net in the trailing quarter.
75.0 The rupee appreciated 2.0% in May as economic fundamentals
Indian Rupees per US Dollar
improved, but depreciated in June and July as the Reserve Bank
74.5 of India lowered its GDP forecast at its June 4 meeting and crude
oil prices rose (India is a net importer of crude oil).
74.0
▪ The Reserve Bank of India also expanded its bond-buying
73.5 program at its June meeting, contributing to a weaker rupee.
73.0
Currency Outlook
72.5
▪ PNC and the consensus forecast both anticipate for the Indian
72.0 rupee to be relatively unchanged over the next few quarters.
May-21 Jun-21 Jul-21
▪ If the pandemic persists, vaccines take longer than expected to
Previous Quarter distribute, oil prices rise further, or the global economy re-enters a
recession, the Indian rupee is likely to be weaker than forecasted.
Source: BloombergSwap Dealer Activities Standard Disclaimer The information contained herein (“Information”) was produced by an employee of PNC Bank, National Association’s (“PNC Bank”) foreign exchange and derivative products group. Such Information is not a “research report” nor is it intended to constitute a “research report” (as defined by applicable regulations). The Information is of general market, economic, and political conditions or statistical summaries of financial data and is not an analysis of the price or market for any product or transaction. This document and the Information it contains is intended for informational purposes only, and should not be construed as legal, accounting, tax, trading or other professional advice. You should consult with your own independent legal, accounting, tax and other professional advisors before taking any action based on this Information. Under no circumstances should this document or any Information contained herein be considered a recommendation or solicitation to buy or sell any products or services or a commitment to enter into any transaction. Eligibility for particular products or services is conditioned upon PNC Bank’s subsequent formal agreement, which will be subject to internal approvals and binding transaction documents. The Information contained herein on exchange and interest rates, commodity prices and market indices are gathered from sources PNC Bank believes to be reliable and accurate at the time of publication. Therefore, PNC Bank makes no representations or warranties regarding the Information’s accuracy, timeliness, or completeness. Further, all performance, returns, prices, or rates are for illustrative purposes only, are subject to firm quotes, may not be achievable or indicative of future performance, actual results will vary, and may be adversely affected by exchange rates, interest rates, commodity prices or other factors. Markets do and will change. Any Information, values, estimates, or opinions expressed or implied herein are subject to change without notice. Under no circumstances is PNC Bank liable for any lost profits, lost opportunities, or any indirect, consequential, incidental, special, punitive, or exemplary damages arising out of any use, reliance, or any opinion, estimate or Information contained herein or any omission therefrom. PNC Bank, its predecessors, and affiliated companies may serve, either currently or within the previous three years, as underwriter, placement agent, market maker, manager, initial purchaser, broker, or deal as principal in any security, derivative or other instruments mentioned in this document. Any such relationship may differ materially from transactions contemplated herein. In addition, PNC Bank, its affiliated companies, shareholders, directors, officers, or employees may at any time acquire, hold or dispose of positions similar or contrary to the positions contemplated herein (including hedging and trading positions) which may impact the performance of a product described in this document. Early termination of a foreign exchange or derivative transaction may require payment of a termination amount to or from PNC Bank depending on market rates or prices at the time of termination. The Information contained herein is confidential and may not be disclosed, duplicated, copied, disseminated or distributed by any means to any other person or entity without PNC Bank’s prior written consent. PNC is a registered service mark of The PNC Financial Services Group, Inc. (“PNC”). Foreign exchange and derivative products are obligations of PNC Bank, Member FDIC and a wholly owned subsidiary of PNC. Foreign exchange and derivative products are not bank deposits and are not FDIC insured, nor are they insured or guaranteed by PNC Bank or any of its subsidiaries or affiliates. ©2021 The PNC Financial Services Group, Inc. All rights reserved. Revision 01.02.2020
Market Update Disclosure The information contained herein (“Information”) was produced by an employee of PNC Bank, National Association’s (“PNC Bank”) foreign exchange and derivative products group. Such Information is not a “research report” nor is it intended to constitute a “research report” (as defined by applicable regulations). The Information is of general market, economic, and political conditions or statistical summaries of financial data and is not an analysis of the price or market for any product or transaction. This document and the Information it contains is intended for informational purposes only, and should not be construed as legal, accounting, tax, trading or other professional advice. You should consult with your own independent advisors before taking any action based on the Information. Under no circumstances should the Information be considered trading advice or a recommendation or solicitation to buy or sell any products or services or a commitment to enter into any transaction. The Information is gathered from sources PNC Bank believes to be reliable and accurate at the time of publication and are subject to change without notice. PNC Bank makes no representations or warranties regarding the Information’s accuracy, timeliness, or completeness. All performance, returns, prices or rates are for illustrative purposes only. Markets do and will change. Actual results will vary, and may be adversely affected by exchange rates, interest rates, commodity prices or other factors. PNC is a registered service mark of The PNC Financial Services Group, Inc. (“PNC”). Foreign exchange and derivative products are obligations of PNC Bank, Member FDIC and a wholly owned subsidiary of PNC. Foreign exchange and derivative products are not bank deposits and are not FDIC insured, nor are they insured or guaranteed by PNC Bank or any of its subsidiaries or affiliates. ©2021 The PNC Financial Services Group, Inc. All rights reserved. Revision 01.02.2020
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