Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Currency war wikipedia , lookup
Currency War of 2009–11 wikipedia , lookup
Foreign exchange market wikipedia , lookup
Bretton Woods system wikipedia , lookup
International status and usage of the euro wikipedia , lookup
Purchasing power parity wikipedia , lookup
Fixed exchange-rate system wikipedia , lookup
Reserve currency wikipedia , lookup
International monetary systems wikipedia , lookup
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 October 1, 2015 1 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 2 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 3 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 4 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 5 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 6 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 7 Mizuho Bank | Mizuho Dealer’s Eye whole are also likely to be regarded as a euro-selling factor. October 1, 2015 8 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 9 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-$1.51 mark (the pound’s downside has been supported at this level since May this year). If the pair clearly breaches this level, the pound/yen pair may also grow close to breaking 180 yen and this could invite some technical pound selling (such as stop-loss selling). The first factor to watch out for in October is the result of the October BOE Monetary Policy Committee (MPC) meeting, set for release on Thursday, October 8. It seems certain the MPC will keep policy rates and the ceiling of the asset purchasing program unchanged, but there may be more than one vote in favor of a rate hike this time, so caution will be needed. UK economic indicators requiring attention include price-related indicators such as the September CPI data (released Tuesday, October 1, 2015 10 Mizuho Bank | Mizuho Dealer’s Eye October 13) and the June–August average wages data (Wednesday, October 14), together with the preliminary GDP results for July–September (Tuesday, October 27). Market participants should also keep an eye on the September PMIs released at the start of the month (Manufacturing on Thursday, October 1, Construction on Friday, October 2 and Services on Monday, October 5) as well as the August manufacturing and industrial production figures (Wednesday, October 7), the August trade balance (Friday, October 9), and the September retail sales data (Thursday, October 22). Furthermore, with the FRB bent on lifting interest rates at some point, market participants should also focus on external factors such as the U.S. employment data for September (Friday, October 2) and the release of the results of the FOMC meeting (Wednesday, October 28) in order to gauge which direction the FRB is heading in. October 1, 2015 11 Mizuho Bank | Mizuho Dealer’s Eye Miki Yamaguchi, Sydney Branch Australian Dollar – October 2015 Expected Ranges Against the US$: 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. October 1, 2015 12 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 13 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 14 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$1.3313. October 1, 2015 15 Mizuho Bank | Mizuho Dealer’s Eye 2. Outlook for This Month: Though capital investment in the Canadian commodities sector is stalling, it seems to be approaching bottom. With the U.S. economy moving bullishly, there is a sense that other non-commodity sectors could soon see growth. Canadian exports grew by 2.3% in July, with automobiles and other non-energy exports (a sector watched closely by the Bank of Canada) also growing. The Canadian jobs data also beat expectations, with the number of full-time jobs growing sharply. Depending on how crude oil prices moves, the slump in commodity-sector capital investment could drag on for a while, so it is too early to conclusively say there will be no more rate cuts. However, even if the Bank of Canada does make such a move, with the policy rate already at 0.5%, there is only so much room for further cuts. Furthermore, with interest rates moving at low levels, household debt remains high on an increase in mortgages, so the Bank of Canada will soon be faced with a difficult choice. Based on Canada’s fundamentals, it seems the Canadian dollar’s price will soon bottom out, but the Canadian unit’s movements are strongly correlated with those of risk indicators, so amid ongoing concerns about the direction of the global economy, market participants will probably find it hard to actively buy the unit. October 1, 2015 16 Mizuho Bank | Mizuho Dealer’s Eye Shimon Yoshida, Seoul Treasury Department Korean Won – October 2015 Expected Ranges Against the US$: 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 17 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 18 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 October 1, 2015 19 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 20 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 October 1, 2015 21 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 22 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 23 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 October 1, 2015 24 Mizuho Bank | Mizuho Dealer’s Eye requirement ratio. October 1, 2015 25 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 26 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 27 Mizuho Bank | Mizuho Dealer’s Eye 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). October 1, 2015 28 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 29 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 30 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 31 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 32 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 33 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 34 Mizuho Bank | Mizuho Dealer’s Eye 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%. October 1, 2015 35 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 36 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 October 1, 2015 37 Mizuho Bank | Mizuho Dealer’s Eye 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 October 1, 2015 38 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 39 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 October 1, 2015 40 Mizuho Bank | Mizuho Dealer’s Eye 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. October 1, 2015 41 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. October 1, 2015 42