Foreign Exchange Update

EUR 
Concerns over a Brexit spillover has subsided as Brexit is increasingly being seen as an isolated UK event. However, a negative impact is still expected.  The EU's current account surplus continues to provide support for the single currency.  Key themes are rate path, further easing and their impact on the 2017 Elections in Germany and France.  The main political risk before year end is in Italy with additional downside risk if more EU countries call for referendums.

fx-eur-august-2016

GBP 
While there is still much uncertainty surrounding the ultimate impact of Brexit, data measuring economic sentiment and performance in the UK post Brexit has been negative.  This confirms concerns of a Brexit GDP drag and concerns on sources of financing for the UK's significant current account deficit.  Both of these factors should pressure the GBP.  Expectations for stimulus at the BoE's August meeting are high.

fx-gbp-august-2016

CAD 
Despite the Bank of Canada's latest forecasts being less pessimistic than expected, we still continue to favor CAD weakness.  While there should be limited direct impact from the Brexit vote, concerns about near term growth should keep the BoC on hold for the rest of the year.  In the short term, CAD direction is likely to be driven by oil and USD sentiment.

fx-cad-august-2016

JPY 
The yen remains one of the currencies most positively correlated to risk aversion.  Over the last 2 months, the yen has been the most volatile G10 currency.  In the short term, yen movement seems driven by market opinion of fiscal and monetary policy, illustrated by the yen's strengthening based off disappointment with the BoJ's decision last Friday.  Beyond the short term, JPY strengthening pressures should persist through 2016 due to macro conditions.

fx-jpy-august-2016

AUD 
Concerns about global growth and the possibility-currently at ~67%--of more easing should weigh on the AUD.  Recent comments from the RBA suggests that low inflation may spur a cut, so the recent softer CPI will be a point of focus at its August meeting.  A deceleration in household spending coupled with "modest", to quote the RBA, employment growth are headwinds for the AUD.

fx-aud-august-2016
 
 

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of City National Bank as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make an independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate fluctuations, political and economic risks, and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.