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Mizuho Dealer’s Eye
October 2015
U.S. Dollar .................................................................. 1
Euro ............................................................................. 5
British Pound .............................................................. 9
Australian Dollar....................................................... 12
Canadian Dollar ........................................................ 15
Korean Won .............................................................. 17
New Taiwan Dollar................................................... 19
Hong Kong Dollar .................................................... 21
Chinese Yuan ............................................................ 23
Singapore Dollar ....................................................... 26
Thai Baht................................................................... 29
Malaysian Ringgit ..................................................... 32
Indonesian Rupiah .................................................... 35
Philippine Peso ......................................................... 37
India Rupee ............................................................... 40
Mizuho Bank, Ltd.
Forex Division
Mizuho Bank | Mizuho Dealer’s Eye
Takeshi Hashi, Forex Sales, Forex Division
U.S. Dollar – October 2015
Expected Ranges
Against the yen: JPY115.00–122.00
1. Review of the Previous Month
As market participants focused on the possibility of a U.S. rate hike within the year, the dollar/yen pair
moved with a heavy topside in September on lackluster U.S. economic indicators and concerns of a
Chinese economic slowdown. With the FOMC holding off from raising rates when it met on
September 17, the pair continued to move in a range around 120 yen throughout the month.
The pair opened the month at the lower-121 yen mark. The Chinese Manufacturing and
Non-manufacturing PMIs for August were released on September 2. Both dipped below 50, a clear
sign of deteriorating sentiments within China, with the dollar/yen pair also falling to the lower-119 yen
mark as a result. The much-anticipated U.S. employment data for August was released on September 4.
The nonfarm payrolls figure dropped below expectations and this saw the pair temporarily hitting a
monthly low of 118.60 yen. However, the data for the previous two months was revised upwards,
while the average wages data also rose in August, so the pair then rallied to the 119 yen mark, though
it moved heavily on the topside. China released its trade balance data for August on September 8, with
exports dropping significantly below prior forecasts. As concerns of a Chinese economic slowdown
grew, the pair fell to the upper-118 yen level for a time. With stocks then rallying sharply in Shanghai,
the risk-off mood gradually eased off. On September 9, the Nikkei average shot up 7.7% on the
previous day, with the pair also gaining to the lower-121 yen mark.
On September 10, Liberal Democratic Party (LDP) member Kozo Yamamoto commented that
October 30 would be a ‘good opportunity’ for the Bank of Japan (BOJ) to introduce further easing. As
anticipation for such a move increased, the pair temporarily hit a monthly high of 121.38 yen, but
these gains were gradually pared back thereafter, with the pair continuing to float around the
upper-120 yen level. Expectations for further easing remained firm up until the BOJ Monetary Policy
Committee (MPC) meeting on September 15. When the MPC decided to leave policy unchanged,
though, the pair dropped to 119.40 yen on a sense of disappointment. With the results of the FOMC
meeting due for release on September 17, the pair then rose to 120.99 yen on expectations for a
September rate hike. The meeting struck a dovish tone in the end. Not only did the FOMC decide not
to hike interest rates, but Janet Yellen said in her press conference that the FRB was keeping a close
eye on the overseas economic situation, with the FRB Chair singling out China in particular. As a
result, the pair dropped below 120 yen once more. The ramifications of the decision to postpone a rate
hike were still being felt on September 18, with the pair dropping to the lower-119 yen mark. Though
it then rallied to the 120 yen range, it continued to move with a heavy topside.
With Japan entering the Silver Week holidays late September, the pair strengthened to the
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upper-120 yen mark as U.S. interest rates rose on September 21 after a high-ranking FRB official
voiced positive comments about a rate hike within the year. Risk-evasive yen buying intensified from
September 22 when news emerged that a major German carmaker had been cheating on emission tests.
The pair dropped to 119.70 yen and continued moving bearishly thereafter. The excessive risk-off
mood eased off on September 25 after Janet Yellen dropped hints about a rate hike within the year,
with the pair temporarily rising to 121.24 yen. Market risk sentiments deteriorated on September 28 on
reports that a major Swiss commodities company had seen its results plummeting, with the pair
subsequently dropping to the upper-119 yen mark towards September 29 as stocks fell across the
globe. The pair ended the month trading at the upper-119 yen mark on Japanese real-demand yen
buying towards the end of the month/the end of the first half of the fiscal year.
2. Outlook for This Month:
Market participants are expected to test the dollar/yen pair’s downside in October.
With the markets focusing on U.S. interest rate hikes, investors will be keeping an eye on
Japan/U.S. monetary policy and Chinese economic trends. With regards to monetary policy, the
FOMC will be meeting on October 28 and the BOJ’s Monetary Policy Committee (MPC) on October
30, though both are expected to leave policy as it is. The FOMC held off from raising rates when it
met in September, with FRB Chair Janet Yellen also voicing concerns about the economic situation in
China and the emerging markets in her press conference. This confirmed that any decision over a U.S.
rate hike will depend on how the overseas situation develops. In the wake of the FOMC meeting,
Yellen and several other high-ranking FRB officials have talked up the prospect of a rate hike within
the year, so the main scenario appears to be one of a 2015 rate hike. If movements in the federal funds
futures market are anything to go by, though, expectations for a December rate hike remain around
40%, so it seems the markets have yet to fully price in such a possibility. Janet Yellen is taking a
cautious approach to the matter and she is unlikely to spring any surprise rate hike as the FRB moves
towards exiting from its unprecedented quantitative easing policies. Rather, she is likely to deepen her
dialogue with the markets this month as she lays the ground for a rate hike this year (December). As a
result, the FOMC is unlikely to raise rates when it meets in October. With global stocks also
continuing to move bearishly, it seems December would be an appropriate time to make a decision
about a rate hike.
As for the BOJ’s monetary policy, BOJ Governor Haruhiko Kuroda has expressed confidence that
the Japanese economy will continue to recover and prices will continue climbing, so the BOJ is
unlikely to implement further easing when it meets in October. Furthermore, the likelihood of the BOJ
hitting its inflation target of 2% will depend on pay-raise trends, but Japanese firms face the possibility
of deteriorating results on the back of concerns about an economic slowdown in China, so the
Japanese government and the BOJ may face a new worry in the form of rising inflation
unaccompanied by rising real wages.
The markets are now focusing on China and the uncertainty about the state of the real economy
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over there. The Chinese markets will be on holiday over the first week of October due to the National
Day celebrations. During this time, market participants are unlikely to avert their eyes from China to
increase risk appetite. September also saw stocks sliding globally on news that a German carmaker
had cheated on emissions tests, while a major Swiss commodities firm saw results nosediving and a
Japanese shipping company filed for bankruptcy. There is a possibility all this bad news could
negatively impact the results of firms in other industries in October, with risk-evasive yen buying
likely to increase as a result.
The yen will be sold on the real-demand front as pension funds and so on adjust their asset
allocation policies, with the Japanese unit also likely to be sold on an ongoing series of cross-border
M&As. However, Japan’s trade deficit is shrinking sharply on sliding crude oil prices, so yen-selling
factors are steadily waning. For the reasons mentioned above, yen-buying pressure could rise on risk
aversion, with the pair likely to have its downside tested this month, so caution will be needed.
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Dealers' Market Forecast
(Note: These opinions do not necessarily agree with the other contents of this report.)
Bullish on the dollar (6 bulls: 118.00–125.00, Core: 118.00–124.50)
118.00
With attention starting to focus on the possibility of further easing in Japan, underperforming hedge funds may
–
sell the yen as a last-ditch move. With many Japanese investors believe the pair is staying in close to its upper
Kato
125.00
118.00
Takada
–
125.00
Sato
limit, though, these hedge funds could be caught on the wrong foot.
The dollar/yen pair will probably jostle up and down on speculation about an interest rate hike in the run up to the
FOMC meeting in late October. As with September, the pair’s topside will probably be tested if the U.S. posts
some bullish economic indicators, such as the employment data or the retail sales figures. There are also likely to
be some risk-aversive yen buy-backs, though, so the pair’s rise will be capped.
118.00
After the FOMC meeting, speculation grew that the FRB might not raise interest rates within the year, but this
–
speculation is now easing off. With Japanese investors also expected to continue investing in securities, the
(Masahide)
124.00
dollar/yen pair is expected to move firmly.
118.00
Dollar buying looks set to continue on expectations for a U.S. rate hike. The U.S. employment data for September
–
is set for release on Friday, October 2. Unless the data unexpectedly takes a turn for the worse, these expectations
Omi
123.00
118.00
Nishitani
–
125.00
118.00
Moriya
–
124.00
for a rate hike will probably not ease off.
Though the FOMC held off from raising rates when it met in September, the main scenario is one of a rate hike
within the year. The risk of a slowdown in China and the emerging economies continues to smolder away, but
crucially the U.S. economic continues to move firmly, so the dollar/yen pair is expected to trend upwards on
rising expectations for a rate hike.
The yen will probably be bought when concerns about a global economic slowdown increase, but the dollar/yen
pair is expected to move firmly on lingering expectations for a U.S. rate hike within the year. The BOJ’s MPC is
also set to meet this month, so the yen is likely to move bearishly on expectations for further easing as the
meeting looms closer.
Bearish on the dollar (5 bears: 113.00–122.00, Core: 115.00–122.00)
115.00
When the risk-off mood intensifies on stock market turmoil, major currencies and the currencies of countries with
–
current account surpluses will probably be sought out as safe havens. The markets have already priced in an FRB
Fujisaki
122.00
113.00
Yamashita
–
121.00
116.00
Yano
–
122.00
rate hike within the year. Yet dollar selling could well intensify on any anomalies.
Recent comments by FRB Chair Janet Yellen hinting at a rate hike within the year were probably just an attempt
to widen the FRB’s options with an eye on lessening the impact on the market when rates are finally lifted. A
glance at the global situation suggests the FRB will find it hard to lift rates this year, so market participants may
move to liquidate their dollar long positions.
U.S. monetary policy will remain the main focus of the markets this month. Judging from comments about the
U.S. monetary policy by high-ranking FRB officials, a rate hike looks likely within the year, but with uncertainty
rising about the global economy, the FOMC will probably hold off from making such a move in October. The
dollar/yen pair is expected to move with a heavy topside in October.
The financial markets are moving unstably, with stock markets buffeted by concerns of a Chinese economic
115.00
slowdown and reports of misconduct by a major German carmaker, for example. Under these circumstances,
–
uncertainty about the timing of a U.S. rate hike is likely to spread and it will take a while before investors feel
122.00
comfortable about actively buying the dollar. The dollar/yen pair is likely to continue trading with a heavy topside
Nishijima
and its downward bias could intensify, so caution will be needed.
115.00
–
Shimoyama
122.00
Market risk sentiments are being battered as corporate results slide on a Chinese economic slowdown and the
VW fraud scandal. It also seems that Japanese stocks are moving heavily on the topside on the weak impact of the
three new arrows of Abenomics. The dollar/yen pair is expected to trend downwards in the near future, with stock
trends and other risk sentiments exerting a greater influence on the pair than expectations for a U.S. rate hike.
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Yuuka Omi, Forex Sales, Forex Division
Euro – October 2015
Expected Ranges
Against the US$: US$1.0800–1.1500
Against the yen: JPY133.00–139.00
1. Review of the Previous Month
The euro rose towards the September 17 FOMC meeting before dropping back thereafter now this
important event was out of the way. In the end, it failed to break out of ranges it had traded in since
May this year (around $1.0800–1.1500 and 133–139 yen).
It opened the month trading around $1.1200 and 136 yen against its U.S. and Japanese counterparts.
Euro selling accelerated on September 3 after the ECB Governing Council raised the sovereign-debt
issuer limit of its asset purchasing program to 33%. As a result, the euro/dollar pair temporarily
dropped below $1.1100, with the euro/yen pair’s downside also falling to around 133 yen. The U.S.
employment data for August was released on September 4. Nonfarm payroll growth slowed and the
euro was sold as a result, though it was soon bought back. During this time, the euro/dollar pair
fluctuated by almost 100 points, though in the end it cooled down at the lower-$1.11 level. Amid a
dearth of any particularly noteworthy news between September 7–11, euro buying intensified when
stock markets fell. Risk-aversive euro buying saw the euro/dollar pair gaining to the lower-$1.13 mark,
with the euro/yen pair also rising to around 136.50 yen.
The euro underwent minor fluctuations over September 14–16 in advance of the FOMC meeting. It
continued to move with a lack of direction around $1.1250–1.1350 against the greenback and
135–136.50 yen against the Japanese unit. When the FOMC met on September 17, it decided to leave
policy fixed, while member federal funds rate projections were downgraded across the board. Dollar
selling increased as a result and the euro strengthened. The euro/dollar pair hit a high of $1.1460 on
September 18, while the euro/yen pair renewed a high of 137.40 yen on September 17. Thereafter,
dollar buying intensified on position adjustments, with the single currency dropping back to the
upper-$1.12 level and the lower-135 yen mark.
This trend continued over September 21–22, with the euro/dollar pair dropping down to around
$1.1100 and the euro/yen pair’s downside falling close to the mid-133 yen level. ECB President Mario
Draghi attended the Committee on Economic and Monetary Affairs meeting on September 23.
Contrary to expectations, he failed to make any comments about further easing. The euro was
subsequently bought back to around $1.1200 and 134.50 yen on a sense of disappointment. Euro
buying was also helped along by the September 24 release of a stronger-than-expected German Ifo
Business Climate Index for September, with the euro/dollar pair temporarily rising to around $1.1300
and the euro/yen pair climbing to around 135 yen. The dollar was then bought on September 25 on
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hawkish comments by FRB Chair Janet Yellen, with the euro/dollar pair subsequently sliding to the
upper-$1.11 level. The euro/yen pair was pulled up to the lower-135 yen mark by the bullish
movements of the dollar/yen pair.
The greenback was then sold on September 28 on bearish stock movements and deteriorating U.S.
indicators. The euro/dollar pair gained to the mid-$1.12 mark, though the euro/yen pair dropped below
134 yen. The euro continued rising on September 29, but expectations for further ECB easing then
flared up on the bearish results of Spain’s CPI data for September. As a result, the single currency’s
topside was capped at the upper-$1.12 mark against the greenback and around 135 yen against the
Japanese unit.
2. Outlook for This Month:
In October, the euro is expected to continue trading mainly in its current ranges against the dollar and
yen ($1.0800–1.1500 and 133–139 yen, respectively).
Events penciled in for the first half of the month include the release of the U.S. employment data for
September (Friday, October 2) and the annual meeting of the World Bank in Lima, Peru (Friday,
October 9–Sunday, October 11). As a result, attention will probably be focused on the direction of U.S.
monetary policy and the global economy. A jobs recovery is a prerequisite for any rate hike, so if the
U.S. employment data confirms that the recovery is still underway, the dollar is likely to continue
moving firmly on expectations for such a hike, with the euro subsequently moving with a heavy
topside. The World Bank is scheduled to release its economic forecast at its annual meeting. If
concerns about a global economic slowdown intensify, the dollar could be sold on risk aversion and
this could invite euro buying, so caution will be needed. The euro has a strong economic connection to
movements in China, so any negative outlook for the Chinese economy will probably prompt euro
selling. In either case, October will see a number of buying and selling factors, so the euro is likely to
move in both directions and market participants will find it hard to discern a sense of direction.
Events scheduled for the latter half of the month include the ECB Governing Council meeting
(Thursday, October 22) and the FOMC/Monetary Policy Committee (MPC) meeting (Tuesday,
October 27–Wednesday, October 28). Amid expectations for further ECB easing and a
commencement of FRB rate hikes, the euro is likely to be sold and the dollar bought in the run up to
these events. However, it is growing more likely that both meetings will decide to leave policy
unchanged for now, so in the wake of these events, the euro will probably be bought and the dollar
sold due to a sense of disappointment.
In conclusion, the euro is likely to continue trading without a sense of direction in the first half of
October. In the latter half of the month, euro buying will probably intensify in the run up to the
monetary policy meetings, with the single currency then bouncing back once these events are out of
the way. Furthermore, if some clear messages about the specific timing of further monetary policy
movements emerge from the meetings of the ECB Governing Council and the FOMC, the single
currency’s sense of direction will also become clearer. If so, the euro will probably be sold and the
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dollar bought, with the single currency breaking out of its current trading bands.
Dealers' Market Forecast
(Note: These opinions do not necessarily agree with the other contents of this report.)
Bullish on the euro (5 bulls: 1.0800–1.1700, Core: 1.1000–1.1600)
1.1000
Fujisaki
–
1.1600
1.1000
Yano
–
1.1500
Sato
(Masahide)
1.1000
–
1.1700
1.0800
Omi
–
1.1500
1.1000
–
Shimoyama
1.1600
The euro will be sold on the VW misconduct scandal and the wrangling about whether to accept refugees, but the
risk-off mood is likely to increase on global stock market turmoil. The eurozone has a huge current account
surplus, so the euro will probably prove attractive as a refuge currency. The markets have already priced in an
FRB rate hike within the year.
Despite the existence of bearish euro factors such as the VW emissions fraud scandal and the refugee issue, with
concerns growing about a global economic slowdown, the euro will be in demand as a refuge currency, with the
unit also likely to move firmly on a U.S. decision not to hike rates in October (and on expectations for such a
decision).
ECB President Mario Draghi has ruled out the need for further easing in the near future. Market participants are
also likely to remain on guard when it comes to the direction of China and the rest of the global economy, so they
will find it hard to implement euro carry trades. The single currency is likely to move with an eye on topside risk
in relation to short covering.
The euro will remain firm in reflection of the eurozone’s low inflation and current account surplus, with the
euro/dollar pair continuing to move between $1.08–1.15, its range since May this year. However, euro bullishness
will be capped by the firmness of the greenback, with the single currency also likely to be sold at times on
expectations for further ECB easing. The euro/dollar pair will probably trade in a range.
The euro seems susceptible to buying during phases of risk aversion. A glance at the markets shows corporate
results being pushed down by factors such as the VW emissions scandal, the Chinese economic slowdown and
the related fall in commodity prices, with risk sentiments likely to continue retreating from here on. The euro will
probably be bought this month.
Bearish on the euro (6 bears: 1.0650–1.1400, Core: 1.0700–1.1400)
1.0650
Kato
–
1.1350
1.0700
Yamashita
–
1.1400
1.0700
Takada
–
1.1400
1.0800
Nishijima
–
1.1400
The euro may come under more buying pressure as risk aversion leads investors to covert assets into cash, but
after speculators shrink their positions, money will once again be forced to flee the eurozone.
German industry is the mainstay of the eurozone economy, but the industry has been rocked by a series of
misconduct charges, so a slump is expected from here on. Italy and Spain, two rallying economies, are also facing
deteriorating inflation rates. As a result, the ECB will probably introduce some further easing in the near future,
with the euro moving with a heavy topside as a result.
The euro/dollar pair is expected to trade with a heavy topside in October. Recent comments by ECB President
Mario Draghi suggested it was too early for the ECB to be discussing further easing, though Draghi also
commented that the ECB was prepared to act if necessary. The euro may well be bought for a time during phases
of risk aversion, but if expectations for further easing flare up, the unit’s topside will be capped.
There are concerns the VW misconduct scandal could impact other industries. Negative views about eurozone
economic trends are also spreading. Under these circumstances, concerns about disinflation will probably flare up
again, with speculation also growing about further ECB easing. The debate about refugees is also likely to act as
an unstable factor for the eurozone, so the euro’s topside will probably be held down.
1.0700
Market participants should be wary of euro buy-backs due to risk aversion, but the VW emissions scandal has
–
raised concerns about Germany, the eurozone’s largest economy. This, together with deep-rooted expectations for
Nishitani
1.1400
further ECB easing, is likely to see the euro trending downwards.
1.0800
There is likely to be some risk-evasive euro buying during phases of bearish stock movements, but with the
–
markets focusing on the prospect of further ECB easing, the euro is expected to trade with a heavy topside.
1.1400
Concerns about the impact of the VW emissions scandal on the economy of Germany and the eurozone as a
Moriya
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whole are also likely to be regarded as a euro-selling factor.
October 1, 2015
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Hidetoshi Honda, Europe Treasury Division
British Pound – October 2015
Expected Ranges
Against the US$:
Against the yen:
US$1.4850–1.5350
JPY178.00–184.00
1. Review of the Previous Month
The pound moved bearishly at the start of September. This was down to the release of a series of
bearish UK August PMIs at the start of the month, with expectations for an early Bank of England
(BOE) rate hike receding on deteriorating UK business confidence. However, sterling continued to
move firmly within a range against the euro during this time. The ECB Governing Council met on
September 3. It decided to lift the issuer limit of its asset purchasing program from 25% to 33%. This
was read as a sign the ECB was fine-tuning/laying the ground for further easing. The euro’s weakness
around this time was probably down to these expectations (about further easing by the ECB).
From September 7 onwards, the pound gained sharply on speculation about M&As. On September
7, Tesco, a major UK supermarket chain, announced it had sold its South Korean business for GBP4.2
billion (the decision was made in June, with the announcement laying out the details such as the buyer
and the price). This was followed by an announcement on September 8 that Mitsui Sumitomo, a large
Japanese insurer, had bought a UK insurer for 635 billion yen. This led to expectations for pound
buying in relation to the acquisitions, capital recovery and the financial arrangements for the
acquisitions, with sterling pushed up as a result.
The results of the BOE’s September Monetary Policy Committee (MPC) meeting were released on
September 10. As expected, the base rate was kept at 0.50% and the ceiling of the asset purchase
program fixed at GBP375 billion. However, the minutes to the meeting pointed to the strength of the
UK economy and a positive tone struck by some MPC members about an early rate hike. They
revealed that one member (Ian McCafferty) had voted once again for a rate hike, for example, while
members had also expressed the view that the UK economy had only been slightly impacted by the
Chinese slowdown. This was read as a factor supporting the pair’s firm movements.
Sterling then bounced up and down in direct correlation to the movements of UK economic
indicators. The UK CPI data for August was released on September 15. Though the contents were
broadly in line with market expectations, they confirmed that inflation had slowed on the previous
month, with the pound falling as a result. The UK average wages data for May–July was then released
on September 16, though, and this clearly outperformed market expectations. The ILO unemployment
rate for May–July was released at the same time, with unemployment falling. These indicators were
read as a reflection of the unexpected robustness of the UK jobs market, with sterling climbing back
up again.
The focus of the markets then shifted to the September 17 FOMC meeting. Most market
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Mizuho Bank | Mizuho Dealer’s Eye
participants had expecting the FOMC to hold off from raising interest rates, but some observers had
been anticipating a rate hike, so the dollar moved bearishly across the board directly after the
announcement. The pound also rose further against the greenback to hit a monthly high of $1.5659 on
September 18, though pound bearishness then prevailed toward the end of the month. A decline in
expectations for an early BOE rate hike was thought to be the main reason behind this bearishness.
This decline was supposedly promoted by comments by BOE MPC member Andrew Haldane (on
September 18) and BOE Deputy Governor Jon Cunliffe (on September 21) to the effect that the BOE
was not confident prices would rise and was reluctant to hike interest rates in the near future.
2. Outlook for This Month:
The pound is expected to move bearishly in October. Sterling’s bearishness towards the end of
September was seemingly down to a decline in expectations for an early rate hike by the BOE, but
comments by high-ranking officials around this time were not entirely dismissive of the idea of a rate
hike. On September 22, UK Chancellor George Osborne stated that ‘the exit from very loose monetary
policy is going to come,’ thus signaling his positive stance toward an early rate hike. On September 23,
meanwhile, BOE Deputy Governor Ben Broadbent commented that the factors holding wages down
were now easing off (though he also said ‘I was not one of those on the brink of voting for higher
interest rates’ on September 24). Furthermore, if pound selling was prompted by expectations that the
BOE would hold off an early rate hike, then it is difficult to understand why the pound was also sold
against the dollar, even though the FRB also decided not to lift rates in September.
One more thing that needs explaining is why, when German stocks and the euro faced strong
selling pressure on the back of news that a large German carmaker had cheated on emissions tests, the
pound was the only unit to weaken against the single currency. This inexplicable pound weakness
suggests that the UK unit was perhaps overvalued, with speculative pound long positions possibly
piled up quite high. In particular, there is ample reason to believe that speculative pound long positions,
unsupported by any current account transactions, built up mid-September as sterling soared on news
that a UK supermarket chain had sold off some overseas assets (a decision made three months ago)
and a Japanese insurer had agreed to buy a UK counterpart (though the details of the acquisition
method were yet to be finalized).
Another reason to anticipate pound bearishness is the fact that the pound/dollar pair is growing
closer to breaching the upper-$1.51 mark (the pound’s downside has been supported at this level since
May this year). If the pair clearly breaches this level, the pound/yen pair may also grow close to
breaking 180 yen and this could invite some technical pound selling (such as stop-loss selling).
The first factor to watch out for in October is the result of the October BOE Monetary Policy
Committee (MPC) meeting, set for release on Thursday, October 8. It seems certain the MPC will
keep policy rates and the ceiling of the asset purchasing program unchanged, but there may be more
than one vote in favor of a rate hike this time, so caution will be needed. UK economic indicators
requiring attention include price-related indicators such as the September CPI data (released Tuesday,
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Mizuho Bank | Mizuho Dealer’s Eye
October 13) and the June–August average wages data (Wednesday, October 14), together with the
preliminary GDP results for July–September (Tuesday, October 27). Market participants should also
keep an eye on the September PMIs released at the start of the month (Manufacturing on Thursday,
October 1, Construction on Friday, October 2 and Services on Monday, October 5) as well as the
August manufacturing and industrial production figures (Wednesday, October 7), the August trade
balance (Friday, October 9), and the September retail sales data (Thursday, October 22). Furthermore,
with the FRB bent on lifting interest rates at some point, market participants should also focus on
external factors such as the U.S. employment data for September (Friday, October 2) and the release of
the results of the FOMC meeting (Wednesday, October 28) in order to gauge which direction the FRB
is heading in.
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Mizuho Bank | Mizuho Dealer’s Eye
Miki Yamaguchi, Sydney Branch
Australian Dollar – October 2015
Expected Ranges
Against the US$:
Against the yen:
US$0.6720–0.7300
JPY80.00–89.00
1. Review of the Previous Month
In September, the Australian dollar fell to a six-year low of USD0.6892 against its U.S. counterpart
before rallying to the USD0.70 level.
It began the month trading at the lower-USD0.71 mark. The board of the Reserve Bank of Australia
(RBA) decided to keep the policy rate fixed at 2.00% at its much-anticipated meeting on September 1.
In the accompanying statement, the phrase about how the ‘Australian dollar is adjusting to the
significant declines in key commodity prices’ was kept unchanged from the previous month, so the
impact on the Australian unit was muted. With global stocks falling sharply, though, the unit then
dropped to the lower-USD0.70 mark. The Australian GDP data for April–June was released on
September 2. At +2.0% year-on-year, the data fell below market expectations for growth in the region
of +2.2% y-o-y. This saw the unit dropping below the key USD0.70 barrier for a time. The U.S.
employment data for August was released on September 4. The mixed results were interpreted as not
ruling out a September rate hike, with the Australian dollar subsequently falling to the lower-USD0.69
level. Amid thin liquidity on the morning of the following Monday, the unit temporarily fell to a low
of USD0.6892 while activating stop-loss selling. It then moved around the lower-USD0.69 mark.
Shanghai stocks jumped up by 3% on September 8. The markets reacted warmly by pushing the
Australian dollar back to the USD0.70 range. On the morning of September 10, the Reserve Bank of
New Zealand (RBNZ) cut its policy rate by 25bp. The New Zealand dollar weakened and the Australia
unit was also dragged down to hit the mid-USD0.69 mark for a time. The Australian employment data
for August was released on the same day. At +17,400, the number of full-time employees was up
significantly on market forecasts for a 5,000 rise. With the offshore yuan (CNH) also soaring, the
Australian unit bounced back to the upper-USD0.70 level. On September 14, Tony Abbott stepped
down as Prime Minister to be replaced by Malcolm Turnbull. Turnbull expressed his intention to push
forward with structural reforms to boost an Australian economy hit by slumping commodity prices. As
a result, the Australian unit moved firmly from the upper-USD0.70 mark to the mid-USD0.71 level.
The minutes to the RBA board meeting were released on September 15, but a lack of any new factors
meant the impact was negligible. On the morning of September 18, the FOMC announced it was
keeping policy rates unchanged at its keenly-awaited meeting. In their economic/federal funds rate
projections, FRB members also said they now expected rates to be raised only once this year, down
from twice in previous projections. All this saw the Australian unit soaring from the upper-USD0.71
mark to USD0.7277.
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On September 21 it emerged that a major German carmaker had been cheating on emissions tests.
As stocks in Europe and across the globe moved bearishly, the risk-off mood intensified and the
Australian unit also edged lower. It fell to the USD0.69 level for a time on September 23. It then
traded around USD0.70, though it dropped to the lower-USD0.69 mark again on September 28 as
major global stock markets fell after the stocks of a major Swiss commodities company nosedived.
The unit eventually finished the month trading at the lower-USD0.70 mark.
2. Outlook for This Month:
The Australian dollar is expected to continue hovering at lows against its U.S. counterpart in October.
Attention will be focused on whether the FOMC hikes rates when it meets over October 27–28.
Similar attention was focused on the September meeting, but the FOMC decided not to raise rates
in the end. The markets have also been unable to nail down any clear hints about the timing of any rate
hike, with opinions now divided into three camps, namely that the FOMC will either (1) lift rates in
October, (2) lift rates in December or (3) decide not to lift rates this year. FRB Chair Janet Yellen has
struck a positive tone when it comes to a rate hike this year, with FRB members also predicting one
rate rise this year in their federal funds rate projections, so this is becoming the main scenario. At the
October FOMC meeting, though, Yellen will not be giving a press conference and FRB members will
not be releasing any economic/federal funds rate projections. With the FRB focusing on forming a
dialogue with the markets, in October the FOMC will probably drop some important hints about a rate
hike at the subsequent meeting, with such a move then taking place in December. So it seems the
FOMC will keep monetary policy unchanged this month, with the meeting having a minimal impact
on the markets.
Turning to Australia, meanwhile, and the statement released after the last RBA board meeting once
again contained the phrase about how the ‘Australian dollar is adjusting to the significant declines in
key commodity prices,’ so expectations for a rate cut have eased off. The RBA cut rates in February
and May this year, but unlike these months, the October meeting will not be followed by the release of
a quarterly Statement on Monetary Policy (the next one will be released in November). The Australian
CPI data for July–September is set for release on October 28 and the RBA will also want to confirm
these results before making any decision on a rate cut. As a result, the RBA is expected to keep the
base rate fixed at its next board meeting on October 6, so the reaction of the currency markets will
probably be muted.
The RBA is also keeping a close eye on commodity prices and these have also stopped sliding. The
NY crude oil futures indicator (WTI) has bounced back by around 20% from its August low of
USD38.93, as has the price of iron ore (62% iron content) from its July low of USD44.59. In recent
times, the movements of the Australian unit have correlated strongly with those of commodity prices,
so the Australian unit’s slide may also be halted on these recent trends. The Australian dollar’s
downside target will probably be USD0.6720, the lower limit of its monthly Bollinger Bands, while its
topside target will probably be its September high of USD0.7277.
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Mizuho Bank | Mizuho Dealer’s Eye
Australian indicators to watch out for this month include the retail sales data (released October 2),
the trade balance (October 6), the RBA board meeting (October 6), the employment data (October 15),
the minutes of the RBA board meeting (October 20), and the CPI data (October 28).
October 1, 2015
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Mizuho Bank | Mizuho Dealer’s Eye
Katsuhiko Takahashi, Americas Treasury Division
Canadian Dollar – October 2015
Expected Ranges
Against the US$:
Against the yen:
C$1.2800–1.4000
JPY86.75–92.00
1. Review of the Previous Month
Canada’s GDP data for June was released at the beginning of the month. At +0.5% month-on-month,
the data was up on market expectations for +0.2% m-o-m. At -0.5% on the same period the previous
year, meanwhile, the 2Q GDP slump on an annualized basis was also less severe than forecasts for a
1.0% drop . As a result, the U.S.-dollar/Canadian-dollar pair breached C$1.32 and dropped down to
C$1.3119. Canada then released its employment data for August. The number of people in work
climbed by 12,000, up on market expectations for a slide in the region of 5,000. Though the pair
weakened, it then returned to its level from before the announcement after the unemployment rate rose
from 6.8% to 7.0%. The Ivey Purchasing Managers Index, released on the same day, also topped
expectations. With the Canadian economy having shown signs of slowing on bearish crude oil prices,
the results of the Ivey Index were somewhat surprising, with the Canadian unit seeing some buying as
a result. When the Bank of Canada’s Monetary Policy Committee (MPC) met, it decided to leave the
policy rate at 0.50%, as expected. The much-anticipated statement suggested that economic activity
was being supported by the U.S. economic recovery and firm consumption, with inflation also
behaving as expected in July. It also said current policy was appropriate for dealing with inflation risk
and it failed to hint at any further action. As expectations for a further rate cut dropped off somewhat,
the Canadian unit was bought and the currency pair fell from C$1.3265 to the mid-C$1.31 level.
The FOMC decided to hold off from raising rates mid-September. With uncertainty growing
about the direction of U.S. monetary policy, yields on U.S. treasuries fell and the greenback was sold,
with the pair dropping temporarily to C$1.3013. However, with FRB Chair Janet Yellen and several
other high-ranking FRB officials suggesting it would be appropriate to lift rates within the year, the
dovish mood eased off in the markets. As the U.S. dollar moved firmly, the currency pair strengthened
to the C$1.33 mark again.
The latter half of the month saw growing uncertainty about the direction of economic trends in
China and the rest of the globe. With commodity currencies remaining bearish on the back of this
risk-off mood, the pair temporarily climbed to C$1.3457 for the first time since 2004. The Canadian
GDP data for July was then released. It beat expectations by rising 3% on the previous month to record
the second consecutive month of positive growth. With risk aversion also easing off across the markets,
the Canadian unit was bought back and the currency pair dropped to C$1.3307 to finish the month
trading at C$1.3313.
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Mizuho Bank | Mizuho Dealer’s Eye
2. Outlook for This Month:
Though capital investment in the Canadian commodities sector is stalling, it seems to be approaching
bottom. With the U.S. economy moving bullishly, there is a sense that other non-commodity sectors
could soon see growth. Canadian exports grew by 2.3% in July, with automobiles and other
non-energy exports (a sector watched closely by the Bank of Canada) also growing. The Canadian
jobs data also beat expectations, with the number of full-time jobs growing sharply. Depending on
how crude oil prices moves, the slump in commodity-sector capital investment could drag on for a
while, so it is too early to conclusively say there will be no more rate cuts. However, even if the Bank
of Canada does make such a move, with the policy rate already at 0.5%, there is only so much room
for further cuts. Furthermore, with interest rates moving at low levels, household debt remains high on
an increase in mortgages, so the Bank of Canada will soon be faced with a difficult choice. Based on
Canada’s fundamentals, it seems the Canadian dollar’s price will soon bottom out, but the Canadian
unit’s movements are strongly correlated with those of risk indicators, so amid ongoing concerns about
the direction of the global economy, market participants will probably find it hard to actively buy the
unit.
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Mizuho Bank | Mizuho Dealer’s Eye
Shimon Yoshida, Seoul Treasury Department
Korean Won – October 2015
Expected Ranges
Against the US$:
Against the yen:
KRW1,165–1,215
JPY9.72–10.42 (KRW100)
(KRW9.60–10.20)
1. Review of the Previous Month
The dollar/won pair underwent a gentle appreciation in September.
It opened the month trading at KRW1,183 on September 1. A risk-off mood swept the markets on a
series of bearish Chinese economic indicators, but with the People’s Bank of China (PBOC)
announcing restrictions on RMB selling, the currency pair dropped down to around KRW1,170. With
Chinese stock markets moving unstably on September 2, though, the pair began rising again. It gained
further on September 3 following an announcement that a large UK retailer was selling its share of a
large South Korean retailer. The pair moved around KRW1,190 on September 4 ahead of the release
of the U.S. employment data for August.
In the end, the U.S. nonfarm payrolls data for August dropped below market expectations, with the
pair then rising sharply on risk aversion. It closed at its highest price since July 2010. After hitting a
monthly high of KRW1,208.8 on September 8, the pair then fell back on growing concerns of an
intervention in the currency markets. On September 9, with the Nikkei average soaring by 7.7% on the
previous day, risk sentiments improved and the currency pair fell to around KRW1,190. It bounced
back on September 10, but with the offshore dollar/RMB pair then plummeting, the dollar/won pair
opened trading on September 11 at the lower-KRW1,180 mark, below its closing price the previous
day. The Bank of Korea (BOK) Monetary Policy Committee (MPC) also met on September 11 and it
reached a unanimous decision to keep rates fixed. With BOK Governor Lee Ju-yeol also striking a
hawkish stance at his press conference, the currency pair moved with a heavy topside.
It continued to move with a heavy topside from September 14 onwards. On September 15, S&P
announced it was upgrading South Korea’s credit rating one notch from A+ to AA-. As a result, on
September 16 South Korean stock markets saw buying-on-balance by foreign investors for the first
time since August 4, some 30 business days ago. The won faced more buying pressure on September
17 on news that a large South Korean shipbuilder had won a huge order. At its much-anticipated
September meeting, the FOMC kept monetary policy fixed, while FRB members also downgraded
their federal funds rate projections. As a result, the dollar/won pair fell further on September 18 to hit a
monthly low of KRW1,161.5
It then rallied to the KRW1,170 mark on September 21 as South Korean stocks were sold on
balance by overseas investors for the first time in four days. It continued rising on September 22 in the
wake of hawkish comments by a regional FRB president and so on. The Caixin Flash China General
October 1, 2015
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Mizuho Bank | Mizuho Dealer’s Eye
Manufacturing PMI for September was released on September 23. It hit its lowest level for six years
and this led to a decline in risk sentiments, with the currency pair shooting up to around KRW1,190. It
was given another boost on September 25 when FRB Chair Janet Yellen announced her intention to
lift interest rates within the year. It moved with a slightly heavy topside on September 30 in relation to
real-demand flows. In the end, it closed the month at KRW1,185.3, with the South Korean unit down
KRW2.8 on the end of August.
2. Outlook for This Month:
The dollar/won pair is expected to move with a heavy topside in October.
In September, the FOMC held off from raising rates, instead deciding to keep monetary policy
unchanged. In her press conference after the meeting, FRB Chair Janet Yellen expressed concerns
about growing uncertainty with regards to financial markets and the overseas economy. She also
predicted that inflation would remain low for a prolonged period, thus clarifying exactly why the FRB
had left policy untouched. With FRB members also downgrading their federal funds rate projections,
the meeting left a dovish impression on the whole. Though Yellen left the door open for an October
rate hike, it is hard to see the current situation changing much in a month, so the main scenario is one
of rate hikes being pushed back to December or beyond. This postponement will probably act as a
bearish factor for the currency pair.
Not only did the FRB hold back from lifting rates last month, expectations are also growing for a
BOK rate cut after S&P upgraded South Korea’s credit rating. The Monetary Policy Committee
(MPC) will be reviewing its growth and inflation forecasts when it meets in October, with many
observers believing the BOK will cut rates at the same time as lowering its growth forecast.
Furthermore, following the South Korean announcement in July about a household debt control
scheme, S&P said it saw signs that the quality of South Korean household debt was improving. This
judgement is a further reason why expectations for a rate cut are growing. In fact, the financial markets
have already started to price in such a move.
However, BOK Governor Lee Ju-yeol stated that although exports were moving sluggishly,
domestic demand was recovering. He went on to say that although the GDP growth rate might
fluctuate somewhat from the +2.8% figure predicted in July, economic growth was unlikely to slow to
the lower-2% range. Furthermore, during a parliamentary inspection on September 17, when observers
were listening out for hints of a further rate cut, Governor Lee struck a somewhat hawkish tone.
Though he said that, at 1.5%, the policy rate had not reached its lowest limit, he also clarified this did
not mean the BOK would be making any specific monetary policy moves. With uncertainty also
growing about the direction of the Chinese economy, it is perhaps too early to think about a rate cut.
On this point, even if the dollar faces more buying pressure on rising expectations for a rate cut in
the run up to the October MPC meeting, the pair’s topside will be capped by concerns about an
intervention in the currency markets. Furthermore, if the BOK decides to keep monetary policy
unchanged, the won is expected to be bought back steadily.
October 1, 2015
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Mizuho Bank | Mizuho Dealer’s Eye
Junji Tsujino, Taipei Treasury Department
New Taiwan Dollar – October 2015
Expected Ranges
Against the US$:
Against the yen:
NT$32.50–34.00
JPY3.50–3.75
1. Review of the Previous Month
The Taiwan dollar continued sliding against the U.S. dollar in September.
The U.S. dollar/Taiwan dollar pair kicked off the month trading around TWD32.45. China then
announced moves to curb speculative RMB trading. The RMB appreciated and the Taiwan dollar was
also pulled up to temporarily hit TWD32.30 against its U.S. counterpart. The markets remained in
wait-and-see mode over September 2–4 prior to the release of the U.S. employment data for August.
During this time, the Taiwanese unit slid down to around TWD32.50. The U.S. employment data was
released at the weekend. Though it was not read as supportive of a September rate hike,
emerging-economy currencies were nonetheless sold across the board, with the Taiwan dollar also
dragged down to TWD32.70 on September 7. It then dropped to TWD32.80 on the morning of
September 8. However, with the risk-off mood easing on bullish Shanghai stock movements and so on,
the unit bounced back to around TWD32.70. That afternoon’s movements spilled over into September
9, with the unit rising to around TWD32.50 as stocks made sharp gains.
When the offshore RMB then soared toward close of trading on September 10, the Taiwanese unit
was also dragged higher to finish the day trading around TWD32.50. This trend saw the unit
temporarily hitting TWD32.30 on the morning of September 11. With the FOMC meeting looming the
following week, though, the unit finished the day trading around TWD32.50. It then swung to and fro
between TWD32.40–60 over September 14–17 in advance of the FOMC meeting. When it met on
September 17, the FOMC struck a dovish tone. It held off from raising rates, while FRB members also
downgraded their federal funds rate projections. As a result, the Taiwan unit appreciated after trading
opened on September 18, but with the Bank of Taiwan’s board meeting looming the following week,
its rise was capped at the upper-TWD32.30 level.
The risk-off mood intensified after the FOMC meeting as market participants grew uncertain about
the future. Emerging-economy currencies were sold on September 21, with the Taiwan dollar also
trending downwards again. It fell sharply thereafter to hit TWD32.50 on September 21, TWD32.60 on
September 22, around TWD32.80 on September 23 and TWD32.90 on September 24. The Bank of
Taiwan’s board then decided to lower the benchmark rate when it met on September 24. As a result,
the Taiwan unit weakened further on September 25 to hit the TWD33.00 range. September 28 was a
national holiday, while the markets were closed on September 29 due to a typhoon. During this time,
other currencies like the yen, euro and Korean won moved calmly, so the Taiwan dollar’s level had not
shifted significantly when trading opened again. However, with Asian currencies then bought back on
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Mizuho Bank | Mizuho Dealer’s Eye
RMB bullishness, the Taiwan dollar also edged up to around TWD32.90.
2. Outlook for This Month:
The Taiwan dollar is expected to weaken slightly against the U.S. dollar in October. As mentioned
before, the Taiwan unit will remain susceptible to depreciation, whether the markets slip into risk-on
mood or risk-off mood. If the U.S. posts firm economic growth and expectations for a U.S. rate hike
rise, the Taiwan unit will slide on U.S.-dollar bullishness. During times of risk aversion, though,
Taiwanese stock markets will fall as overseas investors sell on balance, with the Taiwan unit
weakening on expectations for monetary easing in Taiwan. In particular, with the Bank of Taiwan
cutting the benchmark rate, an event no-one could have foreseen two months ago, the Taiwan dollar
may slide at a faster pace during times of risk aversion, so caution will be needed. Of course, the unit’s
current slide seems somewhat overheated. Nonetheless, it is not the only currency to see selling - the
Korean won has also been sold off, for example - so this bearishness is not unique to the Taiwan dollar.
It will probably not stop sliding even when it hits the TWD33.00 range.
In August, Taiwan’s trade balance (expressed in US$) saw exports of electrics, electronics,
machinery and precision equipment suffering double-digit slides once again. However, the trade
surplus only shrank slightly on the previous year thanks to a slide in imports on bearish crude oil
prices. Industrial production and export orders also moved sluggishly, thus confirming that the
buoyant effects of Apple’s new OS, new iPhones and other goods had yet to filter through.
When the Bank of Taiwan cut rates on September 24, it justified the move by producing some data
comparing real interest rates in Taiwan and several other countries. By defining the real interest rate as
‘the 1-year time deposit rate minus the CPI annual growth rate,’ the Bank showed that Taiwan had the
second highest real interest rate in a 13-country comparison. Taken at face value, this suggests there is
still room for further rate cuts. In fact, the overnight rate (hereinafter: O/N rate) has fallen by around
0.02% again in the wake of the Bank of Taiwan meeting. Judging from the recent decision to cut rates,
it could be argued there is still some validity to the rule that O/N rates move ahead of benchmark rates,
with market participants already starting to focus on a further rate cut in December. (Based on
movements after the Lehmann Shock, the lower range of any rate cuts will be 1.25% for the
benchmark rate and 0.1% for the O/N rate, with the O/N rate moving by around 0.06% as opposed to
0.125% for the benchmark rate).
October 1, 2015
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Mizuho Bank | Mizuho Dealer’s Eye
Ken Cheung, Hong Kong Treasury Division
Hong Kong Dollar – October 2015
Expected Ranges
Against the US$:
Against the yen:
HK$ 7.7500–7.7550
JPY 15.20–15.70
1. Review of the Previous Month
Hong Kong dollar spot exchange market in September: The U.S. dollar/Hong Kong dollar
exchange rate continued fluctuating near the HKD 7.75 level, the lower end of the peg.
In September, the U.S. dollar/Hong Kong dollar spot exchange rate fluctuated around the HKD 7.75
level, the lower end of the peg, as a result of capital outflow from the onshore market in China. In
August, the method of calculating the daily reference rate for the Chinese yuan in the onshore market
was revised, after which market participants have been expecting the offshore Chinese yuan to
depreciate, thus exchanging offshore Chinese yuan for the Hong Kong dollar (by selling offshore
Chinese yuan and buying the Hong Kong dollar). Under the peg system between the U.S. dollar and the
Hong Kong dollar, the Hong Kong Monetary Authority (HKMA) intervened in the market in order to
supply the banking system with Hong Kong dollars by selling the Hong Kong dollar in the foreign
exchange market. As a result, the HKMA current account balance for private banks exceeded HKD 330
billion, whereas it was HKD 295 billion at the end of August. In the Hong Kong dollar futures market,
the one-year futures price of the Hong Kong dollar gradually declined to fall below 100 points, as the
offshore Chinese yuan market had been stable, while the FOMC had decided to postpone its decision to
raise the interest rate in the U.S.
Hong Kong dollar interest rate market in September: Interest rates were on a downtrend because
of the stability in the offshore Chinese yuan market.
The three-month HIBOR had been on a downtrend because of the stability in the offshore Chinese yuan
market since the second half of August when it reached its highest level at 0.42%. The three-month
HIBOR briefly rose again before the FOMC meeting that was held on September 16 and 17. However,
the uptrend did not last for a long time, and the three-month HIBOR fell below 0.4% after the FOMC
decided to postpone its decision to raise the interest rate in the U.S. in September. Furthermore, the U.S.
dollar/Hong Kong dollar basis swap rate started falling from its highest level, and the five-year basis
swap rate fell into negative.
Hong Kong stock market in September: The Hang Seng Index remained stable at around 22,000
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Mizuho Bank | Mizuho Dealer’s Eye
points.
The benchmark Hang Seng Index rallied to a level near 22,000 points after hitting 20,524 points—the
lowest level in approximately two and half years. Following the global appreciation of stock prices seen
from September 8 and 9, the Hang Seng Index rallied by more than 1,000 points in two days. However,
stock prices did not rise further from this level. Thereafter, the FOMC decided to postpone its decision to
raise the interest rate in the U.S. in September, which kept the Hang Seng Index stable at around 22,000
points. On the other hand, the stock market in China stopped depreciating, which fueled risk-taking
sentiment in the market. Supported by this trend, the Chinese stock prices remained within a range
between 3,000 points and 3,200 points.
2. Outlook for This Month:
Hong Kong dollar spot exchange market in October: The Hong Kong dollar is forecast to remain
on an uptrend, as market participants expect the offshore Chinese yuan to depreciate.
As market participants still expect the offshore Chinese yuan to continue depreciating, the U.S.
dollar/Hong Kong dollar spot exchange rate is forecast to remain stable in October at around HKD 7.75
to the U.S. dollar—the lower end of the peg. In order to avoid any loss in the foreign exchange market
due to the depreciation of the offshore Chinese yuan, investors may continue exchanging assets related
to the offshore Chinese yuan to the Hong Kong dollar. Capital outflow from the onshore Chinese market
is also likely to support the Hong Kong dollar. On the other hand, it seems that the FRB will not raise the
policy interest rate until December, which makes it likely for the Hong Kong dollar to remain robust
under the U.S. dollar peg system, while other Asian currencies continue depreciating. Furthermore, as
the Chinese yuan is not yet a fully compatible currency, the U.S. dollar peg system is likely to remain for
the times ahead.
Hong Kong dollar interest rate market in October: The Hong Kong dollar interest rates are
forecast to remain low because of the stability in the Chinese market as well as the postponement
of the interest rate hike in the U.S.
In addition to the fact that the Chinese market remains stable, the FRB is not likely to take a decision to
raise the interest rate until December. Therefore, the Hong Kong dollar interest rates are expected to
remain low in October. At the same time, the U.S. dollar/Hong Kong dollar exchange rate is forecast to
move toward the lower end of the U.S. dollar peg, as market participants continue to expect the Chinese
yuan to depreciate in the times ahead. This makes it possible for the HKMA to supply liquidity for the
banking system. If the HKHA intervenes in the foreign exchange market, the liquidity level of the Hong
Kong dollar would remain relatively high, which would lower the three-month HIBOR.
October 1, 2015
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Mizuho Bank | Mizuho Dealer’s Eye
So Ouchi, Treasury Division, MHBK (China)
Chinese Yuan – October 2015
Expected Ranges
Against the US$:
Against the yen:
Against 100 yen:
CNY 6.3300–6.5700
JPY 17.80–19.90
CNY 5.1900–5.6200
1. Review of the Previous Month
Foreign exchange market: China introduced a limit on foreign currency purchases, and the U.S.
dollar/Chinese yuan trading exchange rate continued fluctuating within a narrow range, with the
C1Y 6.39 line as the lower end.
On September 1, the People’s Bank of China (the central bank of China, hereinafter referred to as the
“PBOC”) announced a new regulation, which obliges financial institutions that deal with foreign
currency purchases through forward contracts for their customers to make a deposit worth 20% of the
principal to a special account held by the PBOC for one year. With this new regulation, financial
institutions that deal with foreign currency purchases through forward contracts for their customers
would incur extra cost when procuring U.S. dollars for one year, in addition to the actual cost for
customers, which results in higher prices. On September 2, the following day, the products targeted by
this new regulation were stipulated and included derivative products, such as currency swaps and options.
Thus, the new regulation covers almost all types of foreign currency purchases except for purchases in
the spot exchange market.
The new regulation functions as a practical measure to prevent the Chinese yuan from depreciating
further. Furthermore, there was a daily action to sell the U.S. dollar against the Chinese yuan, and this is
considered to be market intervention. As a result, the Chinese yuan remained strong against the U.S.
dollar in the trading market at the beginning of September. The Chinese yuan temporarily appreciated to
the CNY 6.35 level against the U.S. dollar. However, the Chinese yuan has been on a downtrend since
September 7, when the local consecutive holidays ended.
On September 10, the Chinese yuan exchange market was being gradually stabilized after the
commotion caused by the new regulation, announced on September 1. However, the offshore Chinese
yuan (CNH) suddenly appreciated. Some market participants thought that the Chinese monetary
authorities intervened in the offshore Chinese yuan exchange market, and the CNH appreciated by
almost 1.2% (800 pips), narrowing the gap between the CNY and CNH to around 20 pips. Thereafter,
there were also some actions to sell the U.S. dollar, which are likely to be market intervention. However,
the U.S. dollar/Chinese yuan exchange rate continued fluctuating within a narrow range between CNY
6.36 and CNY 6.39.
October 1, 2015
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Mizuho Bank | Mizuho Dealer’s Eye
Interest rate market: The overnight interest rate remained at the 1.8% level.
As was the case in August, short-term capital supply was tight in September in the Chinese yuan capital
market, due to the depreciation of stock prices in China as well as the depreciation of the Chinese yuan
in the foreign exchange market. However, large Chinese banks started to gradually supply funds, and the
overnight interest rate has currently been remaining at the 1.8% without rising or falling, although the
fund procurement pressure is likely to strengthen before the end of the quarter period. Even though funds
are being absorbed through open-market operations, there is little impact of the change in the method to
calculate the legal requirement for the deposit reserve announced by the PBOC, and the net liquidity
level is not severely affected.
2. Outlook for This Month:
Foreign exchange market: The key factor will be the level of the PBOC’s central parity rate, as
well as the gap between the Chinese yuan exchange rates in the onshore and offshore markets.
As has been stated by the PBOC, the PBOC central parity rate has been set based on the closing rate of
the previous day. As a result, the gap between the PBOC central parity rate and the U.S. dollar/Chinese
yuan exchange rate has been narrowing. The Chinese monetary authorities have been smoothly clearing
the problems that used to prevent the Chinese yuan from internationalization, and the exchange rate is
likely to continue fluctuating with resilience in both directions proven by the daily fluctuation range at
around 100 pips. On the other hand, because some adjustment has been made since August 11, the gap
between the onshore and offshore Chinese yuan exchange rates has been widening, although the gap is
likely to narrow again in the times ahead, as the PBOC is likely to intervene in the offshore market. The
past data shows that the gap between the PBOC central parity rate and the onshore and offshore
exchange rates tends to narrow when the daily fluctuation range widens. Therefore, the daily fluctuation
range is expected to widen when the gap between the onshore and the offshore markets narrows. It
should be noted that if the daily fluctuation range widens, the U.S. dollar may appreciate further against
the Chinese yuan.
Interest rate market: The turning point for the overnight interest rate has recently been 2.0%.
Chinese yuan interest rates are forecast to remain stable, thanks to open-market operations by the
Chinese monetary authorities as well as capital supply by large Chinese commercial banks. On the other
hand, there have been measures to keep the Chinese yuan from depreciating in the foreign exchange
market, as well as growing demand for conversion from various currencies. Thus, it is important to keep
an eye on the market liquidity level. In particular, it seems that the turning point for the overnight interest
rate has recently been 2.0%, and therefore, if the overnight interest rate exceeds the 2.0% mark, market
participants would expect additional measures of monetary easing, such as a cut of the deport
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requirement ratio.
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Noriko Suzuki, Singapore Treasury Division
Singapore Dollar – October 2015
Expected Ranges
Against the US$:
Against the yen:
SG$ 1.3800–1.4500
JPY 82.00–87.00
1. Review of the Previous Month
In September, the Singapore dollar was at its lowest level in six years, due to uncertainty in China as
well as the outcome of the FOMC meeting in the U.S.
After the devaluation of the Chinese yuan, Shanghai stock prices depreciated sharply. The depreciation
finally slowed down at the end of August. Following this trend, the Singapore dollar also rallied once
from its lowest rate in approximately five years. However, uncertainty persisted in the Chinese market
despite efforts made by the Chinese government to stabilize the market. As a result, the Singapore dollar
continued depreciating every day at the beginning of September after the market opened at the
lower-SGD 1.41 level. On September 1, the People’s Bank of China (PBOC) announced a new
regulation regarding foreign exchange forward contracts, in order to keep the Chinese yuan from
depreciating. On the same day, the August manufacturing PMI of China was released, and the result was
the lowest in three years. Then, on September 2, Shanghai stock prices depreciated significantly at the
beginning of the day, although the depreciation slowed down after the media report on the instruction to
reduce loans for credit transactions. The Singapore dollar renewed its lowest rate in around five years
again on September 2, due to uncertainty in the Chinese market. Furthermore, on September 4, the
August employment statistics of the U.S. were released, and the results show that an interest rate hike in
September was still possible. As a consequence, U.S. dollar-buying was encouraged, and the Singapore
dollar depreciated against the U.S. dollar to the upper-SGD 1.42 level.
In the second week of September, Shanghai stock prices depreciated on September 7 after consecutive
holidays, as PBOC Governor Zhou Xiaochuan shared his view that the stock market was in a bubble at
the G20 summit meeting held during the weekend. On September 8, concerns over the economic
outlook in Asia grew as the August import of China declined significantly. Under such circumstances,
the Singapore dollar was sold and the U.S. dollar/Singapore dollar exchange rate approached SGD 1.43,
renewing the lowest rate for the Singapore dollar for the first time in six years. However, Shanghai stock
prices rallied to their highest level in two weeks after the announcement of the economic stimulus made
on September 9, which led the Singapore dollar to also rally against the U.S. dollar to the lower-SGD
1.41 level. On September 10, the PBOC unexpectedly intervened in the offshore market, leading the
offshore Chinese yuan to rally rapidly, which kept the Singapore dollar from depreciating further.
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The general election was held in Singapore on September 11, and the result for the opposition party
attracted significant attention, as it had done well in the previous election. However, the outcome of this
election turned out to be an overwhelming victory for the ruling party. In reaction to this, the Singapore
dollar appreciated significantly on September 14 after the weekend. The Singapore dollar continued
appreciating thereafter, as market participants bought the Singapore dollar to avert risks before the
FOMC meeting in the U.S. As a consequence, the U.S. dollar/Singapore dollar exchange rate reached
the upper-SGD 1.39 level on September 16. On September 17, the FOMC decided to postpone the
interest rate hike after attracting significant attention in the market. Furthermore, FRB Chair Janet Yellen
made an unexpectedly cautious remark, which encouraged market participants to sell the U.S. dollar. As
a result, the Singapore dollar continued appreciated and the U.S. dollar/Singapore dollar reached the
upper-SGD 1.38 level.
In the fourth week of September, many FRB officials made remarks to support an interest rate hike
before the end of the year, on September 21. This mitigated concerns that the FRB might be seeing the
impact of the uncertainty in China as a serious issue. On September 22, European stock prices
depreciated after the scandal of a German automobile manufacturer regarding gas emissions. Then, on
September 23, the September manufacturing PMI of China was released with a declining figure. Under
such circumstances, Asian currencies depreciated as a result of risk aversion. On September 24, FRB
Chair Janet Yellen shared her view that an interest rate hike before the end of the year would be
appropriate. In reaction to this, the U.S. dollar/Singapore dollar exchange rate reached SGD 1.43,
slightly renewing the low for the Singapore dollar for the first time in six years.
In the fifth week of September, there have been few market actions apart from those based on actual
demand, as the end of the quarter period is approaching. Under such a condition, the Singapore dollar
remains weak and the U.S. dollar/Singapore dollar exchange rate has been fluctuating within a narrow
range at the upper-SGD 1.42 level.
2. Outlook for This Month
The key factor in the Singapore dollar exchange market in October is an action taken by the Monetary
Authority of Singapore (MAS) to control the monetary market.
The MAS is expected to hold its regular meeting to review its monetary policy by around October 10,
and the monetary policy is likely to be shifted toward monetary easing. While prices remain stable, the
Chinese economy may slow down more than originally expected, which increases downward risks for
the Singapore economy along with the expected interest rate hike in the U.S., and recently announced
economic indices also show a slowdown in exports as well as industrial production.
The MAS manages its monetary policy not through a policy interest rate but through a policy band based
on the Singapore dollar nominal effective exchange rate (S$NEER). Currently, the MAS has been
leading the S$NEER gradually toward a stronger Singapore dollar. However, the MAS is expected to
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stop leading the S$NEER in this direction. It is considered that the actual S$NEER is supposed to be set
more toward a weaker Singapore dollar than the central figure in the policy band. As it is difficult to lead
the Singapore dollar to weaken significantly by changing the monetary policy, this method is unlikely to
lead to violent fluctuations that could cause too much confusion in the market. The MAS has already
slowed down its pace to lead the Singapore dollar to appreciate once in January this year, so this would
also be natural as the next move. If such a measure is taken, the depreciation of the Singapore dollar is
likely to be a moderate one, and the U.S. dollar/Singapore dollar exchange rate would approach SGD
1.45, at most. However, there are some market participants who expect other kinds of monetary
measures, such as a lowering of the central figure of the policy band, as was the case with the Chinese
yuan, or a temporary widening of the policy band, in order to allow the depreciation of the Singapore
dollar to accelerate, given that the depreciation of the Chinese yuan and Malaysian ringgit is faster than
that of the Singapore dollar. If such a measure is taken, the Singapore dollar may depreciate further, and
the U.S. dollar/Singapore dollar exchange rate may exceed SGD 1.45. However, if market participants
expect the Singapore dollar to depreciate significantly in the times ahead, this expectation may sharply
raise the swap offered rate (SOR), Singapore dollar inter-bank interest rate calculated based on the
Singapore dollar forward exchange rate and U.S. dollar interest rates. Along with concerns over
economic downturn, this would lead borrowing interest rates for companies and housing interest rates to
increase. Thus, the MAS is unlikely to take such radical measures as much as possible.
It is unlikely for the MAS to maintain the current speed in leading the Singapore dollar to appreciate
without changing the central figure or the width of the policy band. However, if it happens, the
Singapore dollar may rally and the U.S. dollar/Singapore dollar exchange rate may approach the SGD
1.38 level.
Other key factors for the Singapore exchange rate include the announcement of the preliminary figure of
the July–September quarter GDP of Singapore (scheduled for around October 10), the European Central
Bank Committee meeting (scheduled for October 22), and the FOMC meeting in the U.S. (scheduled for
October 27 and 28).
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Tomoko Yamaguchi, Bangkok Treasury Department
Thai Baht – October 2015
Expected Ranges
Against the US$:
Against the yen:
BT 35.30–37.00
JPY 3.18–3.43
1. Review of the Previous Month
The Thai baht appreciated, and the U.S. dollar/Thai baht exchange rate temporarily reached the THB
36.35 level.
The U.S. dollar/Thai baht exchange market opened trading in September at around THB 35.83. The
media reported that China would take measures to control speculative transactions and volatility, in
order to stabilize the Chinese yuan exchange market. In reaction to this, market participants bought back
Asian currencies. Following this trend, Thai baht-buying dominated the U.S. dollar/Thai baht exchange
market, and the exchange rate fell to temporarily reach the THB 35.60. However, the August consumer
confidence index turned out to be 72.3 (whereas the result was 73.4 in the previous month), recording
negative growth from the previous month for the eighth consecutive month since the beginning of the
year, also recording the lowest figure in 15 months. In reaction to this, the U.S. dollar/Thai baht
exchange rate rallied to approach THB 35.90. Thereafter, the employment statistics of the U.S. were
released with strong figures, as can be seen in the fact that the number of non-agricultural employees
was revised for the past two months with an additional 44,000, while the unemployment rate fell to 5.1%.
As a consequence, market participants expected an interest rate hike again, and the U.S. dollar/Thai baht
exchange rate rose to approach THB 36.
On September 7 after the weekend, the overall Asian currencies depreciated due to concerns over the
Chinese economy. Following this trend, the U.S. dollar/Thai baht exchange rate remained high and once
reached THB 36.26 on September 10. Thereafter, the Thai baht renewed its low for the first time since
March 2009. The exchange rate was thus adjusted and approached THB 36.00 again. There was no
influential factor thereafter, and market participants continued buying back the Thai baht as they did in
the previous week. As a result, the U.S. dollar/Thai baht exchange rate gradually fell to the THB 35.9
level on September 15 and to the THB 35.8 level on September 16. On September 17, the FOMC
decided to postpone the interest rate hike and released a dovish statement. In reaction to this, the U.S.
dollar/Thai baht exchange rate once fell to THB 35.49, the monthly low.
Thereafter, Thai baht-selling increased again toward the end of the month. Concerns grew over the debt
of a Thai steel manufacturer with financial difficulties, which led bank stocks in the SET Index to
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decline. Even though the central bank of Thailand released a comment that it would have no impact on
the banking system, the SET Index renewed its low for the first time in a week. As a result, the U.S.
dollar/Thai baht exchange rate recovered to the THB 36 level. Thereafter, the preliminary result of the
September manufacturing PMI of China was released on September 23, renewing its lowest figure in 6.5
years at 47.0. In reaction to this, the overall Asian currencies weakened with growing concerns over a
slowdown in global economic growth. Following this trend, Thai baht-selling also accelerated, and the
U.S. dollar/Thai baht exchange rate rose to THB 36.35 on September 24, reaching its monthly high.
2. Outlook for This Month
The U.S. dollar/Thai baht exchange rate is forecast to remain high.
The U.S. dollar/Thai baht exchange rate is forecast to remain high in October, with persistent concerns
over a slowdown of the Thai economy and in global economic growth, as well as expectations for an
interest rate hike in the U.S. According to the economic indices released in the previous month, August
exports amounted to USD 17.669 billion with a year-on-year decline of 6.69%, recording year-on-year
negative growth for eight consecutive months since the beginning of the year. Furthermore, the industrial
business sentiment index turned out to be 82.4, with a decline from 83.0—the previous month’s result.
In reaction to these outcomes, the central bank of Thailand revised its outlook for the Gross Domestic
Product (GDP) for this year downward from +3.0 to +2.7%, while revising the expected growth rate of
this year’s exports downward from –1.5% to –5.0%. It was the third time that the central bank lowered
its outlook for the GDP growth rate. The central bank of Thailand pointed out that a new economic team
was created at the end of August and that their economic measures would boost the GDP of Thailand.
However, it would take a long time for its effect to be visible. Therefore, Thai baht-buying based on
expectations for economic recovery is not likely to be seen for a while.
The terrorist bombing that occurred on August 17 in the central part of Bangkok also continues to be a
negative factor. On September 25, the police put out an arrest warrant for Adem Karadag, based on the
suspected murder. Thereafter, a spokesperson of the national police stated to the media that Adem
Karadag is the man in the yellow shirt (who is considered to be the perpetrator). Regarding the motive
for the bombing, the Thai national police chief, Somyot Poompanmuang, made a statement that the
possibility for a political motive could not be denied, suggesting that the bombing was related to the
domestic politics of Thailand. If political risks in Thailand grow, Thai baht-selling is likely to accelerate.
This issue is thus worth following in the times ahead.
With regard to China, there has been persistent concern over an economic slowdown, as has been
demonstrated by the declining figures in economic indices, even though the stock market regained its
stability. Therefore, market participants are likely to continue selling the currencies of the Asian
emerging countries that have a strong relationship with China. Furthermore, the timing for the interest
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rate hike in the U.S. also remains a key issue. At the press conference after the previous FOMC meeting,
FRB Chair Janet Yellen said that the FOMC would hold an irregular press conference after the release of
its statement if the interest rate was to be raised in October. This suggests that the interest rate could be
raised at any moment before the end of the year. Thus, it is important to closely follow the figures in the
economic indices announced in the times ahead as well as the remarks made by important officials. As
long as the interest rate is expected to be raised before the end of the year, the U.S. dollar/Thai baht
exchange rate is forecast to remain high.
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Akifumi Matsushita, Singapore Treasury Division
Malaysian Ringgit – October 2015
Expected Ranges
Against the US$:
Against the yen:
MYR 4.25–4.55
JPY 26.50–27.90
1. Review of the Previous Month
The U.S. dollar/Malaysian ringgit exchange market opened at the MYR 4.19 level on September 1. As
the crude oil price had rallied, market participants bought back the Malaysian ringgit at the beginning of
the month, and the Malaysian ringgit appreciated against the U.S. dollar to the MYR 4.14 level. On
September 2, the media reported that a ratings company mentioned a downgrading risk for Malaysia,
which encouraged market participants to sell the Malaysian ringgit, leading the U.S. dollar/Malaysian
ringgit exchange rate to the MYR 4.22 level. Thereafter, Malaysian ringgit-selling accelerated due to the
persistent uncertainty over the corruption of Prime Minister Najib Razak, and the Malaysian ringgit
continued depreciating against the U.S. dollar to the MYR 4.25 level. Then, the July trade balance of
Malaysia exceeded the level expected in the market with positive growth both in imports and exports.
However, the trend in the foreign exchange market was not reversed. In the end, trading closed at the
mid-MYR 4.25 level.
On September 7, the U.S. dollar/Malaysian ringgit exchange market opened at the MYR 4.26 level. At
the G20 Finance Minister and Central Bank Governors Meeting, the U.S. did not deny the possibility of
an early interest rate hike while sharing its view that the Chinese stock market bubble had burst. In
reaction to this, market participants actively sold the Malaysian ringgit, and the U.S. dollar/Malaysian
ringgit exchanged rate reached the upper-MYR 4.33 level. On September 10, economic indices were
released, encouraging market participants to continue selling the Malaysian ringgit, and the U.S.
dollar/Malaysian ringgit exchange rate reached the MYR 4.38 level. Thereafter, the Malaysian ringgit
was bought back as Chinese stock prices rallied. However, the Malaysian ringgit was bought back only
to a limited extent as the crude oil price remained low. In the end, trading closed at the upper-MYR 4.32
level to the U.S. dollar.
On September 14, the U.S. dollar/Malaysian ringgit exchange market opened at the MYR 4.30 level. A
Malaysian government fund indicated its plan to additionally invest in domestic stocks, which led
Malaysian stock prices to appreciate sharply. Following this trend, the U.S. dollar/Malaysian ringgit
exchange rate remained stable at the MYR 4.30 level. On September 16, the market was closed, as it was
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a national holiday in Malaysia. On September 17, after the holiday, the Malaysian ringgit appreciated
sharply against the U.S. dollar and the exchange rate reached the MYR 4.25 level, as the crude oil price
had gone up on the following day due to the decline in the expected oil production in the times ahead
and in the crude oil currently in stock. U.S. dollar-selling remained dominant thereafter because of the
outcome of the FOMC meeting in the U.S. Then, the U.S. dollar appreciated against the Malaysian
ringgit, and trading closed at the MYR 4.23 level.
In the second half of the month, the U.S. dollar/Malaysian ringgit exchange market opened at the
mid-MYR 4.20 level. U.S. newspapers reported that the FBI was investigating 1Malaysia
Development Berhad for suspected money laundering, leading the Malaysian ringgit to depreciate
sharply, On September 22, the amount of foreign currency reserves at the central bank was released
with an increase from the previous figure. However, Malaysian ringgit-selling did not slow down.
When the overall Asian currencies depreciated sharply because of the declining results of Chinese
economic indices, Malaysian ringgit-selling led the U.S. dollar/Malaysian ringgit exchange rate to the
MYR 4.35 level. Thereafter, FRB Chair Janet Yellen made a remark to suggest an interest rate hike
before the end of the year, encouraging market participants to buy the U.S. dollar. Following this
trend, the Malaysian ringgit renewed its low for the first time in 17 years. With capital outflow from
the bond market, the U.S. dollar/Malaysian ringgit exchange rate reached the mid-MYR 4.47 level.
2. Outlook for This Month
In September, the sharp depreciation of the Malaysian ringgit slowed down in the middle of the month,
after which the exchange rate remained at the same level without moving in any direction. However,
toward the second half of the month, the Malaysian ringgit was sold again.
With regard to the normalization of monetary policy in the U.S., the interest rate was not raised in
September. However, FRB Chair Janet Yellen has suggested the possibility of an interest rate hike in
October. Furthermore, the presidents of the multiple local Federal Reserve Banks mentioned reasons for
raising the interest rate before the end of the year. The U.S. dollar is thus expected to remain strong in
the times ahead. While concerns over an economic slowdown in China persist, the amount of foreign
currency reserves in Malaysia has been below the USD 100 billion mark, which indicates the growing
external fragility of the Malaysian ringgit.
In September, the Malaysian government announced special economic measures, such as the purchase of
stocks worth MYR 20 billion as well as the partial exemption of import tax for the manufacturing
industry, in order to protect the actual economy of Malaysia from the depreciation of the Malaysian
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ringgit, along with external factors such as the depreciation of the crude oil price. However, the
governmental debt of Malaysia has reached around 55% of the GDP, and this fiscal stimulus may trigger
an outflow of speculators’ funds because of their aversion to financial deterioration.
It should also be mentioned that, according to some sources, the authorities of the U.S., Switzerland,
Hong Kong, and Singapore have started investigating the accounting-related corruption of Prime
Minister Najib Razak. This growing political uncertainty has also been negatively impacting the
Malaysian ringgit exchange market.
From a short-term point of view, there can be some phases of Malaysian ringgit buyback when, for
example, the trend in the crude oil market is reversed. However, it is still difficult to expect active
buybacks, and therefore, the Malaysian ringgit is expected to continue depreciating in the coming month.
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Ryosuke Kawai, PT. Bank Mizuho Indonesia
Satoshi Koizumi, Asia & Oceania Division
Indonesian Rupiah – October 2015
Expected Ranges
Against the US$:
Against the yen:
IDR 14,500–15,000
IDR 119.00–126.00
JPY 0.79–0.84 (against IDR 100)
1. Review of the Previous Month
The Indonesian rupiah continued depreciating.
In September, the U.S. dollar/Indonesian rupiah exchange rate fluctuated within a range between IDR
14,070 and IDR 14,695. The Indonesian rupiah depreciated against the U.S. dollar. Then, the U.S.
dollar/Indonesian rupiah once approached IDR 14,700 (the depreciation of the Indonesian rupiah and the
appreciation of the U.S. dollar).
In September, the U.S. dollar/Indonesian rupiah exchange market opened trading at around IDR 14,070,
after which the exchange rate gradually rose (the Indonesian rupiah depreciated against the U.S. dollar).
On September 8, the August trade statistics of China were released with sluggish figures, while the
amount of foreign currency reserves of Indonesia as of the end of August recorded a decline of more
than USD 2 billion, compared to the figure recorded at the end of the previous month. Furthermore, the
economic policy package announced by the Indonesian government after the market closing on
September 9 did not have any detailed contents. Under such conditions, the Indonesian rupiah
depreciated against the U.S. dollar.
Furthermore, on September 22, the governor of the central bank of Indonesia, Agus Martowardojo,
decided to announce the exact figure of foreign currency reserves despite the fact it was the middle of
the month. (According to the governor, as of September 21, the foreign currency reserves declined by
approximately USD 2.3 billion compared to the figure recorded at the end of the previous month.) This
fueled concerns among overseas investors, accelerating the depreciation of the Indonesian rupiah.
Indonesian stock prices declined by approximately 6.3% compared to the end of August. The 10-year
government bond yield rose from the around 8.77% recorded at the beginning of the month to 9.60%
(the price declined). The Indonesian rupiah depreciated against the U.S. dollar by approximately 4.0%.
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Thus, Indonesia recorded a triple negative again in September.
2. Outlook for This Month
The Indonesian rupiah is expected to continue depreciating in October.
It is still difficult to say that the market sentiment about the Indonesian rupiah is positive, as can be seen
in the fact that the U.S. dollar/Indonesian rupiah NDF market has been at a level reflecting expectation
for the Indonesian rupiah to depreciate in the times ahead.
Even though it is not only Indonesia that suffers from external factors, such as the interest rate hike in the
U.S. as well as the economic slowdown in China, market participants seem to be particularly concerned
about Indonesia, as the country has not managed to announce its effective and detailed plan to deal with
the depreciation of the Indonesian rupiah.
In September 22, the governor of the central bank of Indonesia, Agus Martowardojo, decided to
announce the amount of foreign currency reserves. This may suggest that the measure to control the
depreciation of the Indonesian rupiah is limited to foreign exchange market interventions, and it is
important to keep an eye on the amount of foreign currency reserves in the times ahead.
In any case, neither the government nor the central bank of Indonesia has mentioned the target exchange
rate. Thus, it is possible that the Indonesian rupiah will continue to gradually depreciate with intermittent
foreign exchange market interventions.
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Mizuho Bank | Mizuho Dealer’s Eye
Yasunori Sugiyama, Manila Branch
Philippine Peso – October 2015
Expected Ranges
Against the US$:
Against the yen:
PHP 46.00–47.00
JPY 2.50–2.60
1. Review of the Previous Month
The U.S. dollar/Philippine peso exchange market opened trading at PHP 46.75 on Tuesday, September 1.
On the same day, the August manufacturing PMI of China was released, and the result turned out to be
worse than expected. This fueled risk-averse sentiment in the market, and therefore, the U.S. dollar was
bought against Asian currencies. However, the appreciation of the U.S. dollar/Philippine peso exchange
rate was limited. After reaching PHP 46.80 to the U.S. dollar on Wednesday, September 3, the U.S.
dollar/Philippine peso exchange rate did not move into any direction, hovering at around the PHP 46.70
level throughout the day. There was even less fluctuation in the market on Friday, September 4, as
market participants were waiting for the employment statistics to be released. In the end, trading closed
at PHP 46.73 to the U.S. dollar.
On Monday, September 7, the U.S. dollar/Philippine peso exchange market opened trading at PHP 46.95.
The August employment statistics of the U.S. had been released in the previous week on September 4,
suggesting a possibility for an interest rate hike in September. As a result, the overall Asian currencies
weakened against the U.S. at the beginning of the following week. However, there were some rumors
that the central bank of the Philippine would start intervening in the market by selling the U.S. dollar at
the PHP 46.95 level immediately after market opening. As a result, market participants grew skeptical
about the appreciation of the U.S. dollar, and as a result, the exchange rate did not rise further than the
opening rate. However, the August trade statistics of China were released on Tuesday, September 8, the
following day, with weak figures, leading the U.S. dollar/Philippine peso exchange rate to exceed the
PHP 47 mark, reaching PHP 47.04. However, there were again some rumors about market intervention
by the central bank, which reversed the trend in the market. On Wednesday, September 9, the following
day, the U.S. dollar depreciated against the Philippine dollar to PHP 46.78 due to the cautious attitude of
market participants toward intervention. In the evening of the same day, however, the employment
statistics of the U.S. were released, fueling once again expectations for an early interest rate hike. As a
consequence, the U.S. dollar/Philippine peso exchange rate rose to PHP 46.97 on Thursday, September
10. On Friday, September 11, the U.S. dollar/Philippine peso traded at the PHP 46.80 level.
On Monday, September 14, the U.S. dollar/Philippine peso exchange market opened trading at PHP
46.78. As it became less likely for the interest rate to be raised in the U.S. due to the economic
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slowdown in China as well as the depreciation of global stock prices, market participants bought back
Asian currencies. The overall Asian currencies were also strengthened by the fact that the general
election in Singapore was held over the weekend, with an overwhelming victory by the ruling party
without any confusion. The Philippine peso thus gradually appreciated on September 15 and 16. On
Thursday, September 17, the U.S. dollar/Philippine peso exchange rate reached PHP 46.43, as the
August CPI of the U.S. had turned out to be weak during the evening of the previous day. After the
FOMC meeting, the U.S. dollar appreciated to PHP 46.57 in the morning of Friday, September 18,
because of U.S. dollar short-covering. However, market participants sold the U.S. dollar thereafter, and
the U.S. dollar/Philippine peso exchange rate fell to PHP 46.40. In the end, trading closed for the week
at PHP 46.415.
On Monday, September 21, the U.S. dollar/Philippine peso exchange market opened at PHP 46.53. The
U.S. dollar remained strong against Asian currencies with uncertainty over a possible slowdown in the
global economy, as well as expectations for an interest rate hike in the U.S. The Philippine peso
depreciated to PHP 46.59 to the U.S. dollar on Tuesday, September 22, to PHP 46.83 on Wednesday,
September 23, and to PHP 46.97 on Thursday, September 24, after which the exchange rate fell to PHP
46.83 due to some adjustment in positions. Trading closed for the week at this level.
2. Outlook for This Month
In October, key factors include the economic conditions in China and expectations for an interest rate
hike in the U.S.
For the Philippines, China is the third-largest export destination after Japan and the U.S. However, the
export value for China accounted only for 4.5% of the total export value in the first half of 2015. This is
about half the export value for Japan and two thirds the export value for the U.S. With some territorial
issues in the background, it is difficult to say that the Philippines has a healthy business relationship with
China. Under such a condition, the trade volume between China and the Philippines has been rapidly
falling in recent years. It is thus unlikely that the economic conditions in China will directly impact the
Philippine economy. However, the impact of an economic slowdown in China on the global economy
would be significant, and if Japan and the U.S. are negatively impacted, the overall exports of the
Philippines would also be affected. At the moment, the decline in the exports to China has been
cancelled out by the increase in exports to Japan and the U.S. Thus, the overall export value has been
growing.
In order to predict the future of the Philippine economy, it is also important to follow the amount of
imports and OFW remittances, which lead to personal consumption, rather than the export amount.
On September 15, the July amount of OFW remittance was announced, and the result was USD 2.08
billion with year-on-year growth of 0.5%. The growth has slightly slowed. On the other hand, the July
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amount of imports recorded a high year-on-year growth rate, at 16%. Then, on September 5, the August
CPI was announced, and its year-on-year growth rate was 0.6%—the lowest rate since statistics were
recorded. As has been the case so far, OFW remittances have been leading personal consumption, and
the Philippines has been achieving a low inflation rate with a high growth rate.
Even though there is no specific reason for the Philippine peso to be sold in terms of the economic
conditions of the Philippines, pessimism regarding the overall Asian economy has been spreading in the
market due to the uncertainty surrounding the economic slowdown in China. As a result, market
participants are actively selling Asian currencies. Following this trend, the Philippine peso has also been
sold. However, the Philippine peso has not been weakened as much as other Asian currencies.
The depreciation of the Philippine peso can be a positive factor, as the peso value of OFW remittances
will be larger. On the other hand, it can also be a negative factor, as importing prices will also be higher.
At the moment, the CPI shows that the negative impact of the depreciation of the Philippine peso has
been well-managed. In order to control inflation, the central bank of the Philippines has been intervening
in the market by carefully selling the U.S. dollar when the Philippine peso depreciates.
Once the confusion in the market is cleared up, the Philippine peso is expected to start appreciating again
based on supply & demand balance. However, it is still unknown how the persistent uncertainty
connected to the Chinese economy will be mitigated in the times ahead. There are therefore risks for the
Philippine peso to depreciate against the U.S. dollar as a result of risk aversion in the market.
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Mizuho Bank | Mizuho Dealer’s Eye
Hiroaki Nakano, Singapore Treasury Division
India Rupee – October 2015
Expected Ranges
Against the US$:
Against the yen:
INR 64.50–67.50
JPY 1.77–1.87
1. Review of the Previous Month
In September, the U.S. dollar/India rupee exchange market opened trading at the mid-INR 66 level.
Even though the exchange rate once approached INR 67, the monthly high in August, market
participants bought the Indian rupee thereafter and the exchange rate slowly fell to the mid-INR 65 level.
There was no violent fluctuation throughout the month, and the U.S. dollar/Indian rupee exchange rate
has been hovering at around INR 66 without moving into any direction.
At the symposium held at Jackson Hole at the end of August, FRB Chair Janet Yellen did not deny the
possibility of an interest rate hike in September. As a result, market participants were encouraged to buy
the U.S. dollar at the end of August. Following this trend, the U.S. dollar/Indian rupee exchange market
opened trading at the mid-INR 66 level. On September 1, the August manufacturing PMI of China and
the August manufacturing PMI of India were announced with weak results. As a consequence, the India
rupee weakened slightly. However, thereafter, the August service industry PMI of India and the general
PMI turned out to be stronger than the previous month, while the media reported the remark made by the
Finance Minister of India Arun Jaitley regarding his principle not to apply the minimal alternative tax to
overseas investors retrospectively. As a result, market participants bought back the India rupee and the
U.S. dollar/India rupee exchange rate fell to approach INR 66.
However, India rupee buybacks did not last long. The currencies of emerging countries were sold as a
result of the depreciation of Asian stocks as well as the August employment statistics of the U.S., which
turned out to be strong—apart from the number of employees. On September 8, the U.S. dollar/India
rupee exchange rate rose to temporarily approach INR 67.
Thereafter, the U.S. dollar/India rupee exchange rate remained at the mid to upper-INR 66 level without
moving into any direction. Then, on September 14, the consumer price index and the wholesale price
index were released, and both fell below the previous month’s results, which hit a record low. Market
participants thus expected the India Reserve Bank to cut the interest rate, gradually encouraging India
rupee-buying. In the U.S. as well, it was now unlikely for the interest rate to be raised in September, as
the August consumer price index of the U.S. turned out to be negative. The FOMC indeed postponed its
decision to raise the interest rate at its meeting held on September 17. In reaction to this, market
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participants bought back the currencies of emerging countries, leading the U.S. dollar/India rupee
exchange rate to gradually fall. As a result, the exchange rate fell to the mid-INR 65 level on September
22.
However, the U.S. dollar/India rupee exchange rate started rising again thereafter, as FRB Chair Janet
Yellen made a comment that there is still the possibility of an interest rate hike in October, while the
September Caixin manufacturing PMI of China was released on September 23 with a
weaker-than-expected result, and stock prices depreciated globally due to a scandal surrounding a major
European popular automobile manufacturer. On September 24, the U.S. dollar/India rupee exchange rate
reached the lower-INR 66 level.
2. Outlook for This Month
The interest rate was not raised in the U.S. in September, and the U.S. dollar/India rupee exchange
market closed at a slightly lower rate than at the end of August. However, FRB Chair Janet Yellen
mentioned an interest rate hike before the end of the year, and therefore, the U.S. dollar remains likely to
appreciate in the times ahead. The India rupee is thus forecast to weaken.
With regard to the fundamentals of India, the inflation rate has renewed its all-time low. In reaction to
this, the RBI cut the interest rate by 0.50%, which was more than expected. Even though it is possible
for the RBI to cut the interest rate further, it is unlikely for the interest rate to be actively cut further
before the interest rate hike in the U.S.
In terms of the political background, reforms such as the introduction of the GST and the land
expropriation law have been slow and are unlikely to be completed for a while. It is thus likely for
capital inflow into India to slow down due to political concerns.
After being sold substantially in August, the India rupee is likely to appreciate temporarily, as
risk-averse sentiment weakens in the market. However, the appreciation of the India rupee is likely to be
limited, as the crude oil price is also likely to rally in such a situation. As a result, the fluctuation in the
India rupee exchange market is expected to be more moderate than that in the market of other emerging
currencies.
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Mizuho Bank | Mizuho Dealer’s Eye
This report was prepared based on economic data as of October 1, 2015.
This report is intended only to provide information and does not constitute an inducement to engage in any particular investment. This report
is based on information believed to be reliable, but Mizuho Bank, Ltd. (MHBK) does not warrant its accuracy or reliability. The contents of
this report may be subject to change without notice. Final investment decisions should be made based on your own judgment. Furthermore,
this report’s copyright belongs to MHBK and this report may not be cited or reproduced without the consent of MHBK, regardless of the
purpose.
This document is a translation of a Japanese original.
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