1258

FX Strategy
ING’s view on the major bullish and Chris Turner

Head of Foreign Exchange Strategy
bearish currency themes Tom Levinson

Foreign Exchange Strategy
14 August 2009
USD vs majors (1 Jan 06 = 100)
The dollar has been showing more resilience to the rally in 130 130
EUR
risk assets. We believe this to be part of the bottoming 120 JPY 120
process. Dollar stability is the best to be hoped for into 110 GBP 110
year end, before a cyclical dollar rally unfolds in 1H10 100 100
90 90
80 (USD 80
ING FX forecasts stronger)
70 70
EUR/USD USD/JPY EUR/GBP Jan06 Jan07 Jan08 Jan09
1 mth 1.40 Ð 97.0 Ï 0.84 Ð

Source: EcoWin
3 mth 1.39 Ð 98.0 Ï 0.82 Ð
6 mth 1.35 Ð 103.0 Ï 0.80 Ð
CE3 vs EUR (1 Jan 06 = 100)
12 mth 1.28 Ð 112.0 Ï 0.76 Ð
130 C ZK 130
EUR/CHF AUD/USD EUR/HUF
120 H UF 120
1 mth 8.60 Î 1.08 Î 4.30 Ï
PLN
3 mth 8.50 Ð 1.14 Ï 4.10 Ð 110 110
6 mth 8.30 Ð 1.20 Ï 3.75 Ð
100 100
12 mth 8.10 Ð 1.30 Ï 3.60 Ð
90 90
EUR/RON USD/RUB USD/CNY
weaker
80 80
1 mth 32.5 Ï 1.85 Ï 6.83 Î EMEA
3 mth 34.0 Ï 1.90 Ï 6.82 Ð 70 70
6 mth 36.0 Ï 1.95 Ï 6.80 Ð Jan06 Jan07 Jan08 Jan09
12 mth 42.4 Ï 2.00 Ï 6.73 Ð
Source: EcoWin
Source: ING
FX performance USD vs other EM (1 Jan 06 = 100)
EUR/USD EUR/JPY GBP/USD EUR/CHF EUR/NOK USD/CAD MXN CNY

150 KRW RUB 150
INR
MoM (%) +1.5 +3.3 +1.6 -7.0 +6.4 -5.3
YoY (%) -4.9 -12.3 -11.9 +9.4 -4.6 +2.5 130 130
stronger
EUR/CZK USD/ZAR USD/TRY USD/BRL USD/CNY USD/INR USD
110 110
MoM (%) -5.2 -2.4 -3.4 -7.0 0.0 -5.3
YoY (%) +25.7 +13.4 +25.8 +14.1 -0.3 +19.9 90 90
Source: ING, EcoWin
70 70
Jan06 Jan07 Jan08 Jan09
Source: EcoWin
This publication has already been published under the ING Bank Wholesale Banking brand
FX talkING – August 2009
EUR/USD Current spot: 1.4290

• While the dollar has yet to show any signs of strength, at
Dollar starting to show more resilience
least it has been able to withstand July’s 15% rise in the
1.65 1.65 S&P 500. We believe this is an important part of the
bottoming process. In particular the resumption of more
1.55 1.55
normal financial conditions should now start to see the dollar
Mkt Fwds
1.45 1.45
responding more positively to better US economic data.
• The cyclical dollar rally we expect may not come through
1.35 1.35
more forcefully until 1H10. After all, the Fed looks like it will
1.25 1.25 maintain its wording of keeping rates low for an extended
ING f'cas t period at its September and November meetings. And two
1.15 1.15 year US yields may not start to push up to 2.00% until early
Jan06 Jul06 Jan 07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10
next year – ahead of Fed tightening next summer.
Source: Bloomberg, ING • In the Eurozone, huge excess capacity and core inflation
under 1% should see the ECB in no hurry to raise rates.
_
ING forecasts (mkt fwd) 1 mth: 1.40 (1.427) 3 mth: 1.38 (1.427) 6 mth: 1.35 (1.427) 12 mth: 1.28 (1.427)
Chris Turner (London)

_
USD/JPY Current spot: 95.4

• Japan goes to the polls August 30th for lower house
New government to weigh on the JPY?
parliamentary elections. The ruling LDP look set to lose
130 130 power to the DPJ, yet a DPJ win requires a large 8-9%
swing in voting. The risk of small working majorities for
120 120
either the DPJ or surprisingly the LDP looks a worry. Both
ING f'cast
110 110 have courted the popular vote and plan to spend, which will
raise questions over Japan’s debt sustainability given a 9%
100 100 budget deficit and 180% debt to GDP ratio.
90 90 • In addition to debt concerns, Japan’s macro position looks
Mkt Fwds poor. High inventory levels and very weak profit growth
80 80 suggests activity will be slow to recover.
Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10
• USD/JPY should be a prime beneficiary of the cyclical dollar
Source: Bloomberg, ING rally we see developing over the next 6-12 months.
_

_
GBP/USD Current spot: 1.66

• Leading indicators for UK activity have turned the corner
Bank of England prefers a weaker GBP
and point to a rebound in GDP growth towards 2% into early
2.20 2.20 2010. That may overstate the bounce, and certainly the BoE
is less optimistic than the market, yet better UK activity data
2.00 2.00
should support market expectations of tightening in 1H10.
1.80 ING f'cast 1.80
That should continue the normalisation of GBP back
towards pre-crisis levels.
1.60
Mkt Fwds
1.60
• Also supporting GBP has been strong new equity issuance
1.40 1.40 as UK-listed corporates take advantage of market conditions
to re-capitalise.
1.20 1.20
• Our flat GBP/USD profile is around long term fair value and
suggests both GBP and the USD recover as tightening
Source: Bloomberg, ING cycles approach next summer.

EUR/JPY Current spot: 136.3

• The surprise expansions in both the German and French
Risks skewed to upside
economies in 2Q09 leave the risk to our EUR/JPY forecast
170 170 profile skewed to the upside for two reasons. The first is that
this contributes to the view of a synchronised global
150 ING f'cas t 150 expansion which is good for the carry trade. The second is
that it shows the Eurozone performing relatively well in spite
130 130 of a strong EUR.
Mkt Fwd s • At the same time, we believe there is a good leading
110 110 relationship between the Fed Funds rate and volatility. The
sharp reduction in Fed Funds 2007/2008 should lead
90 90 market volatility down through 2010, improving risk adjusted
returns and generally weighing on the JPY.
Source: Bloomberg, ING • A sustained move above 139 warns sizable EUR/JPY
strength comes earlier than we envisage.
_

_
EUR/GBP Current spot: 0.862

• EUR/GBP continues to correct lower and we believe it will
Continued normalisation of GBP
ultimately trade down to the 0.75/78 levels next summer
1.00 1.00 once the MPC starts its tightening cycle. Typically, UK
0.95 0.95 cycles have far larger amplitudes than those in the
0.90 0.90
Eurozone and by end 2010, UK policy rates could be 125bp
Mkt Fwds
above those in the Eurozone versus 50bp below today.
0.85 0.85
0.80 0.80 • Risks to GBP remain in the form of the UK fiscal position,
ING f'cast
with a S&P ratings downgrade still hanging over the UK
0.75 0.75
after a warning in May. Yet GBP is still some 20% weaker
0.70 0.70
than year ago levels and is supporting spending on UK-
0.65 0.65
produced goods, both at home and abroad.
• 0.87/0.88 are probably the best levels to be hoped for over
Source: Bloomberg, ING coming quarters before the bear trend resumes.

_
EUR/CHF Current spot: 1.528

• Latest data shows Swiss FX reserves rising a staggering a
Floor confirmed at 1.50
US$24bn in June. While this probably overstates the
1.70 1.70 amount of physical FX intervention the SNB undertook, it
1.65 1.65 does serve as a reminder that the SNB has no interest in
EUR/CHF trading under 1.50. And based on exports to
USD-centric destinations, the SNB will do its best to limit
1.55 1.55 USD/CHF weakness to 1.06.
1.50 1.50 • Despite improved prospects for the Eurozone, the KOF
Mk t Fwds institute is forecasting a 0.6% contraction for Switzerland in
1.45 1.45
2010. Despite the SNB acknowledging current headline
1.40 1.40 inflation is primarily oil-related, excess capacity and the risk
Jan06 Jul06 Jan07 Jul 07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10
of deflation should keep the SNB dovish.
Source: Bloomberg, ING • Improving risk sentiment could see EUR/CHF exiting the
1.50-1.54 trading range to the upside before year end.
_

EUR/NOK Current spot: 8.64

• Interest rates in Norway appear to have based at 1.25%. In
Norges Bank signals hike are on the way
fact, on 12 Aug Norges Bank indicated that it ‘may be
10.50 10.50 appropriate to increase interest rates earlier than projected’.
10.00 10.00 This is a reference to a previous forecast for a first hike not
to come before 2Q10. Key now will be the new Monetary
9.50 9.50
Policy Report due in October.
9.00 Mkt Fwds 9.00 • An election on 14 Sept should see the ruling Labour-led
8.50 8.50 coalition win, but it is unclear if it will retain its majority. The
government is on track to spend 5.7% of Norway’s oil fund
8.00 8.00
ING f' ca st
this year vs. the usual spending rule of 4%.
7.50 7.50
Jan06 Jul 06 Jan07 Jul07 J an08 Jul08 Jan09 Jul09 Jan10 Jul10
• EUR/NOK has tracked EUR/SEK’s recent sharp decline. A
correction in equities, steady oil prices near US$70/bbl and
Source: Bloomberg, ING credible Norges Bank rate hike prospects could see our
profitable short NOK/SEK trade lose momentum.
_
Tom Levinson (London)

_
EUR/SEK Current spot: 10.23

• EUR/SEK has posted a dramatic 8% decline over the past
Correction from extreme undervaluation
month. SEK’s outperformance of higher yielding, usually
12.00 12.00 more risk sensitive currencies is noticeable. This comes
11.50 11.50 despite the Riksbank’s pledge to hold rates at just 0.25%
until Autumn 2010. This though marks dissention within its
11.00 Mkt 11.00
Fwds ranks with more optimistic members backed by three
10.50 10.50
months of strong rises in the Economic Tendency Survey.
10.00 10.00
• Recent S&P downgrades to Estonia and Latvia serve as
9.50 9.50
reminders of Baltic exposure, as do ongoing strains within
Latvia’s coalition government. Any Baltic devaluation would
8.50 8.50 see Swedish banks suffer a surge in loan defaults.
Jan06 Jul 06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10
• EUR/SEK’s correction lower marks an improvement from
Source: Bloomberg, ING extreme undervaluation. SEK remains cheap, but we expect
gains from here to be more of a challenge.
_

_
EUR/ISK Current spot: 220.0

• Sedlabanki held interest rates at 12% on 13 Aug as it
Capital controls to be lifted soon
prepares to begin lifting ISK capital controls in the ‘next few
months’. Having cut rates some 600bp the central bank
400 400
believes ISK stability is its core aim and that cutting rates
300 300
further risks weakening the crown still further. In terms of
capital controls, restrictions on long-term foreign holdings
200 200
will be the first to be lifted.
• Iceland submitted an application for EU membership on 17
100 ING f'cast 100 July. If approved the government plans a referendum.
Issues surrounding the Icesave Bill to repay English and
0 0 Dutch savers mean a slight delay to a next IMF tranche.
• ISK liquidity remains very low, but a successful, gradual
Source: Bloomberg, ING lifting of capital controls can see EUR/ISK ease lower.
_
ING forecasts (mkt fwd) 1 mth: 215.0 3 mth: 210.0 6 mth: 200.0 12 mth: 160.0

USD/CAD Current spot: 1.089

• USD/CAD’s decline below 1.07, its lowest level since Oct
Verbal intervention to do the trick?
2008, prompted Canada’s FinMin to comment that he is
1.50 1.50 ‘concerned with rapid’ CAD appreciation and that ‘there are
some steps that could be taken’. The remarks have
contributed to USD/CAD’s sharp bounce and follow BoC
1.30 1.30 Governor Carney’s 23 July warning that CAD strength is an
1.20 1.20 ’important brake’ on the pace of growth. The BoC has not
1.10 1.10
intervened in FX markets since 1998.
Mk t Fwds
• 2Q GDP due 31 Aug is important for the BoC’s pledge to
1.00 1.00
hold rates at 0.25% until end 2Q10. It assumes growth of -
0.90 0.90 1.3%QoQ and a return to growth in 3Q09. Canada should
Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Ju l10
benefit disproportionately from a US recovery but auto
Source: Bloomberg, ING sector restructuring is a long-term issue.
• CAD declines come as a welcome relief to the BoC. USD
gains and oil capped at US$73/bbl can see CAD fall.
_
AUD/USD Current spot: 0.841

• As expected the RBA moved from an easing to a neutral
RBA set to hike first
policy bias at its 4 Aug meeting, underlining the RBA as the
1.00 1.00 central bank likely to hike first. Futures price at least 50bp of
hikes by year-end. From an already high rate of 3% this
0.90 Mk t Fw ds 0.90
would increase the AUD’s yield advantage.
0.80 0.80 • Strong Chinese data bodes well, with China Australia’s
largest export market. The current climate is now labelled a
0.70 0.70
ING f'cast ‘downturn’ rather than ‘recession’. A stronger AUD is
0.60 0.60 expected to help keep inflation under wraps.
• Most of the AUD’s appreciation has occurred in offshore
0.50 0.50
trading, consistent with a still high correlation with US equity
markets and general risk appetite. AUD/USD has failed to
Source: Bloomberg, ING breach September’s 0.85 high and the RBA’s strategic
purchasing of FX may limit AUD upside.
_

_
NZD/USD Current spot: 0.679

• The RBNZ believes that the strength of the NZD is putting
NZD strength putting the recovery at risk
any economic recovery at risk and has suggested it will cut
0.90 0.90 interest rates should NZD continue to outperform. We doubt
this will occur and expect little change in terms of rhetoric
0.80 0.80
from the RBNZ on 10 Sept.
Mkt Fwds
0.70 0.70 • Terms-of-trade fell in 4Q08 and 1Q09. A similar outcome for
2Q (9 Sept) would highlight that NZ has not enjoyed the
0.60 0.60
same upswing in fortunes as other commodity producers
IN G f'cas t given its soft commodity exposure. Exports contribute one
0.50 0.50
third of GDP and therefore NZD moves are of added
0.40 0.40 importance in the policy-making process.
• NZD trade-weighted is more than 10% stronger than
Source: Bloomberg, ING assumed in the RBNZ’s June forecasts. NZD/USD looks
expensive up at current valuations.
_

_
Emerging
_
EUR/PLN Current spot: 4.13

• EMU and ERM entry has been put on hold, mostly due to
EMU entry delayed until 2013 earliest
budget deficit woes. EMU entry is now seen in 2013 at the
5.0 5.0 earliest, or at least a year’s delay from the 2012 target set by
the government in September last year. Yet this news has
4.5 Mkt Fw ds 4.5 had no negative influence on the PLN whatsoever.
• A weak zloty in 1H09 resulted in a relatively painless and
4.0 4.0 quick transition from a 5.8% of GDP current a/c deficit to five
straight months of surplus since February. Strongly positive
3.5 ING f'cas t 3.5 net exports are proof of the zloty’s potential, which is ready
to take advantage of any improvement in Eurozone demand
3.0 3.0 or credit markets, i.e. positive 2Q EU16 GDP.
• With a positive outlook LT, short term risks are confined to
Source: Bloomberg, ING any global risk aversion and equity correction episodes.
_
Mateusz Szczurek(Warsaw)
_
EUR/HUF Current spot: 269.4

• With global equity gains extending, positive sentiment has
NBH cuts to cap potential HUF gains
also returned to EM currencies. CE FX markets are now
340 340 particularly supported by a surprising positive 2Q09 GDP
320 320 reading from Germany - a crucial trade partner.
300
Mkt Fwds
300
• Flash 2Q09 GDP showed a 7.6%YoY contraction. NBH
surprised with a deeper than expected interest rate cut
280 280 (100bp) in July with more expected by the end of the year,
260 260 including 50bp priced for 24 August. We expect NBH to use
ING f'cast better market sentiment as an opportunity to cut rates,
240 240
leaving EUR/HUF broadly stable. This would suggest HUF
220 220 underperforms regional peers like PLN and CZK.
Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Ja n1 0 Jul10
• Near-term an equity correction remains the main external
Source: Bloomberg, ING risk. Work on the 2010 budget is a key domestic problem.
Agata Urbańska (London)

_
EUR/CZK Current spot: 25.7

• The CNB has cut interest rates 25bp to 1.25% and forecasts
Bullish outlook on CZK in light of export recovery
a gradual decline of market short-term interest rates (3M
30 30 PRIBOR) until 1Q10 and a temporarily negative rate
29 29 differential vs. the Eurozone. CNB does not expect this to
28 Mkt 28 trigger currency depreciation.
• Exports and industrial output enjoyed an unforeseen bounce
27 Fwds 27
26 26 in June, likely attributable to rising foreign demand (mainly
25 25 Germany). While the export-side is improving, domestic
24 ING f 'cast 24 retail sales continue to weaken.
23 23
• Rising new industrial non-resident orders signal more FX
22 22
hedging activity by exporters can be expected over the
medium-term, supporting gradual CZK appreciation toward,
Source: Bloomberg, ING or even below, the levels of 25/EUR.
Vojtech Benda (Prague)

EUR/RON Current spot: 4.21

• The local currency continues to trade in a very tight range
NBR behind RON stability
against a backdrop of thin liquidity. The NBR is probably
5.0 5.0 behind the current EUR/RON stability and could intervene in
ING f'c ast the FX market if required given that the NBR governor re-
4.5 4.5 affirmed a commitment to keep low FX volatility.
• The NBR cut the key rate by another 50bp to 8.5% on 4
4.0 Mkt 4.0
Fwds
August in line with our view. We look for a last cut of 50bp at
the 29 September policy meeting.
3.5 3.5
• Besides further sharp deterioration in fundamentals due to a
worsening recession and IMF expecting a budget deficit of
3.0 3.0
7.3% of GDP, we see a weaker than previous medium-term
RON outlook after the decision to use money from the IMF
Source: Bloomberg, ING to finance the budget gap.
Nicolaie Alexandru-Chidesciuc (Bucharest)
EUR/HRK Current spot: 7.31

• HNB has pledged cautious monetary policy but expectations
HNB expected to boost kuna liquidity
are building for it to lower reserve requirements and boost
7.60 7.60 kuna liquidity. This carries a risk of kuna trading on the soft
7.50 7.50
side.
7.40 7.40
• EU accession talks are still on hold over the border dispute
with Slovenia, making it more likely than not that EU entry
7.30 7.30
will be delayed beyond 2011. Public support for EU
7.20 7.20 accession has been on a decline in the past few months on
ING f'cast the back of this issue and it currently stands at just under
7.10 7.10
50%.
7.00 7.00
• We see little direction for HRK in the coming 12 months.
Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Ju l09 Jan10 Jul10
EUR/HRK is likely to oscillate around the 7.30 level with a
Source: Bloomberg, ING slight downward preference over the longer-term.
_
EUR/RSD Current spot: 93.4

• The first IMF programme review is due at the end of this
EUR/RSD likely to hover around the 95 level
month. Serbia wants to revise its budget deficit target higher
100.0 100.0 and be able to use some of the IMF money for budget
financing. The IMF has agreed on this in Hungary and
95.0 95.0
Romania and a positive decision in Serbia can also be
90.0 90.0 anticipated. Still, insufficient fiscal tightening remains a risk
ING f'cast factor for the IMF programme for the reminder of this year.
85.0 85.0
• The EC continues to send positive signals to Serbia and an
80.0 80.0 opening of membership negotiations by the end of 2010
cannot be ruled out. This would be very positive for the FDI
75.0 75.0 outlook. Such a development would be more RSD positive
than we have in our base case scenario.
Source: Bloomberg, ING • We see EUR/RSD holding in the 90-95 range.
_

USD/RUB Current spot: 31.7

• The rouble has weakened beyond 38 vs. the basket despite
RUB weakens despite high oil price
the fact that Brent oil has held above US$70/bbl. August is
45
ING f'cast
45 traditionally a bad month for RUB due to scant liquidity - we
see no fundamental reason for current RUB weakness and
40 40
expect it should continue to trade within 36-41/basket until
35 35 the end of 2009. This assumes that the price of Brent does
not fall below $40/bbl.
• Within this range RUB may be volatile; potential oil price
30 Mk t NDFs 30
25 25 pressures on RUB are amplified by a massive RUB liquidity

injection during 2H09.
• We expect CBR to defend the upper bound of RUB
20 20
Jan06 Jul06 Jan07 Jul07 J an08 Jul08 Jan09 Jul 09 Jan10 Jul10
41/basket until end-2009 but would not be surprised if a
Source: Bloomberg, ING devaluation were to occur in early 2010 if the oil price drops
and the economy remains very weak.
_
Tatiana Orlova (Moscow)
USD/UAH Current spot: 8.34

• It would seem the NBU has allowed hryvnia to depreciate
The NBU starts devaluation early
earlier than the market consensus expected. However
12.0 12.0 current FX volatility still lacks fundamental factors and is
Mkt NDF based on the panic mood prevailing in the cash market and
10.0 10.0 expectations of hryvnia depreciation in the near future.
• The IMF granted another tranche of its loan to Ukraine in
8.0 8.0
early August, raising NBU FX reserves and strengthening
ING f'cas t
NBU’s ability to support hryvnia in the short-term period
6.0 6.0
• The risk of further hryvnia devaluation into the year-end is
still high on the back of stronger imports and still high
4.0 4.0
external debt repayments. The approach of presidential
Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul 10
elections will also stimulate demand for foreign currency on
Source: Bloomberg, ING the back of upcoming uncertainty during the pre-election
period.
_
Alexander Pecherytsyn (Kiev)
USD/KZT Current spot: 150.8

• The central bank governor is adamant that the currency will
KZT is supported by strong FDI outlook
not be devalued this year. Two facts make this a realistic
170.0 170.0 proposition.
Mkt NDF • Most important is the default by two of the largest banks,
which greatly reduces external debt repayments. NBK is to
150.0 150.0
defend the current +/-3% band around USD/KZT150 as
ING f'cast further devaluation would exacerbate banking sector
130.0 130.0 problems. The second is the recovery in oil prices, which
should limit the deterioration of the current account to a
deficit of 6% of GDP or less. This should be outweighed by
110.0 110.0 net FDI inflows worth 10% of GDP.
• Unless oil plunges below US$50/bbl the threat of KZT
Source: Bloomberg, ING devaluation appears low; even if it does the authorities
would rather spend some FX reserves than let KZT fall.
_
Tatiana Orlova (Moscow)

USD/TRY Current spot: 1.48

• Despite our view that TRY’s strengthening potential in a
ST risks in a weaker global setup look higher
global environment with rising risk appetite looks significant,
1.90 1.90 the risk is that pressure on the TRY might increase into
October.
1.70
ING f'cast
1.70 • After a calm summer with low financing requirement, the
real sector will service US$6.7bn of long term external debt
1.50 1.50 in September and October. So without a solid positive
Mkt Fwds
development on the long awaited IMF issue by mid-
1.30 1.30 September, reserve depletion is likely to accelerate.
Moreover, the CBT is likely to deliver 100bp more rate cuts
1.10 1.10 in August and September.
Jan06 Jul06 Jan07 Jul07 Ja n08 Jul08 Jan09 Jul09 Jan10 Jul10
• On the positive side, CBT started daily FX buying auctions
Source: Bloomberg, ING on 4 August. With rising foreign portfolio inflows, FX
reserves stand at about US$68.3bn as of 10 August.
_
Sengül Dağdeviren (Istanbul)
USD/ZAR Current spot: 8.02

• After re-testing 7.70 support mid July, USD/ZAR has
Profit taking to settle further, but tentatively
entered a profit-taking phase into mid August, and support is
11.5 11.5 being found below 8.00.
10.5 10.5 • We still consider the rand expensive at current levels relative
ING f'cas t
to political noise (face-off with trade-unions on wages
9.5 9.5
negotiations is a further test of the government), a relatively
8.5 8.5 weak external position and downside risks to growth
7.5 7.5 (manufacturing sector lagging the global turnaround). And
Mkt Fwds
the ZAR is starting to show some noticeable under-
6.5 6.5
performance of high yielders, e.g. BRL.
5.5 5.5
• But short-term, prospects of the Bharti Airtel/MTN deal could
limit the USD/ZAR upswing to the 8.30 barrier.
Source: Bloomberg, ING
_
Dorothee Gasser-Châteauvieux (London)
_
USD/ILS Current spot: 3.79

• The BoI intervened heavily in early August to prevent
BoI turns less predictable
USD/ILS from falling below the 3.75 level. But in a
4.80 4.80 persistently weak USD context, the BoI decided to halt its
4.50 4.50
costly forex purchase programme shortly after – sending
ING f'cast
USD/ILS back to the 3.80-3.85 range.
4.20 4.20
• Critically however, the BoI remains committed to preventing
3.90 3.90 “exceptional” movements in the currency: it is turning to less
3.60 Mkt Fwds 3.60 predictable and in our opinion more efficient FX
intervention..
3.30 3.30
• While we see the USD soft patch persisting in the short-term
3.00 3.00
but reversing through 4Q09, we would view USDILS levels
below 3.80 as a buying opportunity. USD/ILS upside should
Source: Bloomberg, ING however be contained mid-term to the 4.20-4.30 range
owing to a robust external position.
_
Dorothee Gasser-Châteauvieux (London)
USD/BRL Current spot: 1.83

• Despite a moderate foreign exchange inflow (US$1.3bn,
Sideways for a while
while the CB purchased US$2.2bn), the BRL has tested
2.6 2.6 1.80 and is one of the best performers of the last month, on
2.4 2.4 the back of surging commodities prices. This notable
outperformance suggests further appreciation depends on
2.2 2.2
ING f'c ast another major wave of improving risk appetite, which
2.0 2.0 appears unlikely at this juncture.
1.8 1.8 • On a technical side, foreign investors are no longer
Mk t NDFs
1.6 1.6
increasing short positions in USD/BRL, limiting the room for
further strengthening.
1.4 1.4
Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Ju l10 • On the other hand, a BRL correction seems unlikely, as long
as commodities continue rising, against a backdrop of the
Source: Bloomberg, ING domestic outlook on track. The CB should keep interest
rates on hold at 8.75% for a prolonged period, while growth
prospects continue improving.
_
Zeina Latif (São Paulo)

_
USD/MXN Current spot: 12.87

• MXN has benefited from the improvement in equity markets,
MXN not yet firmly anchored below $13.0/USD
the fall in the VIX and the stabilization of the Mexican oil
16.5 16.5 blend around USD60/bbl.
15.5 15.5 • Unless there is convincing evidence of a V-shaped recovery
14.5 ING f'cast 14.5 in the US economy or surprising peso positive news, our
13.5 13.5 perception is that the MXN will struggle to keep trading
12.5 12.5
south of 13.0/USD. We believe that the Exchange
Mkt Fwds Commission would suspend the daily USD auctions. This
11.5 11.5
decision could become effective on 8 September.
10.5 10.5
• We maintain our year-end forecast at 13.90/USD. The peso
9.5 9.5
continues to exhibit high volatility and typically weakens in
Jan06 Jul06 Ja n07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10
autumn.
Source: Bloomberg, ING
Salvador Moreno (Mexico City)
USD/CNY Current spot: 6.8333

• The PBOC maintained its daily USD/CNY fixings in the
Baby-steps PBOC tightening
6.83-6.84 range that has been in place since the Lehman
8.40 8.40 panic broke in Sep-08. We expect the stable fixings to
persist until the authorities are confident that the GDP is on
8.00 8.00
track for 8% growth this year (ING 8.3%).
7.60 7.60 • GDP growth accelerated to 7.9% in 2Q from 6.1% in 1Q.
Financial policies have successfully offset the export crash
7.20 7.20
by stimulating domestic demand. The massive rise in new
NDFs
6.80 6.80 bank loans has kindled the overheating talk.
ING f'cast • The PBOC employed baby-steps tightening since July by
6.40 6.40
pushing 3M bill rates higher. We expect this to continue,
culminating in a first policy rate hike in 1Q10. We forecast a
Source: Bloomberg, Reuters, ING modest CNY appreciation over the next year.
_
ING forecasts (NDF) 1 mth: 6.8330 (6.8343) 3 mth: 6.8200 (6.8323) 6 mth: 6.8000 (6.8235) 12 mth: 6.7300 (6.8028)
Prakash Sakpal (Singapore)

USD/INR Current spot: 48.22
Positive INR medium term • Exports dipped by 27.7% in June. The fall in imports was
larger at 29.3% led by a 60% YoY fall in oil imports. The
52.0 52.0 sharper fall in imports in Q1 2009-10 is evident in the trade
Mkt N D F deficit number which has shrunk from USD 26 bn in Q1
50.0 50.0
FY09 to USD 14 bn in Q1 FY10. This bodes well with our
48.0 48.0
view of a 25% drop in trade deficit for FY10
46.0 46.0
44.0 44.0 • Volatility in FII flows continued. Though USD strength may
42.0
ING f'cast
42.0
continue to exert upward pressure on the currency pair in
the near-term, outlook on FII flows remains positive with a
40.0 40.0
spurt in QIP and IPO issues. We expect BoP to return to
38.0 38.0
Jan06 Jul06 Jan07 Jul07 J an08 Jul08 Jan09 Jul09 Jan10 Jul10
surplus in FY10
• At the same time, we do not expect excessive flows in the
Source: Bloomberg, Reuters, ING
near-term, as negative returns on majority of QIPs offered in
2009 will likely limit risk appetite
Deepali Bhargava (Mumbai)
USD/KRW Current spot: 1235.0

• An uninterrupted net foreign buying of Korean shares since
Moving with global risk appetites
mid-July drove USD/KRW to a 10-month low of 1218 in
1600 1600 early August. We think trading has moved to a lower range
1500 1500 of 1200-1250 from earlier 1230-1280 range.
1400 1400 • The economy is experiencing a V-shape recovery and this is
1300 NDFs 1300 the primary source of appreciation pressure on won. The
1200 1200 preliminary estimate put 2Q GDP growth at 2.3% QoQ SA.,
1100 ING f'cast 1100 up from 0.1% growth in 1Q.
1000 1000
• USD/KRW is moving with global risk appetites, which we
900 900
expect will increase as activity data continues to drive
800 800
upward revisions to growth forecasts. We expect the BOK’s
[c] USD/KRW buying to replenish FX reserves to support
Source: Bloomberg, Reuters, ING the pair above 1200 to year end.
_
USD/SGD Current spot: 1.4413

• Consistent with the MAS’s zero appreciation path for the
Slave to DXY
SGD-NEER USD/SGD has been slavishly tracking DXY.
1.70 1.70 We estimate SGD-NEER about 1% stronger than mid-point
1.65 1.65 of the MAS policy band.
1.60 1.60 • As widely expected the economy staged a strong rebound
1.55 1.55 in 2Q09 with 20.7% QoQ SAAR GDP growth. The pharma-
1.50 Fwds 1.50 driven surge in the manufacturing was the main driver even
1.45 1.45 as export recovery lagged that in the most of the other
1.40 ING f'cast 1.40 regional economies.
1.35 1.35
• Singapore is experiencing technical deflation from crash in
1.30 1.30
commodity prices in 2H08. We forecast it ending in 4Q09
but we don’t see inflation forcing a change from the MAS’s
Source: Bloomberg, Reuters, ING zero appreciation path for the SGD-NEER this year.
_
ING forecasts (FWD) 1 mth: 1.4334 (1.4440) 3 mth: 1.4331 (1.4444) 6 mth: 1.4325 (1.4446) 12 mth: 1.4300 (1.4447)

Disclaimer
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for this purpose ING Groep NV and its subsidiary and affiliated companies). It is not
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FX Strategy

ING’s view on the major bullish and Chris Turner

bearish currency themes Tom Levinson

USD vs majors (1 Jan 06 = 100)

1 mth 1.40 Ð 97.0 Ï 0.84 Ð

FX performance USD vs other EM (1 Jan 06 = 100)

EUR/USD EUR/JPY GBP/USD EUR/CHF EUR/NOK USD/CAD MXN CNY

EUR/USD Current spot: 1.4290

Chris Turner (London)

USD/JPY Current spot: 95.4

Chris Turner (London)

GBP/USD Current spot: 1.66

Chris Turner (London)

EUR/JPY Current spot: 136.3

Chris Turner (London)

EUR/GBP Current spot: 0.862

Chris Turner (London)

EUR/CHF Current spot: 1.528

Chris Turner (London)

EUR/NOK Current spot: 8.64

Tom Levinson (London)

EUR/SEK Current spot: 10.23

Tom Levinson (London)

EUR/ISK Current spot: 220.0

Tom Levinson (London)

USD/CAD Current spot: 1.089

Tom Levinson (London)

AUD/USD Current spot: 0.841

Tom Levinson (London)

NZD/USD Current spot: 0.679

Tom Levinson (London)

EUR/PLN Current spot: 4.13

EUR/HUF Current spot: 269.4

Agata Urbańska (London)

EUR/CZK Current spot: 25.7

Vojtech Benda (Prague)

EUR/RON Current spot: 4.21

Nicolaie Alexandru-Chidesciuc (Bucharest)

EUR/HRK Current spot: 7.31

Agata Urbańska (London)

EUR/RSD Current spot: 93.4

Agata Urbańska (London)

USD/RUB Current spot: 31.7

25 25 pressures on RUB are amplified by a massive RUB liquidity

Tatiana Orlova (Moscow)

USD/UAH Current spot: 8.34

Alexander Pecherytsyn (Kiev)

USD/KZT Current spot: 150.8

Tatiana Orlova (Moscow)

USD/TRY Current spot: 1.48

Sengül Dağdeviren (Istanbul)

USD/ZAR Current spot: 8.02

USD/ILS Current spot: 3.79

USD/BRL Current spot: 1.83

Zeina Latif (São Paulo)

USD/MXN Current spot: 12.87

Salvador Moreno (Mexico City)

USD/CNY Current spot: 6.8333

Prakash Sakpal (Singapore)

USD/INR Current spot: 48.22

Deepali Bhargava (Mumbai)

USD/KRW Current spot: 1235.0

Prakash Sakpal (Singapore)