Mizuho Dealer s EyeMizuho Bank | Mizuho Dealer’s Eye May 2, 2016 2 policy unchanged at its MPC meeting. This led to a flurry of disappointed selling, with the currency pair dropping

Mizuho Dealer’s Eye May 2016

U.S. Dollar ................................................................... 1 Euro ............................................................................. 5 British Pound .............................................................. 9 Australian Dollar ..................................................... 12 Canadian Dollar ....................................................... 14 Korean Won ............................................................. 16

ew Taiwan Dollar .................................................. 18 Hong Kong Dollar .................................................... 21

Chinese Yuan ............................................................ 23 Singapore Dollar ...................................................... 25 Thai Baht ................................................................... 28 Malaysian Ringgit .................................................... 31 Indonesian Rupiah ................................................... 34 Philippine Peso ......................................................... 36 India Rupee ............................................................... 39

Mizuho Bank, Ltd.

Forex Department

Mizuho Bank | Mizuho Dealer’s Eye

May 2, 2016 1

Yuuka Omi, Forex Sales, Forex Department

U.S. Dollar – May 2016 Expected Ranges Against the yen: JPY103.50–109.50

1. Review of the Previous Month The dollar/yen pair fell at the start of April to renew a low for this fiscal year. It rallied for a time over

the latter half of the month on expectations for easing by the Bank of Japan (BOJ), but it slipped back

at the month’s end when the BOJ decided to leave monetary policy unchanged at its Monetary Policy

Committee (MPC) meeting.

The dollar was sold late March and this trend spilled over into April, with the currency pair also

weakening on yen buying. The U.S. employment data for March was then released. Though the

nonfarm payrolls data beat expectations, the unemployment rate also rose, so the impact on the pair

was muted. Risk sentiments then deteriorated as the Nikkei Stock Average and crude oil prices both

fell. Yen buying accelerated on Tuesday, April 5 after Japanese Prime Minister Shinzo Abe

commented that “we must definitely avoid competitive devaluation.” All this saw the currency pair

dropping below 110 yen. The minutes to the FOMC meeting were released on Wednesday, April 6.

They contained worries that inflation could fall further, with members also voicing opposition to

another rate hike in April. As a result, the dollar continued to be sold and the pair fell further to hit

107.63 yen on Monday, April 11, a low for this fiscal year. A number of high-ranking Japanese

government officials made verbal interventions to curb the yen’s rise during this time, but these had

little impact on the markets and the trend of dollar selling and yen buying continued unabated.

With crude oil prices moving stably mid-April, dollar selling eased off, so the dollar/yen pair hit

bottom and rebounded. Risk sentiments improved on Sunday, April 17 as crude oil bounced back to

$40/barrel on expectations that the looming meeting of oil producing nations in Doha would result in

an agreement not to increase output. Stock markets also rallied and the trend of dollar selling eased off

further, with the currency pair temporarily jumping back to 109.74 yen. In the end, the Doha meeting

failed to reach any agreement, so on the following day (Monday, April 18) the pair dropped back to

107.75 during Sydney trading time. However, with crude oil prices moving stably around $40, the

scale of this slide was capped.

The pair rose over the latter half of April on expectations for further BOJ easing, though it dropped

back on a sense of disappointment at the month’s end. With a round of dollar selling coming to an end

on the stable movements of crude oil, the currency pair bounced back from lows to regain the 109 yen

mark on Tuesday, April 19. On Friday, April 22, a party involved in BOJ negotiations commented that

the bank was considering offering negative loan rates to financial institutions. The dollar/yen pair

soared to the 110 yen range on this news before renewing a high of 111.81 yen during overseas trading

time. It remained at this level on Wednesday, April 27 after the FOMC meeting failed to produce any

new factors. At the end of the month, on Thursday, April 28, the BOJ decided to leave monetary


May 2, 2016 2

policy unchanged at its MPC meeting. This led to a flurry of disappointed selling, with the currency

pair dropping back sharply to hit the 107 yen mark.

2. Outlook for This Month: In May the dollar/yen pair is expected to continue trending downward on an unwinding of the Dollar

Index.

The pair has fallen by over ten yen since the start of the year on this unwinding. The backdrop to

this trend is a flurry of position adjustments now that it seems the normalization of monetary policy in

the U.S. is going to occur at a slower pace and a lower level than originally envisaged. As the FOMC’s

April 27 statement also suggests, the FRB is likely to stick to its low interest rate policy from here on.

Furthermore, though Japan has implemented a series of measures as part of its multi-pronged policy of

quantitative/qualitative easing and negative interest rates, this has not yet succeeded in pushing prices

higher. As such, the Dollar Index is likely to continue dropping back on an unwinding of the monetary

policies that were pursed until last year, with yen selling pressure also continuing to ease off.

Meanwhile, crude oil prices hit bottom and began rallying entering the new fiscal year, with crude

oil now moving in negative correlation with the Dollar Index. On April 12, a diplomatic source was

reported as saying that Russia and Saudi Arabia had reached a consensus on freezing oil output.

Indeed, even though the Doha meeting of oil-producing nations on April 17 failed to agree on a freeze,

crude oil prices continued to move stably around $40/barrel thereafter. It seemed highly likely that the

Doha meeting had reached a consensus on stabilizing prices, so crude oil prices began rising again

toward the end of the month. The markets may have confirmed that oil prices have bottomed out, so

the Dollar Index might drop back this month as investors unwind their crude oil futures short

positions.

As the phrase ‘sell in May’ suggests, May is an anomalous month when stock markets are prone to

falling. There will be no monetary policy meetings in the U.S., Europe or Japan, so there is likely to be

a dearth of news on the monetary policy front this month, with the theme of the markets unlikely to

change. However, if May’s anomalous nature sees risk aversion intensifying on stock market declines,

this could spur on the Dollar Index’s slide, which has been ongoing since the turn of the year. With

crude oil prices also rallying, the dollar/yen pair could well hit renew its 2016 lows in May.


May 2, 2016 3

Dealers' Market Forecast

(Note: These opinions do not necessarily agree with the other contents of this report.)

Bullish on the dollar (4 bulls: 106.00–117.00, Core: 106.00–113.00)

Fujisaki

106.00

–

112.00

Yen-buying demand is likely to fall off due to seasonal factors. Amid growing expectations that the BOJ will

introduce further easing at the June MPC meeting, market participants are expected to try pushing the

dollar/yen pair back in the direction of yen bearishness. The pair will also be supported by: hearty demand in

Japan for direct investment and purchases of foreign securities; and anticipation about fiscal policy in Japan in

advance of several political events.

Kato

106.00

–

117.00

Japanese monetary policy is encouraging businesses to prefer foreign currencies to the holding of yen cash.

This applies not only to financial corporations but to industrial corporations too. Under these circumstances,

the yen is expected to face more selling pressure as time goes by. However, any sharp yen depreciation might

be judged harshly by other countries as a cheap-yen policy, so market participants should also be wary when it

comes to attempts on the pair’s topside.

Yano

106.00

–

112.00

A glance at U.S. monetary policy reveals growing speculation that rate hikes will be pushed back as market

sentiments decline. On the other hand, though the BOJ decided not to implement further easing in April, it is

likely this was just a postponement. Though the dollar/yen pair is likely to move with a mixture of bullishness

and bearishness, institutional investors are expected to buy foreign bonds when the pair hits lows, so the dollar

will probably edge up in May.

Nishitani

106.00

–

114.00

Though the April BOJ MPC meeting surprised the markets by maintaining the status quo, this move could

also be seen as the BOJ keeping its options open for a later date. Crude oil prices have rallied sharply and U.S.

stocks also continue to move at all-time highs. Depending on the economic data from here on, expectations

for U.S. rate hikes could flare up again, so the dollar/yen pair is likely to trend higher at a gentle pace this

month.

Bearish on the dollar (7 bears: 102.00–111.00, Core: 104.00–110.00)

Yamashita

104.00

–

111.00

The BOJ’s April decision not to ease further was seen as evidence that the banks’s hands were tied before the

G7 summit. The U.S. also voiced fierce criticisms about competitive devaluations at the G20 meeting. The

U.S. will also find it hard to implement further rate hikes at this moment in time. As a result, the trend of

dollar bearishness and yen bullishness looks set to continue.

Takada

104.00

–

110.00

Though the dollar/yen pair fluctuated wildly last month on speculation about BOJ monetary policy, the main

theme remains U.S. rate hikes. The pair will search for a sense of direction in U.S. economic indicators and

statements by important figures. If the U.S. posts some bearish indicators, risk sentiments will worsen the

currency pair will have its downside tested.

Sato

103.00

–

110.00

The BOJ decided to keep monetary policy fixed at its MPC meeting last month. The markets were strongly

expecting some more easing, so the situation became ripe for some disappointed yen buying. With the FOMC

downgrading its economic forecast slightly, there is also a risk that expectations for an FRB rate hike will

gradually drop off, with investors subsequently testing the dollar/yen pair’s low for the year.

Nishijima

104.00

–

111.00

With the BOJ decision not to ease further, speculators are unlikely to launch a yen-selling offensive in the

near future. With the markets also focusing on the FRB’s dovish stance, it remains difficult to expect any

active dollar buying. Though composure is returning to crude oil movements, the markets will move

erratically on uncertainty about the elimination of excess supplies. The yen might grow stronger as stocks

slide on ‘sell-in-May’ sentiments, so caution will be needed.

Omi

103.50

–

109.50

The Dollar Index will drop back in inverse correlation to rallying crude oil prices, so the dollar/yen pair is

expected to fall in May. Amid a dearth of news on the monetary policy front, the main theme of the markets is

unlikely to change. May is an anomalous month when markets fall, though, so if this does happen, the

dollar/yen pair may end up renewing its low for the year.

Shimoyama 102.00 The BOJ’s MPC decided not to implement further easing in April. Perhaps it senses it is running out of cards


May 2, 2016 4

–

109.00

to play and only has limited room to ease further. Furthermore, the U.S. included Japan in the ‘Monitoring

List’ of its Report on International Economic and Exchange Rate Policies, so a currency market intervention is

also unlikely. Expectations for U.S. rates also remain subdued, so when the dollar/yen pair hits highs, there

will probably be some strong appetite for yen buying with an eye on the in-house rates of Japanese exporters

(set for release from here on).

Moriya

104.00

–

111.00

The dollar/yen pair rallied for a time late April on speculation about BOJ easing, but in the end the BOJ opted

to keep policy unchanged. The FOMC’s statement last month failed to raise expectations for an early U.S. rate

hike, so even if the U.S. posts some bullish economic indicators, any dollar buying will probably be capped

and the pair’s level will probably edge lower this month.


May 2, 2016 5

Takeshi Hashi, Forex Sales, Forex Department

Euro – May 2016 Expected Ranges Against the US$: US$1.1200–1.1700

Against the yen: JPY118.00–126.00

1. Review of the Previous Month Though the euro/dollar pair renewed a high for the year in April, its movements were limited.

It moved firmly early April. It rose to $1.1438 on April 1 as the European Manufacturing PMI for

March topped market expectations. It then fell to the lower-$1.13 mark on the results of the U.S.

employment data for March. It traded at the mid-$1.13 mark on April 4, even after a comment from

ECB executive board member Peter Praet that the ECB was prepared to ease further if necessary. The

pair fluctuated gently over April 5 before dropping to $1.1327 on April 6 after the Greek debt problem

flared up again. It rose to $1.1454 on April 7 amid dollar selling, though it then fell to the mid-$1.13

level after the minutes to the March ECB Governing Council meeting revealed that members had

discussed even wider rate cuts. The pair closed the week trading right around $1.14 on April 8 amid a

dearth of any noteworthy factors.

It then renewed a yearly high mid-April. It dropped below $1.14 on April 11 as the euro/pound pair

plummeted, though it then rallied to the $1.14 mark. It hit a high for the year of $1.1465 on April 12

amid dollar selling, though it subsequently fell to the lower-$1.13 level as risk appetite increased on

reports that Russia and Saudi Arabia had reached an agreement on freezing crude oil output. China’s

March trade balance was released on April 13, with the export data beating market forecasts. As

European stocks moved firmly, dollar buying accelerated and the currency pair weakened to the

upper-$1.12 mark.

It fell to $1.1234 on April 14 on the bearish movements of the euro/yen pair, but it then rose to the

upper-$1.12 level as the greenback was sold on comments by Atlanta FRB President Dennis P.

Lockhart. With the U.S. posting some weak economic indicators on April 15, the pair closed the week

trading at $1.1281. A meeting of oil-producing nations failed to reach an agreement to freeze output on

April 17, so the pair opened the week on April 18 trading without a sense of direction right around

$1.13. It moved at the upper-$1.13 level on April 19 as U.S. and European stocks rallied.

The currency pair moved firmly late April. European interest rates rose on April 20 when the

German Economy Minister commented on the limits of ECB policy, with the pair subsequently rising

to the upper-$1.13 level. It then soared to $1.1399 on April 21 after the ECB Governing Council

decided to keep monetary policy unchanged. In his press conference, though, ECB President Mario

Draghi struck a dovish stance, saying that interest rates might “remain at present or lower levels for an

extended period of time,” with the pair sliding to the upper-$1.12 mark as a result. It closed the week

trading at the lower-$1.12 level on April 22 after a German PMI for April came in below expectations.


May 2, 2016 6

This trend continued on April 25, with the pair hitting a monthly low of $1.1216. However, the dollar

was then sold on the week results of the U.S. Housing Starts data for March, so the pair strengthened

to the upper-$1.12 range. It was adjusted down to the upper-$1.12 mark on April 26 in advance of the

FOMC meeting. With U.S. interest rates rising on April 27 in the wake of the FOMC meeting, the pair

dropped to the upper-$1.12 level, though it then hit $1.1363 on dollar selling. The Bank of Japan’s

Monetary Policy Committee decided to keep policy fixed when it met on April 28. As a result, the

euro/yen pair crashed from the 126 yen mark to the 123 yen range, though the impact on the

euro/dollar pair was muted and it moved at the mid-$1.13 level. At the end of the month, it rose to

$1.1455 on April 29 on the better-than-expected result of the European GDP data for March.

2. Outlook for This Month: The dollar/yen pair is expected to trade in a range without a sense of direction in May.

The pair renewed a high for the year in April, but it only fluctuated by around 250p throughout the

month and it moved without a sense of direction on the whole. As for why the pair’s movements have

cooled off, one reason seems to be a decline in excessive expectations for euro depreciation. The

markets have largely accepted that U.S. rate hikes are going to occur at a slower pace, for example,

while speculators have also substantially scaled back their euro short positions. The monetary policies

of U.S. and Europe have also played a role. They seemed to be moving in opposite directions at the

start of the year, with the U.S. set to continue lifting rates and Europe set to implement further easing.

However, an image is now being formed that ‘the FRB wants to lift rates at a gradual pace’ and ‘the

ECB is struggling with the limited effectiveness of further easing.’ As a result, it is growing harder to

discern a sense of direction for the pair based on the monetary policy stances of the U.S. and Europe.

The U.S., Europe and Japan all left monetary policy unchanged in April, but monetary policy in these

countries is likely remain the center of attention from May onwards. The ECB Governing Council kept

policy fixed when it met in April. This was the first time in six months that a meeting had ended

calmly. However, the Council did decide on a June start date for the corporate sector purchase

programme (CSPP) it announced in March. From here on, the ECB will probably sit back and monitor

the impact of its new easing measures. In the U.S., meanwhile, the FOMC shifted its rate hike policy

in a more gradual direction when it met in March, with rates now likely to rise only a couple of times

in fiscal 2016. Given the current weakness of U.S. economic indicators, though, there is still

uncertainty about the pace of rate hikes from here on. As for Japan, though expectations for easing had

risen to excessive levels, the Bank of Japan’s Monetary Policy Committee left policy unchanged when

it met in April, with the dollar/yen pair subsequently crashing to renew yearly lows at the end of April.

Uncertainty about BOJ monetary policy is likely to pervade the markets from here on. As such, it

remains difficult to predict where the monetary policies of the U.S., Europe and Japan will go from

here. When it comes to economic indicators, meanwhile, the eurozone has now enjoyed continuous

growth for three years, dating back to the second quarter of 2013, while the unemployment rate also

improved to 10.2% in March, its lowest level in around four-and-a-half years. Inflation remains


May 2, 2016 7

subdued, though, with the March European CPI data (month-on-month) falling far short of the ECB’s

2% target. Furthermore, in Germany, the engine of Europe’s economy, business sentiments

unexpectedly worsened in April. As a result, there are still strong concerns about the future. There is

also political risk. There is likely to be stormy negotiations about whether Greece is making enough

progress with reforms to warrant financial support. Greece is facing a large repayment in July, so if an

extraordinary meeting of finance ministers fails to reach an agreement on May 9, there is a risk the

Greek crisis could flare up again. Europe faces several other risk factors, too, including the June 23

UK referendum on whether to leave the EU. With the U.S., Europe and Japan not scheduled to make

any monetary policy announcements, May will be marked by a lack of any major events. However, the

single currency is likely to swing to and fro on economic indicators, so the euro/dollar pair is expected

to trade in a range without a sense of direction this month.


May 2, 2016 8

Dealers' Market Forecast

(Note: These opinions do not necessarily agree with the other contents of this report.)

Bullish on the euro (8 bulls: 1.1000–1.1600, Core: 1.1100–1.1700)

Fujisaki

1.1000

–

1.1700

Judging from the discordant agendas of each eurozone nation, it seems there will be limits to how far the euro

will slide on ECB monetary policy. Speculative euro shorts have accumulated to colossal levels, but they are

likely to be unwound on real-demand transactions. Amid concerns about a UK exit from the EU, though, the

euro’s topside will probably be capped.

Yano

1.1000

–

1.1600

The ECB is expected to keep monetary policy fixed for the time being. The euro will also be boosted by a decline

in U.S. economic sentiments and growing skepticism about U.S. rate hikes. If speculation about a UK exit from

the EU grows, though, the euro/dollar pair’s topside will grow gradually heavier.

Takada

1.1000

–

1.1700

With the ECB taking a break from further easing, the euro is likely to move firmly as the U.S. tightens monetary

policy at a slower pace. The euro will probably be sold on Brexit concerns, but neither side of the debate is likely

to score a decisive win before the referendum, so the single currency’s room on the downside will be capped.

Sato

1.1200

–

1.1700

The FOMC has slightly lowered its economic outlook, so expectations for U.S. rate hikes will probably ease off

gradually from here on. In the eurozone, the ECB is now at the stage of monitoring the impact of its new easing

policies. As such, it is unlikely to move hastily to ease further. The euro is expected to move firmly on Europe’s

huge current account surplus.

Nishijima

1.1200

–

1.1700

The FRB’s dovish stance will continue to keep a lid on the dollar’s topside, while the ECB’s room for further

easing is limited, so the euro/dollar pair is likely to edge upwards. With President Obama also warning about a

UK exit from the EU, concerns about such a move are likely to ease off and this will also support the euro on the

downside. However, the single currency will continue to be buffeted by Brexit news, so caution will be needed.

Omi

1.1100

–

1.1700

The euro/dollar pair will continue to face appreciatory pressure. As expectations for an early FRB rate hike drop

off, investors are unwinding their dollar long positions, so it is hard to imagine the euro/dollar pair falling this

month. It is noteworthy whether crude oil prices which have been rallying since the end of last month could also

lead to dollar selling and euro buying.

Shimoyam

a

1.1200

–

1.1900

It seems the ECB has called a halt to monetary easing for now, so the euro is unlikely to fall further. Furthermore,

judging from the FOMC’s April statement and a speech by FRB Chair Janet Yellen in March, it seems the FRB is

still moving cautiously when it comes to lifting rates, so dollar selling may intensify in May. With speculators

also moving to cover their euro shorts, the euro/dollar pair will probably trend upwards this month.

Moriya

1.1100

–

1.1700

It will take time before expectations for further ECB easing swell up again, while the FOMC continued to adopt a

cautious stance towards rate hikes at its meeting last month. Euro short positions remain piled up, but they

originally accumulated on the back of the divergent monetary policies of the U.S. and Europe, so they will

probably see some unwinding from here on. As a result, the euro/dollar pair expected to trend higher in May.

Bearish on the euro (3 bears: 1.0600–1.1500, Core: 1.0700–1.1500)

Kato

1.0700

–

1.1500

Speculation about a Brexit may ease off going forward, with the pound bought back and the euro also pulled

higher. However, there remains disharmony within the eurozone, so the euro is expected to remain bearish on the

whole.

Yamashita

1.0600

–

1.1400

The referendum debate about a UK exit from the EU is on a knife-edge at the moment and the outlook remains

uncertain. The euro will probably be dragged down by pound bearishness. Expectations for further ECB easing

have dropped off, but with the inflation rate moving at low levels, these expectations will probably flare up again.

Nishitani

1.0900

–

1.1500

Though it depends on economic data released from here on, the dollar may grow stronger this month on swelling

expectations about U.S. rate hikes. Furthermore, though the ECB seems to have taken a break from monetary

easing, the eurozone faces a number of risks, including concerns of a Brexit, so the euro is expected to trend

lower in May.


May 2, 2016 9

Hidetoshi Honda, Europe Treasury Department

British Pound – May 2016 Expected Ranges Against the US$: US$1.4300–1.4950


1. Review of the Previous Month The pound weakened in April before bouncing back. The early bearishness was due in large part to the

April 3 release of the Panama Papers, which revealed that Prime Minister David Cameron’s late father

had set up an offshore trust in Panama. Cameron is one of the leaders of the stay camp in the debate

about the June referendum on UK membership of the EU, so there were concerns the pro-EU faction

take a hit if Cameron lost the trust of the British public. Sterling also weakened across the board as the

pound/yen pair plummeted on yen bullishness. The yen’s strength during this time was prompted by a

comment by Japanese Prime Minister Shinzo Abe on April 5 reported by a U.S. newspaper that “we

must definitely avoid competitive devaluation,” with expectations for yen-selling interventions by the

Japanese authorities subsequently falling off sharply. On April 6, the dollar/yen pair plunged down to

107.67 yen, its lowest point since October 2014, with the pound/yen pair following suit by falling to

151.66 yen on April 7, its lowest price since August 2013. The pound/dollar pair also fell to a

five-week low of $1.4006 on April 6, though after standing still at lows for a time, sterling then

embarked on a comprehensive rise. The pound’s comeback began on April 11 when Mr. Cameron

released his tax receipts from the past six years. It also turned out that the troublesome Panamanian

trust fund was also registered in the UK market, thus suggesting it was not used for tax evasion.

The UK CPI data for March was released on April 12. At +0.5 year-on-year, the figure was up on

market expectations for a rise in the region of +0.4% y-o-y. Core CPI in particular shot up to +1.5%

y-o-y (from +1.2% y-o-y in February). This was an extremely interesting result when it came to

gauging the direction of Bank of England (BoE) monetary policy. However, sterling actually moved

bearishly. With the results of the BoE’s Monetary Policy Committee (MPC) meeting set for release on

April 14, the pound fell on rumors that some members had voted for an interest rate cut. In the end,

though, the MPC reached a unanimous 9 to 0 decision to keep the base rate and the ceiling of its asset

purchasing program unchanged. The pound’s reactive climb was muted, though, and it continued to

move bearishly until April 15.

However, sterling made clear gains from April 18 onwards as the pound/yen pair jumped back

sharply. This happened when crude oil prices bounced back strongly. The major oil-producing nations

met in Doha on April 17, but they failed to reach an agreement to freeze crude oil output. Crude oil

prices fell sharply at the start of trading the following week, in the early hours of April 18, but they

soon bottomed out and began soaring again. The was mainly due to a sharp fall in oil production in

Kuwait following a strike at an oil field over there, but this strong rally also saw stocks soaring back


May 2, 2016 10

across the globe. As risk tolerance levels recovered in the investment markets, the yen trended

downwards. The Japanese unit fell further on April 22 on growing speculation that the Bank of Japan

would apply negative interest rates to its financing operations. The pound/yen pair also rallied on the

same day to hit the 160 yen range for the first time in three weeks. Thereafter, though the pound/dollar

pair moved firmly until the end of the month, the pound/yen pair fell sharply when the Bank of Japan

decided not to ease further on April 28.

2. Outlook for This Month: In May the pound is expected to move firmly on the while, though its topside will be capped.

Sterling’s bearishness from late February onwards was due in large part to the poor market reaction to

uncertainty about the UK referendum on whether to stay in the EU. The pound will continue to be

influenced by the direction of the referendum debate, but this uncertainty is unlikely to be completely

removed until the day of the vote on June 23. However, if terrorists slip into the UK disguised as

immigrants and commit a terrorist atrocity, this could cause significant damage, in which case the

public mood will probably shift sharply towards the anti-EU camp. The situation will remain

asymmetrical in the run up to the referendum; though it is hard to imagine the pound being bought on

a sense of relief that the UK will vote to stay, there is a (low) risk that the unit may well be sold off

sharply on concerns of a Brexit (though it is possible the UK will be able to prevent a terrorist attack

by sharing information with the law and order authorities of other EU member nations, the public are

unlikely to focus on the unseen benefits that are safeguarded by to the non-occurrence of terrorist

damage.)

The results of the BoE MPC meeting will be released on Thursday, May 12 alongside the minutes

to the meeting and the BoE’s quarterly inflation report. A glance at the UK short-term interest-rate

futures market suggests that most market participants are expecting the BoE to start lifting interest

rates from next year onwards. The thing to watch out for here is the current movement of crude oil

prices. Brent traded at an average of around $47 in August last year. Prices have recovered to the

$44/barrel mark. If crude oil remains bullish, then it is likely to move flatly year-on-year up until this

August (the August data will be released in September). This is likely to see the general CPI data

moving closer to the core CPI figure. The BoE’s target inflation rate is +2% y-o-y (±1%). The UK’s

core CPI rose to +1.5% y-o-y in March. At this moment in time, BoE bigwigs have dropped no

comments about the necessity of a rate hike in the near future, but Governor Mark Carney has given

‘prior notice of a rate hike’ on several occasions in the recent past. From the perspective of the markets,

it would no exaggeration to say Carney has been ‘overhasty’ with these pronouncements, so it will be

interesting to see how he regards the current situation. Even if the inflation report does not go as far as

‘laying the ground’ for rate hikes, if it appears to show a strong interest in fuel price movements, then

market participants may start factoring in the scenario of an ‘August rate hike’ at the earliest or, at the

latest, of ‘the August inflation report laying the groundwork and rates then being lifted in November’

(this would be a factor pushing the pound higher).


May 2, 2016 11

Under these circumstances, attention will be focused on inflation-related data in the UK’s economic

indicators. These include the release of the April CPI data on Tuesday, May 17 and the first-quarter

average wages data on Wednesday, May 18. One of the reasons the CPI swung up in March was

because air fares rose y-o-y due to the fact that the Easter holidays fell in March this year, as opposed

to April last year. It will be important to see whether the CPI figure simply drops back from here on.


May 2, 2016 12

Miki Yamaguchi, Sydney Branch

Australian Dollar – May 2016 Expected Ranges Against the US$: US$0.7250–0.7800


1. Review of the Previous Month In April the AUD/USD pair hit a 10-month high of USD0.7836 before dropping back to the USD0.75

range.

It began the month trading at the upper-USD0.76 mark on April 1. On April 4, the pair fell to the

lower-USD0.76 mark when the February Australian retail sales data dropped below market

expectations. The Australian trade balance for February was then released on April 5. The deficit was

higher than expected and the pair subsequently weakened to the upper-USD0.75 level. The pair then

fluctuated gently after the board of the Reserve Board of Australia decided to keep the cash rate fixed

at 2.00%. European and U.S. stocks then dipped during overseas trading time, with risk aversion

intensifying and the pair dropping to the lower-USD0.75 mark. The minutes to the FOMC meeting

were released on April 6. The minutes were dovish (inclined against monetary tightening), with

expectations for a June U.S. rate hike dropping below 20% in the U.S. short-term interest rate futures

market (they stood at 50% at the time of the March FOMC meeting). As a result, the pair bounced

back to the lower-USD0.76 level. However, it then plunged to USD0.7490 on April 7 on bearish crude

oil prices.

Crude oil prices rallied on April 8, though, with the Australian dollar, a commodity currency, then

bouncing back to the mid-USD0.75 level against its U.S. counterpart. The AUS/USD pair then

strengthened to the upper-USD0.76 level as crude oil broke above $40 a barrel. On April 13, China,

Australia’s largest export destination, posted a bullish trade balance for March, This saw the pair rising

temporarily to the USD0.77 range. It then hovered around USD0.77 for a time. A group of major

oil-producing nations failed to reach an agreement to freeze output when they met on April 17. As a

result, the pair temporarily dipped below USD0.76 on April 18. However, crude oil prices then rose on

April 18 on concerns that production would dip in Kuwait following a strike at an oil field there, so the

pair rallied to the USD0.76 level. With crude oil and iron ore prices then rising, the Australian unit

moved firmly and the pair rose to a high of USD0.7836 on April 21. Thereafter, the pair dropped back

to around USD0.77 as commodity prices were hit by selling for profit taking.

The pair floated around the lower-USD0.77 mark across April 22–26 in advance of the release of

Australia’s first quarter CPI data. The closely-watched CPI data was released on April 27. While the

markets were expecting a rise in the region of 0.2% quarter-on-quarter, the figure actually dipped by

0.2% on the previous quarter, so the currency pair plummeted below USD0.76. The FOMC then left

the door open for a June rate hike at its meeting during overseas trading time. This saw the pair


May 2, 2016 13

dropping to the mid-USD0.75 mark for a time. On April 29, the People’s Bank of China raised the

RMB’s reference rate by 0.5% on the previous day. The pair rallied to the mid-USD0.76 level as a

result, though in the end it finished the month trading right around USD0.76.

2. Outlook for This Month: The AUS/USD pair is expected to weaken in May. Attention will be focused on the RBA board

meeting on May 3.

Australia released some extremely-weak first quarter CPI data last month. At -0.2% q-o-q, the

figure dipped into negative territories for the first time in around seven years. Furthermore, the core

inflation rate (= (trimmed mean + weighted median) ÷2) is an indicator that the RBA keeps a close eye

on when implementing policy, but it came in at just +1.55%, below the RBA’s inflation target range

(2–3%). As a result, the possibility emerged that the RBA might institute a rate cut. The last RBA

statement said that “continued low inflation would provide scope for easier policy, should that be

appropriate to lend support to demand,” so the RBA board is expected to implement a 25bp rate cut

when it meets on Tuesday, May 3. If this happens, the RBA’s cash rate will drop from 2.00% to a

historical low of 1.75%. The Australian dollar is expected to weaken this month on growing

expectations for an RBA rate cut. Furthermore, even if the RBA does not make such a move in May,

market participants will continue to expect a rate cut at subsequent board meetings, so the Australian

unit is likely to move bearishly.

On the other hand, commodity prices continue to move firmly. NY crude oil futures (WTI) have

risen by 25% on their 2016 low of USD31.77, while the price of iron ore (62%), Australia’s main

export item, has risen by 78% on its 2016 low of USD39.51. At times, WTI has broken above USD44,

its 200-day moving average since September 2014, so it seems the trend of bearish commodity prices

is coming to an end. The Australian dollar is a commodity currency, so all this probably means that its

room on the downside will be capped. The downside of the AUS/USD pair is likely to move around its

200-day moving average of USD0.7250.

At the same time, though the April FOMC statement did remove a comment added at the previous

meeting about how “global economic and financial developments continue to pose risks,” it did state

that it “continues to closely monitor inflation indicators and global economic and financial

developments,” so in the end its stance was unchanged on the previous meeting. The FOMC did not

drop any specific hints about the possibility of a June rate, so market participants will be trying to

gauge the direction of U.S. monetary policy as each event passes. As such, it will remain difficult for

the pair’s movements to be shaped by factors on the U.S. dollar’s side. The Australian unit is unlikely

to be impacted much by these trends.

Australian events and indicators to watch out for in May include the RBA board meeting (May 3),

the retail sales data and the trade balance (May 5), the employment data (May 19) and the

private-sector capital investment data (May 26).


May 2, 2016 14

Katsuhiko Takahashi, Americas Treasury Department

Canadian Dollar – May 2016 Expected Ranges Against the US$: C$1.2050–1.3000


1. Review of the Previous Month At the start of the month, Saudi Arabia announced that Iranian participation should be a prerequisite

for any deal on cutting oil production. Crude oil prices subsequently fell on rising uncertainty about

the negotiations between oil-producing nations about freezing output. The U.S. dollar was also bought

on the bullish results of the March U.S. employment data and ISM economic indices. All of this saw

the USD/CAD pair rising to the mid-C$1.31 mark. As crude prices continued to trend downwards,

Canada’s trade deficit grew by more than expected, so the Canadian dollar was sold and the currency

pair strengthened temporarily to C$1.3219. Canada’s March employment data was then released. The

unemployment rate unexpectedly dipped, while the number of people in work rose by more than

expected. With the Canadian unit also being pushed up by bullish crude oil prices, the currency pair

fell to the mid-$1.29 level.

With risk aversion easing off across the board towards mid-April, the Canadian unit was bought

when the Bank of Canada decided to keep policy rates fixed while also upgrading its growth forecast

for this year. As a result, the pair reached a new low since October last year and dropped temporarily

to C$1.2745. However, crude oil prices then fell sharply after oil-producing nations failed to reach an

agreement on freezing output at their meeting in Doha. As risk aversion intensified, commodity

currencies plummeted and the USD/CAD pair was bought back to C$1.2990.

In the latter half of the month, the pair jostled up and down in the wake of the FOMC statement,

but on the whole the markets moved without a sense of direction. The performance of commodity

currencies at this time was mixed, but with the crude oil market moving firmly the USD/CAD pair fell

from the C$1.26 mark to the C$1.25 range. It then broke below C$1.25 for a time to temporarily drop

to C$1.2499. However, Canada’s GDP for February then came in at a weak -0.1% month-on-month.

With crude oil also dropping back, the pair rallied to the upper C$1.25 level to end the month trading

at C$1.2538.

2. Outlook for This Month: The financial markets have remained in risk-off mode since the turn of the year, but with the FRB

adopting a dovish stance and concerns about China easing off, the mood of excessive pessimism is

coming under some correction, so the Canadian dollar is rallying as stock markets and crude oil prices

recover. At the moment, crude oil movements correlate strongly with risk aversion or appetite in the

financial markets. In May, the Canadian dollar’s movements are likely to remain closely linked to


May 2, 2016 15

these trends. Crude oil is trading above US$40/barrel and the financial markets are in risk-on mode.

However, for oil prices to rise further, demand will need to grow on the back of a bullish global

economy, for example, or oil-producing nations will need to agree to production cuts. If crude oil

looks set to plunge below US$40/barrel again, this will lead to a commensurate amount of rising risk

aversion, so caution will be needed.

After hitting CS1.4690 on January 20, the USD/CAD pair has undergone a stable decline. Around

C$1.2050 now represents the half-way point of the pair’s long-term bullish period from July 2011 to

January 2016, so for now this will probably be seen as a target for the pair’s downside.


May 2, 2016 16

Shimon Yoshida, Seoul Treasury Office

Korean Won – May 2016 Expected Ranges Against the US$: KRW1,120–1,170

Against the yen: JPY9.09–9.71 (KRW100)

(KRW10.30–11.00)

1. Review of the Previous Month The dollar/won pair moved more-or-less flatly in April.

It opened trading at KRW1145.0 on April 1, up 1.5 won on the end of March. As crude oil prices

fell and risk sentiments worsened, the pair moved in a range around the KRW1150 mark. It then hit a

monthly high of KRW1162.8 on April 8 on reports that major South Korean companies were

increasing dividends for foreign investors. However, it dropped back to KRW1150 on the same day on

the real-demand flow. Thereafter, with the greenback continuing to slide across the globe, the pair

moved at the KRW1140 level over April 11–12 in advance of South Korea’s 20th legislative election.

The South Korean markets were on holiday on April 13 due to the aforementioned election. In the

end, the ruling Saenuri Party failed to gain a majority and it dropped into second place in terms of

seats, so South Korea now had a minority government for the first time in 16 years. Concerns grew

that President Park Geun-hye would now head a lame-duck administration, but the impact on the

dollar/won pair was muted. In fact, the pair moved with a heavy topside in the offshore (NDF) market

due to the warm reaction to a bullish Chinese trade-related indicator, released the same day. However,

the pair then hit KRW1150 again on April 14 after the Monetary Authority of Singapore (MAS)

announced it was shifting from a policy of guiding the Singapore dollar higher to a neutral stance of

not guiding the unit higher or lower at the regular meeting.

The Bank of Korea’s Monetary Policy Committee (MPC) met on April 19. As expected, it kept the

base rate at 1.50%. It also downgraded its growth forecast for fiscal 2016 from +3.0% to +2.8%.

Though the BOK president essentially stuck to his neutral stance in his press conference after the

meeting, the currency pair fell further to renew a low for the year. As risk sentiments continued to

improve in overseas markets, the pair then hit a monthly low of KRW1128.3 on April 20.

The dollar/yen pair then soared on April 22 on reports that the Bank of Japan was considering

offering negative interest rates on loans to financial institutions. The dollar/won pair followed suit by

rising to KRW1150 again in the offshore (NDF) market. It then moved with a heavy topside on the

real-demand flow, so in the end the pair finished the month at KRW1139.3, down 4.2 won on the end

of March.

2. Outlook for This Month: In May, the dollar/won pair is expected to undergo a gentle rise on expectations for a BOK interest


May 2, 2016 17

rate cut.

Though the BOK’s Monetary Policy Committee (MPC) downgraded its growth outlook for fiscal

2016 when it met in April, it kept the base rate fixed for the tenth successive month. This is probably

because the BOK is trying to choose the best timing for a rate hike in coordination with the

government. In fact, BOK Governor Lee Ju-yeol stated in his press conference that South Korea

should not rely solely on monetary policy but should instead be ready to implement fiscal stimulus and

monetary easing simultaneously.

However, the lame-duck, minority Park Geun-hye administration will not have much room to

maneuver when it comes to fiscal stimulus. It has already rolled forward its spending plans and will

probably find it hard to put together a supplementary budget. Under these circumstances, the BOK will

probably institute a rate cut in tandem with some form of structural adjustment that would prove

acceptable to the opposition parties. Based on this, if the pace of structural adjustment picks up,

expectations for a rate cut are also likely to swell. The government is actively pushing forward with

structural adjustment at present and market participants will need to monitor how things develop from

here on.

Furthermore, four of the seven members of the BOK’s MPC will be stepping down when their

terms end. This is also likely to raise expectations for a rate cut. Until now, only one dovish member

has been calling for a rate cut and he will also be stepping down. However, with the exception of one

person, all the new members are seen as supporting the government’s dovish stance. Attention will

focus on the statement and contents of the first MPC meeting after the shift to the new regime.

Geopolitical risk in relation to North Korea will still require attention too. Things are not expected

to hit crisis point, but it will take time for tensions to calm, so the situation will need to be watched

closely this month.


May 2, 2016 18

Junji Tsujino, Taipei Treasury Office

New Taiwan Dollar – May 2016 Expected Ranges Against the US$: NT$31.50–32.50


1. Review of the Previous Month With the U.S. dollar's slide coming to a halt and the flood of foreign funds into Taiwan’s stock

markets easing off, the trend of Taiwan-dollar bullishness took a breather in April. In the end, though,

the USD/TWD pair’s movements were marked by a slight Taiwan-dollar appreciation following the

Bank of Japan’s Monetary Policy Committee (MPC) meeting.

The pair opened the month at the upper-TWD33.20 mark. It had dropped temporarily to the

TWD32.10 mark the previous day, but the Taiwanese unit then weakened slightly in the run up to the

release of the U.S. employment data for March and a long weekend in Taiwan. The Taiwanese

markets were closed over April 4–5 due to a holiday. The Korean won depreciated during the

Taiwanese holiday, so the USD/TWD pair gained to TWD32.40 when trading opened again on April 6.

The minutes to the FOMC meeting were released in the evening of April 6, but they had minimal

impact on the greenback, so the currency pair continued to trade at TWD32.40 over April 7–8.

The pair swung to and fro around TWD32.30 over April 11–13. The U.S. dollar then rallied on

expectations that an agreement would be reached to freeze crude oil output, but with funds also

pouring into Taiwanese stock markets, the impact on the Taiwanese unit was capped. Asian currencies

fell across the board on April 14 after Singapore unexpectedly loosened its monetary policy. However,

the Taiwanese unit only fell to around TWD32.40 and then rallied to TWD32.30 on April 15. China

then released its first quarter GDP data, but the result was much as expected and its impact was limited.

Talks on freezing crude oil output came to naught at the weekend, so market sentiments deteriorated

on April 18 and the Taiwan unit weakened, though only to around TWD32.40. As sentiments

improved in April 19, Asian currencies strengthened and the Taiwanese dollar also gained to

TWD32.20.

With the greenback sliding on April 20, the USD/TWD pair temporarily fell to TWD32.10. Amid

bullish crude oil movements, though, the U.S. dollar strengthened on rising U.S. interest rates, so the

pair rose to TWD32.20 on April 21. The USD/JPY pair moved erratically on April 22, but the

USD/TWD was unaffected and it traded around TWD32.30. However, with the yen and euro both

dropping further during U.S./European trading time at the weekend, the greenback grew

comparatively stronger, with the currency pair edging up to the mid-TWD32.30 level on April 25. The

pair continued to swing around TWD32.30 over April 26–27, despite factors like the U.S. employment

data and the FOMC meeting. It moved at TWD32.20 in the morning of April 28, but with the Bank of

Japan’s MPC deciding not to ease further, the yen rose sharply, so the Taiwanese unit subsequently


May 2, 2016 19

gained to the mid-TWD32.30 mark against its U.S. counterpart. The yen continued rising on April 29

to test around 107 yen against the U.S. dollar. As a result, the Taiwan dollar remained bullish and it

temporarily hit TWD32.10. There was wariness about the speed of this appreciation, though, so the

currency pair returned to TWD32.20.

2. Outlook for This Month: The Taiwan dollar is expected to strengthen slightly against the U.S. dollar in May.

A glance at Taiwan’s economic statistics shows its first quarter GDP dipping by 0.84%

year-on-year. However, the results did seem to hint at a recovery. Exports, export orders, industrial

production and so on remained in negative territories, though less so than before. As for export orders,

the figure for electronic parts and telecommunications equipment (which account for half of Taiwan’s

export earnings) was down 0.7% y-o-y, with the result more-or-less recovering to the previous year’s

level. With the price of fresh foods remaining high, Taiwan continued to record strong CPI figures in

March. The price of other items grew at a slower pace, though, so the CPI data is not expected to

influence monetary policy.

April is traditionally a month of Taiwan-dollar appreciation. However, with Taiwanese stock

markets soaring since late January onwards, the movements of overseas investors were capped in

April, despite improving market sentiments, so eventually the Taiwanese unit only strengthened

slightly compared to the end of March. May is a month conducive to Taiwan-dollar bearishness, with

the trend also supported by a sense that stock prices are peaking out. In the end, though, the

movements of the greenback will remain the biggest factor and these will shape the direction of the

USD/TWD pair. However, June will see a UK referendum on whether or not to leave the EU. The

FOMC has been taking the overseas situation into account when making decisions, so with this

referendum looming, it would be surprising if the FOMC opted to lift interest rates. Expectations for a

June rate hike are unlikely to rise, even if the U.S. posts some strong economic indicators, so any

Taiwan-dollar depreciation will probably be muted in nature. In fact, there is even the lingering risk of

Taiwan-dollar appreciation.

When the Taiwanese GDP data for the fourth quarter 2015 was released at the end of January, it

confirmed that the economy had contracted. On the same day, the overnight rate (O/N rate) fell and

this led to growing speculation that the Bank of Taiwan would cut rates at its regular MPC meeting in

March. However, even though the first quarter GDP data was down on the previous year, the O/N rate

did not fall and expectations have not grown for a rate cut at the next regular MPC meeting in June. As

mentioned above, some Taiwanese economic indicators have shown signs of bottoming out. There are

two plausible interpretations of what could happen next. One is that the Bank of Taiwan only has room

for two more rate cuts and will want to leave this option open for now. The other is that the bank will

opt to lower rates to support this nascent recovery. Either way, it will probably make a decision while

monitoring the economic statistics released from May onwards. (Incidentally, the new Democratic

Progressive Party (DPP) administration is set to take power in May, though this is not expected to


May 2, 2016 20

have any particular impact on the Taiwan dollar).


May 2, 2016 21

Ken Cheung, Hong Kong Treasury Department

Hong Kong Dollar – May 2016

Expected Ranges Against the US$: HK$ 7.7550–7.7650

Against the yen: JPY 13.80–14.11

1. Review of the Previous Month

Hong Kong dollar spot exchange market in April

The U.S. dollar/Hong Kong dollar exchange rate generally remained within a narrow range between

HKD 7.753 and HKD 7.761 in April. The Hong Kong dollar exchange market was supported by capital

inflow into Hong Kong, thanks to the stability in the Hong Kong stock market, as well as the Chinese

yuan exchange market. Furthermore, the economic indices in China that were announced in March all

turned out to be strong, which also led the Hong Kong dollar to appreciate.

Hong Kong dollar interest rate market in April

The three-month HIBOR—the interest rate index for the Hong Kong dollar—fell below 0.55%, the

support line that has been maintained since the interest rate hike in the U.S. On the other hand, the U.S.

dollar three-month LIBOR recorded a rise, widening the HIBOR-LIBOR gap. On the contrary, the

medium- to long-term interest rates increased sharply as a result of a large-scale bond issue by an

infrastructure company in Hong Kong. Then, the Hong Kong dollar five-year interest rate swap rate rose

rapidly by approximately 10 basis points (1 basis point = 0.01%), approaching 1.5%—the highest level

in almost two months.

Hong Kong stock market in April

The benchmark Hang Seng stock price index remained on an uptrend and recovered to the 21,500-point

mark for the first time since the sharp fall recorded at the beginning of the year. This is thanks to the fact

that market sentiment improved globally as a result of the recovery in the commodities market, such as

the crude oil market.

2. Outlook for This Month: Hong Kong dollar spot exchange market in May


May 2, 2016 22

The U.S. dollar/Hong Kong dollar exchange rate is expected to fluctuate within a range between HKD

7.755 and HKD 7.765 in May. The Hong Kong dollar is more likely to depreciate, as indices related to

the U.S. dollar seem to have hit bottom. However, monetary policy in the U.S. is expected to remain

dovish for a while, which makes it unlikely for the U.S. dollar to appreciate significantly. As a result, the

Hong Kong dollar is unlikely to depreciate significantly either. On the other hand, if the Hong Kong

stock market remains strong, it is also possible that capital will flow into Hong Kong, steadily supporting

the Hong Kong dollar exchange market.

Hong Kong dollar interest rate market in May

The Hong Kong dollar short-term interest rates are expected to remain stable. The three-month HIBOR

is forecast to be 0.53–0.57%. On the other hand, the medium- and long-term interest rates are likely to

generally follow the supply & demand balance related to various factors, such as bond issues, as was the

case in April. As the interest rate level has not been very high, bond issues are likely to be active,

strengthening the upward pressure on interest rates.


May 2, 2016 23

Tomoko Washiashi, Treasury Division, MHBK (China)

Chinese Yuan – May 2016

Expected Ranges Against the US$: CNY 6.4000–6.6000


Against 100 yen: CNY 5.8500–6.0901


Exchange market: The U.S. dollar/Chinese yuan exchange rate fluctuated between C Y 6.45 and

C Y 6.50, with downward pressure on the Chinese yuan weakening for the time being.

In April, the U.S. dollar/Chinese yuan exchange rate remained unchanged. At the end of March, FRB

Chair Janet Yellen made a dovish remark, after which the minutes of the FOMC meeting were released

in the middle of March, with comments by multiple committee members pointing out that an interest

rate hike in April would not be appropriate. As a result, the U.S. dollar index fell thereafter.

Consequently, the Chinese yuan appreciated against the U.S. dollar, and the U.S. dollar/Chinese yuan

exchange rate reached the CNY 6.45 level. Following the principle of the Chinese monetary authorities,

which aim to keep the Chinese yuan exchange market in harmony with the currency basket, the strong

downward pressure on the Chinese yuan, which was observed at the beginning of the year, has recently

been weakened—both in the onshore and offshore markets. Then, the amount of foreign currency

reserves in March recorded positive growth for the first time in five months, which also shows the fact

that the downward pressure on the Chinese yuan has started weakening. In the middle of the month, the

People’s Bank of China central parity rate was set toward a significantly weaker yuan as a result of the

trend of U.S. dollar-buying—encouraged by the fact that the crude oil price appreciated due to the

mounting expectations for a crude oil production cut, along with the measure taken to keep the

Singapore dollar high being discontinued. However, those factors did not dramatically affect the Chinese

yuan effective exchange rate. Toward the end of the month, the PBOC central parity rate was set

following the fluctuation of the U.S. dollar index influenced by the outcome of the FOMC meeting and

the monetary policy meeting held by the Bank of Japan. However, there was no violent fluctuation in the

market, and the U.S. dollar/Chinese yuan exchange rate remained within a narrow range between the

CNY 6.45 and the CNY 6.51 level throughout the month.

Interest rate market: Liquidity tightened in the market.

In terms of the money market, even though daily open-market operations virtually absorbed the funds in


May 2, 2016 24

the market, major Chinese banks have been providing funds since after the end of the quarter,

maintaining a certain liquidity level in the market. As a result, the overnight SHIBOR fell below 2.0%.

Thereafter, market participants became aware of further capital demands related to the upcoming

maturity dates for MLF (medium-term lending facility) loans as well as the payment of taxes, tightening

liquidity in the market to a certain degree. However, liquidity was eased, thanks to the funds provided by

the PBOC through MLF loans. Furthermore, in the second half of the month, a large amount of capital

was provided through open-market operations as well as through MFL loans. However, liquidity

tightened again due to capital demand related to the maturity of MLF loans and the payment of taxes. As

a consequence, the SHIBOR rose throughout its curve.

2. Outlook for This Month:

Foreign exchange market

The monthly volatility rate of the U.S. dollar/Chinese yuan effective exchange rate was approximately

1% last month, although there were some moments at which the Chinese yuan appreciated sharply in the

trading market during the day, when the U.S. dollar index fell dramatically after the monetary policy

meeting held by the Bank of Japan at the end of the month. The trading market generally continued

following the People’s Bank of China central parity rate, which generally follows the CFETS

index—which has been released by the Chinese monetary authorities since December last year. Thus,

the Chinese yuan has been appreciating against the U.S. dollar since the beginning of the year. Since the

revaluation of the Chinese yuan exchange rate carried out last year, the trading rate has been based on

the central parity rate, and the expectations for the Chinese yuan to depreciate, which mounted at the

beginning of the year, seem to have weakened for the moment. It should also be mentioned that the

Chinese monetary authorities have maintained their restrictions to control capital outflow. As there has

been no major change in the outlook related to the interest rate hikes in the U.S. after the FOMC meeting

held at the end of the last month, the U.S. dollar/Chinese yuan exchange rate is to remain largely

immobile in the coming month. Also, the economic indices for China released last month turned out to

be relatively strong compared to the estimate, and if the trend continues, it is likely to be a positive factor

for the Chinese yuan exchange market.

Interest rate market

The short-term interest rates continued rising in the money market. The taxable areas were partly

announced for the value-added tax to be introduced in May. As a result, market participants may become

concerned with the rising of costs, caused by the introduction of the value-added tax, leading to

confusion in the repo market. Thus, it is possible for short-term interest rates to rise. While this may

occur in the short term, however, interest rates are unlikely to rise significantly, as the Chinese monetary

authorities continue to provide funds through MLF loans and open-market operations.


May 2, 2016 25

Noriko Suzuki, Asia & Oceania Treasury Department

Singapore Dollar – May 2016

Expected Ranges Against the US$: SG$ 1.3350–1.3750


1. Review of the Previous Month The U.S. dollar/Singapore dollar exchange market generally remained stable, although there was some

fluctuation when the Monetary Authority of Singapore (MAS) unexpectedly changed its monetary

policy.

At the end of March, the U.S. dollar depreciated, as the growing expectation for an early interest rate

hike in the U.S. suddenly started to fade. As a result, the U.S. dollar/Singapore dollar exchange market

opened trading at the upper-SGD 1.34 level in April—the highest level in nine months. Then, on April 1,

the March employment statistics were released with relatively strong figures. For example, the number

of non-agricultural employees exceeded the expected level, while the average wage also recorded

positive growth. On the other hand, the number of employees in the manufacturing industry recorded

negative growth, which stopped the U.S. dollar from appreciating dramatically, keeping the Singapore

dollar from depreciating further.

In the first half of the following week, the crude oil price dropped. As a result, risk-averse sentiment

strengthened in the market, encouraging market participants to sell Asian currencies. Following this

trend, the Singapore dollar also fell to approach SGD 1.36 to the U.S. dollar. On April 6, however, the

minutes of the FOMC meeting were released, confirming the dovish attitude of the FOMC by stating

that an interest rate hike in April would be too early. As a consequence, the trend was reversed and the

U.S. dollar depreciated. Thus, in the second half of the week, the U.S. dollar/Singapore dollar exchange

rate remained within a narrow range between the mid-SGD 1.34 level and the mid-SGD 1.35 level.

The fall of the U.S. dollar/Japanese yen exchange rate accelerated after the release of the minutes of the

FOMC meeting. In the week of April 11, the exchange rate finally fell below JPY 108, reaching the

lowest level in approximately a year and a half. Following this trend, the Singapore dollar also

appreciated slightly, and the U.S. dollar/Singapore dollar exchange rate reached the lower-AGD 1.34

level. However, the Singapore dollar did not appreciate further, as the MAS was to announce its

monetary policy in the second half of the same week. Then, on April 13, market participants adjusted


May 2, 2016 26

their positions before the announcement of the MAS, and the U.S. dollar/Singapore dollar exchange rate

returned to the lower-SGD 1.35 level.

On April 14, the MAS announced that it would discontinue the measure to lead the Singapore dollar to

appreciate. This measure had been carried out since April 2010, and for most market participants, it was

completely unexpected, as they figured that the monetary policy would remain the same. As a result, the

Singapore dollar depreciated sharply against the U.S. dollar to the upper-SGD 1.36 level immediately

after the announcement of this decision. However, the trend of Singapore dollar-selling did not last long

and was reversed already on April 15, the following day. Then, at the meeting held among major crude

oil producers on April 17, Iran refused to participate in the plan to cap crude oil production. Thus, the

production freeze became unlikely to succeed, which encouraged market participants to sell the U.S.

dollar against other major currencies. Following this trend, the Singapore dollar also appreciated.

In the week of April 18, the crude oil price depreciated in the morning as a result of the postponement of

the crude oil production freeze. Even though the reaction of Asian currencies to this event varied, the

Singapore dollar appreciated, following the trend in the Japanese yen exchange market, which

strengthened thanks to risk-averse sentiment growing in the market. However, the crude oil market

started to rally, overcoming negative factors, while market participants began speculating about

additional measures of monetary easing by the Bank of Japan after the 2016 Kumamoto earthquakes.

Consequently, the appreciation of the Japanese yen was reversed. Nevertheless, the Singapore dollar

continued to appreciate against the U.S. dollar, and the U.S. dollar/Singapore dollar exchange rate

reached the mid-SGD 1.33 level—the highest level in nine months—on April 19. On April 20, however,

expectations for inflation strengthened after the appreciation of the crude oil price, leading the U.S.

dollar to appreciate. As a result, the trend was reversed, and the U.S. dollar/Singapore dollar exchange

rate fell to the upper-SGD 1.35 level. The U.S. dollar/Singapore dollar pair has generally been trading at

around SGD 1.35 thereafter, fluctuating in both directions. 2. Outlook for This Month

In May, the U.S. dollar/Singapore dollar exchange rate is likely to fluctuate within a narrow range in

general, while there are some possibilities for the Singapore dollar to weaken depending on speculation

related to the interest rate hike in the U.S. as well as the trend in the crude oil market.

The Singapore dollar depreciated sharply at the beginning of the year, caused by uncertainty in China.

Thereafter, however, the sentiment of uncertainty was mitigated in China, while the crude oil price

rallied and the U.S. postponed its decision to raise the interest rate, which continued leading the

Singapore dollar to appreciate. As there are few influential factors in the market in May, the U.S.


May 2, 2016 27

dollar/Singapore dollar exchange rate is likely to remain within a narrow range, in general. However,

from the point of view of the market cycle, there is a possibility for the Singapore dollar to start

depreciating if there is a trigger, as the Singapore dollar has been appreciating for more than three

months.

The trigger could be the decision to raise the interest rate hike in the U.S. Market participants have been

interested in the decision regarding the possibility of an interest rate hike in June and are following the

remarks made by parties related to the FRB, as well as economic indices in the U.S. If expectations for

an interest rate hike strengthen, it would possible that Asian currency-selling, including Singapore

dollar-selling, will accelerate.

It is also important to continue observing the trend in the crude oil market. At the major oil producers’

meeting held in April, the crude oil production freeze was postponed. However, it is possible for another

meeting to be held by the end of May, thus if expectations grow for a cooperative oil production freeze,

an interest rate hike will be more likely in the U.S. with expectations for inflation, which would

encourage Asian currency-selling. However, it is difficult to predict the trend in the crude oil market.

Given that the crude oil price did not fall rapidly even after the April meeting failed to reach an

agreement, the majority of the market participants seem to currently think that the crude oil price has

already hit bottom. However, if the crude oil price starts to rise, there will be less risk of an oil

production freeze. Thus, the situation is likely to remain uncertain.

Even though the Singapore dollar would not be weakened directly due to the decision by the MAS to

discontinue its measure to lead the Singapore dollar to appreciate, it would certainty keep the Singapore

dollar from appreciating further. In particular, it was rather unexpected for the MAS to take a

pre-emptive measure of monetary easing this time while there is no eminent risk for the Singapore

economy. Thus, it is possible for this decision to become a turning point in the Singapore dollar

exchange market from a medium-term point of view.

The U.S. dollar/Singapore dollar exchange rate is unlikely to exceed the mid-SGD 1.33 level that was

observed in April, while it is also unlikely to fall below the mid-SGD 1.37 level according to technical

analysis.


May 2, 2016 28

Hiroshi Seki, Bangkok Treasury Office

Thai Baht – May 2016

Expected Ranges Against the US$: BT 34.50–35.50



The U.S. dollar/Thai baht exchange rate fell in April.

Market participants bought the U.S. dollar as the March employment statistics of the U.S. were released

on April 1, local time, and the figures turned out to be strong, leading the U.S. dollar/Thai baht exchange

rate temporarily to the THB 35.20 level. On April 4, the overall Asian currencies weakened based on the

employment statistics released during the previous week. Following this trend, the U.S. dollar/Thai baht

exchange rate approached the THB 35.30 level. Then, on April 5, the March consumer sentiment index

was announced, recording negative growth for the third consecutive month, leading the U.S. dollar/Thai

baht exchange rate to approach the THB 35.40 level. Thus, Thai baht-selling dominated the market.

Even though the Thai market was closed on April 6, local time, the minutes of the FOMC meeting in

March were released and their contents turned out to be relatively dovish. Due to this, the pressure to sell

the U.S. dollar strengthened and the U.S. dollar/Thai baht exchange rate started to fall. As a result, the

U.S. dollar/Thai baht exchange rate reached the mid-THB 35.10 level on April 7.

Thereafter, the U.S. dollar/Thai baht continued trading at around the THB 35.00 level. On April 14,

however, the Singapore dollar depreciated sharply, as the Monetary Authority of Singapore (MAS)

decided to discontinue its measure to lead its currency to appreciate. Following this trend, the U.S.

dollar/Thai baht exchange rate rose to approach THB 35.20. However, the onshore market was closed on

the day, and there were few market activities, thus the exchange rate did not rise further. Then, on April

15, the following day, the GDP of China for the January–March quarter was released with a strong result,

leading the exchange rate to approach THB 35.00 against the U.S. dollar again. On April 19, the crude

oil price recovered, which ameliorated market sentiment and strengthened the overall Asian currencies.

As a result, the U.S. dollar/Thai baht exchange rate fell below THB 35.00, falling to approach THB

34.80. Then, on April 20, market participants continued selling the U.S. dollar, and the Bank of Thailand

(BOT) released a comment such that it was ready to intervene in the market if the fluctuation in the Thai

baht exchange rate affects the Thai economy. In reaction to this, market participants expected market

interventions, and the U.S. dollar/Thai baht exchange rate returned to the THB 34.90 level. However,


May 2, 2016 29

this trend did not last long, and the U.S. dollar/Thai baht exchange rate fell again to the THB 34.80 level.

Then, on April 21, the media reported that there would be a meeting among oil producers in Russia in

May, which led the crude oil price to appreciate. As a consequence, market participants started buying

the U.S. dollar. The trend of U.S. dollar-buying continued and may have been a market intervention by

the central bank, and the U.S. dollar/Thai baht exchange rate approached THB 35.10.

In the last week of the month, the U.S. dollar/Thai baht exchange rate fluctuated only within a narrow

range at around THB 35.10, as important events were approaching, such as the FOMC meeting in the

U.S. as well as the monetary policy meeting at the Bank of Japan. However, the outcome of the meeting

at the Bank of Japan held on April 28 encouraged market participants to buy the Japanese yen and sell

the U.S. dollar. Following this trend, market participants sold the U.S. dollar against other Asian

currencies as well. As a result, the U.S. dollar/Thai baht exchange rate fell below THB 35.00 and

temporarily reached THB 34.90 at the end of the month.

2. Outlook for This Month

The U.S. dollar/Thai baht exchange rate is unlikely to fall further.

While expectations for an interest rate hike in the U.S. were fading, the U.S. dollar/Thai baht exchange

rate fell below THB 35.00 in April, increasing downward risks. On April 28, the FOMC held its meeting,

and its statement revealed an attitude less cautious about the global economy and monetary

conditions—which were major concerns regarding its earlier decision to slow down the interest rate

hikes by the FRB. From that point of view, it can be said that the statement has become slightly more

hawkish compared to the previous one. However, the economic and inflation outlook for the U.S. was

revised slightly downward, and it was concluded that there is no need to raise the interest rate in a hurry,

while maintaining the possibility of an interest rate hike in June. Thus, the FOMC statement released this

time is unlikely to influence the U.S. dollar exchange market in a definitive way, and therefore, the trend

in the U.S. dollar/Thai baht exchange market is unlikely to change in the near future.

On the other hand, when it comes to actual demand, there are more factors to encourage Thai

baht-buying. Given the decline in the import value, the amount of trade surplus has been growing.

Furthermore, overseas funds have been flowing mainly into the bond market since the beginning of the

year for the purpose of obtaining Thai assets. Also, it seems that there have been market interventions in

the U.S. dollar/Thai baht exchange market so as to keep the Thai baht from excessively appreciating, and

this is suggested by the fact that the amount of foreign currency reserves has been sharply increasing.

According to the data released weekly by the BOT, the amount of foreign currency reserves was USD

156 billion at the beginning of the year, while the amount has increased to USD 173 billion as of the end


May 2, 2016 30

of March this year, recording a growth of nearly 10%. In terms of the monetary value, the increase is an

equivalent of USD 17 billion, exceeding the total amount of the trade surplus for January and February

(a total of USD 8.6 billion) and the capital inflow from overseas into the bond and stock markets (a total

of USD 5.8 billion). While the exporting sector, the leading wheel of the economic growth, has been

weakening, it is unlikely for the Thai baht to appreciate in an excessive manner. Even if the Thai baht

appreciates, the U.S. dollar/Thai baht exchange rate would fall only to a limited extent. There has also

been a serious problem of drought, and the income of the agricultural farms is likely to decrease in the

times ahead. Under such conditions, the domestic consumption environment in Thailand has been severe.

Also, the election administration committee in Thailand has announced that a referendum on the new

draft constitution would be carried out on August 7, but the draft has been criticized not only by the For

Thais Party—the successive party of the party founded by former Prime Minister Thaksin

Shinawatra—but also by the Democratic Party, which is the opposition party. Thus, the referendum is

likely to see an outcome against the draft. The government has warned that all kinds of campaigning are

prohibited, suggesting some turbulence in the political conditions of the country in the times ahead.

While the U.S. dollar/Thai baht exchange rate had recently been on a downtrend, it is likely to remain

stable in the coming month with expectations for market interventions by the BOT, which has raised the

exchange rate on various occasions.


May 2, 2016 31

Takashi Miyachi, Asia & Oceania Treasury Department

Malaysian Ringgit – May 2016

Expected Ranges Against the US$: MYR 3.85–4.00



The U.S. dollar/Malaysian ringgit exchange market opened trading at the lower-MYR 3.89 in April.

Thereafter, the March employment statistics of the U.S. were released at the beginning of the month,

with figures slightly stronger than expected, however, market participants did not see this as a factor to

change the dovish view of FRB Chair Janet Yellen as expressed in the previous month. As a result, U.S.

dollar-selling remained dominant. Also, the Malaysian ringgit appreciated against the U.S. dollar

temporarily to the mid-MYR 3.86 level. However, market participants bought back the U.S. dollar at this

level and the trend was reversed, leading the Malaysian ringgit to depreciate to the MYR 3.95 level.

In the following week, the U.S. dollar/Malaysian ringgit continued trading within a limited range.

However, on April 12, local time, the media reported that Russia and Saudi Arabia had reached an

agreement on a crude oil production freeze, which led the crude oil price to rise sharply. In response to

this, the U.S. dollar/Malaysian ringgit reached MYR 3.8470 on April 13, the following day, for the first

time in approximately eight months. However, expectations faded for any agreement on an oil

production freeze at the oil producers’ meeting scheduled for April 17, slowing down the appreciation of

the crude oil price and also weakening the upward pressure on the Malaysian ringgit exchange market.

Toward the end of the week, the Malaysian ringgit weakened against the U.S. dollar to the MYR 3.90

level.

In the second half of the month, the oil producers’ meeting was held after attracting substantial attraction

in the market, and Saudi Arabia disagreed with the oil production freeze due to the absence of Iran. Thus,

the final agreement was not achieved, and this result led the crude oil price to depreciate. As a

consequence, the U.S. dollar/Malaysian ringgit exchange market was significantly affected after the

weekend. Then, the Malaysian ringgit depreciated sharply against the U.S. dollar temporarily to the

lower-MYR 3.96 level. However, due to the strike by Kuwaiti oil workers, the media reported on a

possible decline of oil production in this country, which led the crude oil price to rally. As a result, on

April 19, the Malaysian ringgit returned to the lower-MYR 3.85 to the U.S. dollar. Thereafter, the March

consumer price index of Malaysia was released on April 20, recording a decline, which somewhat led


May 2, 2016 32

the Malaysian ringgit to depreciate. On the same day, the deputy oil minister of Iraq mentioned the

possibility of an oil producers’ meeting in Russia in May, which led the crude oil price to continue

appreciating. However, this affected the U.S. dollar/Malaysian ringgit exchange market only to a limited

degree. On the contrary, there were some market participants buying the U.S. dollar, which led the U.S.

dollar/Malaysian ringgit exchange rate to fall to the mid-MYR 3.91 level.

In the last week of the month, the media reported that an investment company run by the Malaysian

government had not been able to pay the interest for Islamic bonds, which led the Malaysian ringgit to

continue depreciating against the U.S. dollar to the lower-MYR 3.95 level. However, the FOMC

meeting was held in the U.S., attracting substantial attention in the market, and the FOMC announced its

decision to maintain the existing monetary policy. This encouraged market participants to sell the U.S.

dollar. As a result, the Malaysian ringgit was bought back and the U.S. dollar/Malaysian ringgit

exchange rate fell below MYR 3.88 level. Thereafter, the U.S. dollar/Malaysian exchange rate rallied

slightly, and the monthly trading closed at the lower-MYR 3.91 level.


The Malaysian ringgit is expected to remain weak in the coming month.

The February export figures for Malaysia were released last month, recording positive year-on-year

growth for the first time in two months. Even though the major sectors, such as electronic components

and machinery, have not reached a full-fledged recovery, other sectors such as petroleum oil products

and natural gas seem to have hit bottom. The February trade balance has also seen a growing trade

surplus, which would give positive sentiment to market participants regarding the economic outlook of

Malaysia. Furthermore, with regard to industrial production as well, there has been a slight increase

since November last year. Such robust fundamentals are likely to keep the Malaysian ringgit from

depreciating in the times ahead.

On the other hand, capital inflow into the bond market, which was one of the main factors for the

appreciation of the Malaysian ringgit, has slowed down for the moment. The price of the 10-year

Malaysian government bond has been declining since the middle of April. This suggests that the

momentum of capital reinvestment in Malaysia mainly by overseas investors as was observed from the

beginning of the year until April has been weakening. If the bond market starts to weaken, the Malaysian

ringgit exchange market would lose a major factor for its appreciation.

Furthermore, with regard to the trend in the crude oil market, the oil producers’ meeting held in Doha on

April 17 did not reach an agreement on a crude oil production freeze. Even though there will be an


May 2, 2016 33

OPEC conference scheduled for June, the outcome of this meeting suggests that a ground-breaking

agreement is unlikely to be seen there either. If that is the case, it is difficult to expect the crude oil price

to continue appreciating further. The crude oil market is thus likely to be a factor keeping the Malaysian

ringgit from appreciating, as has been the case so far.

Finally, it should also be mentioned that Zeti Akhtar Aziz stepped down from the post of governor of the

central bank of Malaysia (BNM) at the end of April after serving in the post for 16 years. While

attracting attention regarding a successor to the post, it has been agreed that Deputy Governor

Muhammad Ibrahim will be appointed as the new governor of the central bank. This means that the

existing monetary policy under Governor Zeti Akhtar Aziz is likely to continue, which would contribute

to mitigating cautious investor attitudes toward Malaysia.

To summarize, the capital inflow that had been leading the appreciation of the Malaysian ringgit since

the first half of this year has been slowing down, while it is difficult to expect the crude oil price to

continue appreciating. Under such conditions, the appreciation of the Malaysian ringgit is forecast to

slow down. It should also be mentioned that there will be many key events scheduled for the coming

month, such as the announcement of the January–March quarter GDP scheduled for May 13 as well as

the monetary policy meeting at the BNM scheduled for May 18. The outcome of such key events will

also be important factors.


May 2, 2016 34

Satoshi Koizumi, Asia & Oceania Department

Indonesian Rupiah – May 2016

Expected Ranges Against the US$: IDR 13,000–13,500

Against 100 rupiah: JPY 0.81–0.84

Against the yen: IDR 118.73–123.80


The U.S. dollar/Indonesian rupiah exchange market remained stable in April, fluctuating within a narrow

range between IDR 13,100 and IDR 13,250.

There were few factors having impact on the U.S. dollar/Indonesian rupiah exchange market throughout

the month. Even though the Indonesian rupiah depreciated on April 13, in reaction to the decision taken

by the monetary authorities of Singapore to discontinue the measure to lead the Singapore dollar to

appreciate, the depreciation of the Indonesian rupiah occurred only to a limited degree. Furthermore,

major economic indices such as the inflation rate, trade balance and the amount of foreign currency

reserves all had unsurprising figures in the end.

On the other hand, the Japanese yen continues appreciating, and the Japanese yen/Indonesian rupiah

exchange rate once exceeded IDR 121 for the first time since October last year.

At the regular meeting of the central bank of Indonesia held on April 21, the central bank target rate was

maintained at the existing level, as had been anticipated in the market. Before this meeting was held,

however, the central bank of Indonesia had officially announced its decision to change the policy interest

rate from the central bank target rate to the one-week reverse repo interest rate from August this year,

which made it was unlikely for the interest rate to be cut before the change of the benchmark interest rate

in any case.

2. Outlook for This Month:

The U.S. dollar/Indonesian rupiah exchange market is forecast to remain stable in the coming month.

The U.S. dollar/Indonesian rupiah exchange market remained stable in April, which was unusual given


May 2, 2016 35

the recent trend. The Indonesian rupiah exchange market is expected to remain stable again in the

coming month, as there will be few influential factors in the market.

However, it is unlikely for the U.S. dollar/Indonesian rupiah exchange market to remain stable for a long

time. On the contrary, it is usually the case that the exchange market sees violent fluctuations after

remaining stable for a while. Therefore, it is important to continue keeping an eye out for external factors,

such as monetary policy in the U.S. and economic conditions in China, along with risk-taking and

risk-averse sentiment in the market.

At the moment, the support line for the U.S. dollar/Indonesian rupiah exchange rate has been at IDR

13,000, while the resistance line has been at around IDR 13,300. If the exchange rate falls below or

exceeds these lines, it is possible for the market to fluctuate more violently thereafter.

It should also be mentioned that the GDP results for the first quarter in FY2016 will be out on May 9,

while the international balance of payment and current account balance for the first quarter will be out on

May 13, which would all be important factors for the overall economic outlook of Indonesia.


May 2, 2016 36

Yasunori Sugiyama, Manila Branch

Philippine Peso – May 2016

Expected Ranges Against the US$: PHP 46.00–47.50



The U.S. dollar/Philippine peso exchange market opened trading on April 1 at PHP 45.95. The market

remained stable before the release of the employment statistics in the U.S. Weekly trading closed at PHP

46.01 to the U.S. dollar. Also, the March employment statistics of the U.S. were released in the evening

of the same day, and the figures turned out to be stronger than expected. However, market participants

did not see them to be strong enough so as to change the attitude of the monetary authorities regarding

the interest rate hike. Thus, in the end, this led the U.S. dollar to depreciate. Then, on Monday, April 4,

the U.S. dollar/Philippine peso exchange market opened at PHP 46.00, after which the exchange rate fell

to PHP 45.97. In the evening of the same day, the Minister of Petroleum in Iran commented that Iran

would not participate in the plan for an oil production freeze, which led the crude oil price to depreciate.

Then, on Tuesday, April 5, the following day, market participants predominantly bought the U.S. dollar

in order to avert risks, which led the U.S. dollar/Philippine exchange rate to rise to PHP 46.27. On

Wednesday, April 6, market participants continued buying the U.S. dollar, as the ISM

non-manufacturing business index of the U.S. had been released in the evening of the previous day and

as the result turned out to be strong. As a result, the U.S. dollar/Philippine peso exchange rate rose to

PHP 46.34. However, the minutes of the FOMC meeting in the U.S. were released in the evening of the

day with dovish remarks, which weakened the U.S. dollar on Thursday, April 7. The U.S.

dollar/Philippine peso remained at the PHP 46.10 level. The market was stable on Friday, April 8, and

weekly trading closed at PHP 46.135 to the U.S. dollar.

On Monday, April 11, the U.S. dollar/Philippine peso exchange market opened at PHP 46.12. While it

was increasingly unlikely for the interest rate to be raised in the U.S., the U.S. dollar was depreciating.

Following this trend, the U.S. dollar weakened against the Philippine peso, reaching the PHP 46.015 on

Tuesday, April 12. Then, the Philippine peso appreciated against the U.S. dollar further to PHP 45.90 on

Wednesday, April 13, in reaction to the media report on the agreement on an oil production freeze

between Saudi Arabia and Russia, along with the strong trade statistics of China. However, in the

morning of Thursday, April 14, the Monetary Authority of Singapore (MAS) announced its decision to

discontinue its measure to lead the Singapore dollar to appreciate, moving to a neutral stance, which led


May 2, 2016 37

the Singapore dollar to depreciate sharply. Following this trend, market participants also sold the

Philippine peso, and the U.S. dollar/Philippine peso exchange rate reached PHP 46.31. However, on

Friday, April 15, the trend was reversed and the U.S. dollar started to weaken again due to the March

CPI of the U.S., which turned out to be weak, released on the previous day. After hovering at around

PHP 46.10, weekly trading in the U.S. dollar/Philippine peso exchange market closed at PHP 46.06.

On Monday, April 18, the U.S. dollar/Philippine peso exchange market opened trading at PHP 46.15.

Without any influential factor in the market, the U.S. dollar/Philippine peso exchange rate hovered

around at the PHP 46.00–46.10 level. On Wednesday, April 20, local time, a large-scale strike in Kuwait

ended, which led the crude oil price to depreciate. In reaction to this, market participants bought the U.S.

dollar against the Philippine peso in order to avert risks, leading the U.S. dollar/Philippine peso

exchange rate to the PHP 46.20 level. Then, economic indices in the U.S. were released in the evening of

the same day, fueling expectations for inflation in the market. As a result, the U.S. bond prices increased.

As a result, the U.S. dollar appreciated on Thursday, April 21, the following day, and the U.S.

dollar/Philippine peso exchanger rate rose to PHP 46.44. Then, on Friday, April 22, the following day,

the U.S. dollar continued appreciating and the exchange rate rose to PHP 46.68. In the end, weekly

trading closed at PHP 46.65 to the U.S. dollar.


The crude oil price appreciated in the second half of April, which fueled market expectations for

inflation in the U.S. and which led long-term interest rates to rise in the U.S. as well. As a result, market

participants bought back the U.S. dollar against the overall Asian currencies. Following this trend, the

U.S. dollar also appreciated against the Philippine peso, leading the exchange rate from the lower-PHP

46 level to approach PHP 47 to the U.S. dollar.

However, it should be mentioned that the Philippine peso depreciated not only because of the

appreciation of the U.S. dollar caused by the appreciation of the U.S. dollar interest rates but also

because of the presidential election in the Philippines, scheduled for Monday, May 9.

Even though there will still be fierce competition among the five candidates for the presidential election

in the Philippines, the latest opinion polls show that Mayor of Davao City Rodrigo Duterte and Senator

Grace Poe have been the most popular candidates, making the election virtually a competition between

the two. However, it is also unlikely for former Vice President Jejomar Binay to lose his popularity,

while former Interior Minister Manuel Roxas has also been actively preparing for the election, with the

support of President Benigno Aquino. There are also rumors that Miriam Defensor Santiago has been

very popular among female voters.


May 2, 2016 38

The position of the president of the Philippines retains extremely strong authority, and thus many

changes could be made depending on which president comes to power. The most important factor would

be economic policies in the Philippines after the presidential election. Even though Rodrigo Duterte has

successful achievements in the securitization of the city and in the acceleration of administrative

procedure in Davao City, he does not have experience in national politics, which makes it difficult to

predict his economic policy as a president. Grace Poe has been in national politics only for three years,

and thus she also remains unpredictable in terms of her potential as a president. It is only Manuel

Roxas—who claims to be the one who will succeed the current government—that has a predictable

economic policy. However, it is extremely unlikely for him to be elected.

The Philippine economy itself has been steadily leading domestic personal consumption, and OFW

remittances have generally been robust, although there have been some fluctuations in the amounts

depending on the month. While less market participants expect an interest rate hike in the U.S. any time

soon, the Philippine peso is expected to appreciate if there is no other influential factor. However, if

Rodrigo Duterte, who is known for his controversial remarks, is elected as president, the initial reaction

is likely to be the depreciation of the Philippine peso. There will be no dramatic changes in the U.S.

dollar/Philippine peso exchange rate if Grace Poe, Jejomar Binay, or Manuel Roxas get elected, keeping

the Philippine peso strong.


May 2, 2016 39

Hiroaki Nakano, Asia & Oceania Treasury Department

India Rupee– May 2016

Expected Ranges Against the US$: INR 65.00–68.00



In April, the U.S. dollar/Indian rupee exchange rate remained at the INR 66 level without moving into

any direction.

On April 1, the March employment statistics of the U.S. were released with strong figures, despite which

the U.S. dollar depreciated. Following this trend, the Indian rupee strengthened against the U.S. dollar at

the beginning of the month. On April 4, the U.S. dollar/Indian rupee exchange rate fell temporarily to a

level just around INR 66

On April 5, the Reserve Bank of India (RBI) announced its decision to cut the policy interest rate by 25

basis points, as had been expected in the market. Part of the regulation for liquidity provision was

mitigated, and the RBI also raised the RBI deposit interest rate for commercial banks by 25 basis points

while cutting the RBI borrowing interest rate for commercial banks by 75 basis points. As these

decisions had already been anticipated in the market, the impact on the exchange market was limited.

Thereafter, the Minister of Petroleum of Iran announced that Iran would not participate in the major oil

producers’ plan for an oil production freeze for the time being, which led the crude oil price to continue

depreciating. In reaction to this, the currencies of emerging countries, including the Indian rupee, started

to depreciate. As a result, the U.S. dollar/Indian rupee exchange rate rose to the upper-INR 66 level on

April 8.

The U.S. dollar/Indian rupee exchange rate remained at the mid-INR 66 level thereafter without moving

into any direction.

After the national holiday in India, the crude oil price appreciated and risk-averse sentiment in the

market was mitigated. As a result, the U.S. dollar/Indian rupee exchange rate fell temporarily to the

lower-INR 66 level.


May 2, 2016 40

However, the U.S. dollar/Indian rupee exchange rate returned to the mid-INR 66 level thereafter.


In May, the U.S. dollar/Indian rupee exchange rate is forecast to remain at around INR 66–67 without

moving into any direction.

The RBI has decided to cut its policy interest rate, while cutting the interest rate for commercial banks

borrowing funds from the central bank by 75 basis points and raising the interest rate for commercial

banks making deposits with the central bank by 25 basis points. As a consequence, the gap between the

upper end and lower end of the market interest rate (interest rate corridor) narrowed from 200 basis

points to 100 basis points. This is likely to make the effect of monetary policy changes more significant.

Furthermore, the central bank has announced the deregulation of reserve deposits. This will make it

easier for commercial banks to procure funds, and as a result, the fluctuation band of the overnight

interest rates is expected to be narrower in the times ahead.

The inflation rate is likely to decline slightly compared to the previous month. The RBI estimates that

the inflation rate will remain stable at around 5% for two years. Given that the policy interest rate

remains above 6%, the real interest rate, calculated by subtracting the inflation rate from the policy

interest rate, has still been positive, allowing for more possibilities of interest rate cuts. However, as the

crude oil price has currently been stable and as risk-averse sentiment has been mitigated, the RBI is

likely to maintain the current monetary policy for a while.

At the moment, most of the currencies of emerging and resource countries follow the economic outlook

of the U.S. as well as the trends in the crude oil market. Therefore, the U.S. dollar/Indian rupee exchange

rate is expected to continue fluctuating in both directions until a certain level of confidence has been

achieved regarding economic recovery in the U.S.

This report was prepared based on economic data as of May 2, 2016. This report is intended only to provide information and does not constitute an inducement to engage in any particular investment. This report is based on information believed to be reliable, but Mizuho Bank, Ltd. (MHBK) does not warrant its accuracy or reliability. The contents of this report may be subject to change without notice. Final investment decisions should be made based on your own judgment. Furthermore, this report’s copyright belongs to MHBK and this report may not be cited or reproduced without the consent of MHBK, regardless of the purpose.

This document is a translation of a Japanese original.

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Mizuho Dealer s EyeMizuho Bank | Mizuho Dealer’s Eye May 2, 2016 2 policy unchanged at its MPC meeting. This led to a flurry of disappointed selling, with the currency pair dropping