FX: US extends watchlist for currency manipulators
The US Treasury has refrained from labelling any country as a currency manipulator but China remains on the watchlist
USD: Watchlist for currency manipulators extended
In its long awaited semi-annual FX report (delayed from mid-April), the US Treasury refrained from labelling any country as a currency manipulator. Still, after a modest change to the criteria (current account surplus threshold criteria was reduced from 3% to 2%), nine countries are currently on the watch list. This includes China, which only meets one of the three criteria, but remains on the list due to its larger trade surplus with the US – clearly indicating no change in the US administration’s stance on the trade dispute with China. We expect a neutral effect on FX markets as the report didn’t deliver a material surprise. In Mexico, Banxico releases its Inflation Report today. It should confirm a more downbeat view on GDP. On inflation, data has been higher than expected in the previously-released forecast trajectory so the bank should continue to sound quite cautious in its characterisation of inflation. That said, our economists forecast two rate cuts later this year. Those cuts could lead to inflows into local debt, thus supporting the peso.
EUR: Still more downside vs the dollar
The euro weathered the European elections but the upside for EUR/USD remains limited. We continue to look for EUR/USD 1.10 in June with the current benign US dollar environment being a negative for the cross.
SEK: Fairly limited reasons to turn cheerful on SEK
Following the surprisingly strong 4Q18 GDP number, we expect Swedish growth to normalise, declining from 1.2% quarter-on-quarter in 4Q18 to 0.2% QoQ in 1Q19, with consumption remaining lacklustre and the decline in house prices taking a toll on real estate construction. With inflation below target, there is no urgency for the Riksbank to normalise (still negative) policy rates any time soon. As for the Swedish krone, we see the recent correction in EUR/SEK lower as temporary and driven by positioning. We continue to pencil in more upside to the cross given the risk of a further escalation in US-China trade tensions and possible eurozone auto tariffs, limiting the attractiveness of the low yielding but high beta SEK.
CAD: BoC meeting likely a positive
The Bank of Canada is widely expected to keep rates on hold today, with the market likely focusing on the central bank’s forward-looking language. We expect a broadly constructive tone on the economic outlook, mainly on the back of easing trade tensions with the US and a generally resilient labour market. In turn, investors may be prompted to scale back rate cut expectations, which would ultimately keep CAD supported on the day. Accordingly, USD/CAD could pare recent gains and retrace to the 1.3440 area.
"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).