ScotiaBank AUG FX Outlook

8/9/2019 ScotiaBank AUG FX Outlook

1/17

Global Economic Research August 2010

Foreign Exchange Outlookis available on www.scotiabank.com and Bloombergat SCOE

Index

Market Tone & Fundamental Focus.........................................................................................3

US/Canada.................................................................................................................................. 5

Europe/Japan (Majors) .............................................................................................................. 6

Asia/Oceania/Europe................................................................................................................. 8

Developing Asia.......................................................................................................................10

Developing Americas .............................................................................................................. 12

Developing Europe/Africa.......................................................................................................14

Global Currency Forecast.......................................................................................................16

Persistent USD weakness, increasing official intervention inAsia, commodity market strength, strong demand foremerging market assets and divergent interest ratenormalization patterns will shape the global currency outlookin the near term.

The currency market in the Americas is dictated by assetdiversification dynamics from a weakening USD, and delayedmonetary tightening in the US in the context of fragileemployment and housing markets. Commodity-linkedcurrencies such as the CAD, MXN, BRL and CLP continue toface solid demand.

The EUR maintains a strengthening tone. Stress testsconducted on major European banks eased investors

concerns about debt sustainability and systemic risk factors.The GBP is on the rebound supported by improving growthand monetary prospects. The RUB and TRY remain strong.

The Asian currency outlook is promising. The JPY strengthmay prompt deeper intervention activity by major regionalcentral banks while the CNY will soon resume a gradualappreciating path.


2/17


Actual Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 111.32 1.35 1.22 1.22 1.24 1.26 1.28 1.29 1.30

1.35 1.22 1.20 1.20 1.20 1.20 1.20 1.21

85.9 93.5 88 90 92 94 95 95 97

93.5 88 94 95 97 99 99 991.59 1.52 1.49 1.50 1.53 1.54 1.56 1.56 1.55

1.52 1.49 1.43 1.44 1.44 1.45 1.46 1.48

1.01 1.02 1.06 1.01 1.00 0.99 0.98 0.97 0.97

1.02 1.06 1.03 1.03 1.03 1.03 1.04 1.04

0.91 0.92 0.84 0.88 0.90 0.91 0.92 0.93 0.94

0.92 0.84 0.86 0.86 0.86 0.87 0.87 0.87

12.51 12.37 12.94 12.65 12.80 12.94 12.96 13.08 13.22

12.37 12.94 12.48 12.44 12.40 12.35 12.57 12.78

(*) Source: Consensus Economics Inc. July 2010

Consensus*GBPUSD

Consensus*

Consensus*

USDCAD

Consensus*

AUDUSD

USDMXN

August 5, 2010EURUSD

Consensus*

USDJPY

AUDUSD USDMXN

EURUSD USDJPY

GBPUSD USDCAD

Spot Price vs. 100 Day Moving Averagevs. 200 Day Moving Average -(5yr Trend)

Consensus*

Mexican Peso

Canadian Dollar

Australian Dollar

Global Foreign Exchange Outlook

Euro

Yen

Sterling

86

93

100

107

114

121

Jun-

05

Dec-05

Jun-

06

Dec-06

Jun-

07

Dec-07

Jun-

08

Dec-08

Jun-

09

Dec-09

Jun-

10

USD/JPY

100 Day

200 Day

1.12

1.22

1.32

1.42

1.52

1.62

Jun-

05

Nov-

05

Apr-0

6

Sep-

06

Feb-

07

Jul-0

7

Dec-07

May

-08

Oct-

08

Mar

-09

Aug-

09

Jan-

10

Jun-

10

EUR/USD

100 Day

200 Day

1.36

1.51

1.66

1.81

1.96

2.11

Jun-

05

Dec-05

Jun-

06

Dec-06

Jun-

07

Dec-07

Jun-

08

Dec-08

Jun-

09

Dec-09

Jun-

10

GBP/USD

100 Day

200 Day

0.90

0.98

1.06

1.14

1.22

1.30

Jun-

05

Dec-05

Jun-

06

Dec-06

Jun-

07

Dec-07

Jun-

08

Dec-08

Jun-

09

Dec-09

Jun-

10

USD/CAD

100 Day

200 Day

0.59

0.67

0.74

0.82

0.89

0.97

Jun-

05

Dec-05

Jun-

06

Dec-06

Jun-

07

Dec-07

Jun-

08

Dec-08

Jun-

09

Dec-09

Jun-

10

AUD/USD100 Day

200 Day

9.7

10.8

11.9

13.0

14.1

15.2

Jun-

05

Dec-05

Jun-

06

Dec-06

Jun-

07

Dec-07

Jun-

08

Dec-08

Jun-

09

Dec-09

Jun-

10

USD/MXN

100 Day

200 Day


3/17


Increasing evidence of global economic deceleration, re-newed US dollar (USD) weakness, heightened interven-tion activity by central banks, deepening fiscal stabiliza-

tion measures, commodity market strength, divergentmonetary policy dynamics and gradual progress in globalfinancial sector stabilization remain, in aggregate, the keyglobal issues shaping near-term capital flows in foreignexchange markets.

The US economy recovered centre stage in global inves-tors minds. Measured through the trade-weighted DXYindex, the USD has lost almost 9% against major peercurrencies over the past two months. Negative USD senti-ment is persisting, which could lead to further near termUSD downside. However, a period of consolidation mayfollow as investors reassess their views on the global eco-

nomic recovery, European sovereign debt and bankingsector stress, and expected shifts in monetary conditionsin the most advanced economies. Official statementsmade by the US Federal Reserve (Fed) reminded marketparticipants of the fragile conditions still present in USlabour and housing markets. Notwithstanding progress instabilizing the financial sector, the Fed highlighted thepersistence of asset quality troubles in certain segmentsof the US banking sector. Investors are increasingly incor-porating the likelihood of potential credit easing measures(i.e., asset purchases) by the US monetary authorities.Within the NAFTA zone, intensifying USD weakness cou-pled with rising energy prices led to further appreciation ofthe Canadian dollar (CAD) and the Mexican peso (MXN).The CAD continues to receive a positive boost from theoutlook for widening interest rate differentials betweenCanada the US, as the Fed is hinting that no hike in short-term interest rates is in prospect in the near term. Officialrhetoric emphasized that containment of inflationary ex-pectations is robust despite rallying energy prices.

In Europe, sovereign debt sustainability concerns (andthe adverse implications on growth prospects from fiscaltightening measures) remain a critical issue shapingglobal risk appetite/aversion. However, the outcome ofthe stress tests conducted on the European financial sec-tor moderated not eliminated investors concerns re-

garding the systemic health of the regions major bankinginstitutions. The euro (EUR) has been a major beneficiaryof the relentless weakness in the USD; however, signs oftechnical resistance may soon appear, leading to a proc-ess of consolidation of recent gains and further stabiliza-tion. The British pound (GBP) continues to enjoy positivemomentum, on the grounds of encouraging economicprospects, widening interest rate differentials and signs ofsystemic strengthening of major UK banks. We expectGBPUSDs gains, which has rebounded from its low of1.4231 on May 20th, to moderate from here and hold ayear-end target of 1.53. The Russian ruble (RUB) and the

Turkish lira (TRY) have enjoyed a period of sustainedgains whereas the Hungarian forint (HUF) adopted a defensive tone against the EUR due to intensifying concerns

about fiscal sustainability and uncertainties regarding anagreement with the International Monetary Fund.

The Asian currency outlook remains bright. Growth andinterest rate differentials (as top-tier developing countriesembrace a monetary tightening cycle) are intensifyingdemand for Asian assets. The Japanese yen (JPY) hasre-emerged as a market favourite during periods of concerted USD stress; in fact, relentless strengthening of theJPY and the potential negative impact on the exporsector has revived fears of outright intervention by theJapanese authorities in currency markets to moderate thepace of currency strength. From a macroeconomic funda

mental perspective, persistently strong growth, yet somewhat moderating in China and India, coupled with a sur-prisingly sharper recovery in Japan, has injected an appreciating bias into virtually all regional floating currenciessuch as the Korean won (KRW), Malaysian ringgit (MYRand the Taiwanese dollar (TWD). In all these jurisdictionsofficial intervention has become the norm in an effort tomitigate the adverse economic impact of a strengtheningcurrency environment. Even the Thai baht (THB), whichwas affected by heightened socio-political tensionsseems to be stabilizing in a trading range. The Chineserenminbi (CNY) is immersed in a stabilization phase following the introduction of a more flexible currency ar-rangement in late June; indeed, the Chinese central bankcounts on US$2.5 trillion in international reserves, therebystrengthening its power to dictate exchange rate movements at ease. We expect that the CNY will resume anappreciating path and close the year at 6.60 per USD.

Commodity price strength has fuelled demand for energyrich and metals-sensitive currencies such as the Australian dollar (AUD), South African rand (ZAR), Chilean peso(CLP) and the RUB. In addition, delayed interest rate normalization in the US and Europe continue to drive capitaflows towards high-yielding emerging-market currenciesIn the context of relatively low global risk aversion, all de-veloping-market jurisdictions have benefitted from in

creasing foreign capital inflows. In Latin America, however, regional currencies, which continue in strengtheningmode versus the USD on the back of robust growth differentials and supportive commodity markets, may soonface a period of profit taking and technical resistance. TheBrazilian real (BRL) has consolidated itself as a leadingcurrency in the world economy and a key barometer oglobal investor risk appetite for Latin American currenciesBrazil has led and activated a regional monetary tightening phase in South America, while Mexico remainsmore influenced by US economic developments andmonetary policy dynamics.

MARKET TONE & FUNDAMENTAL FOCUSPablo F.G. Brard +1 416 862-3876 Sacha Tihanyi +1 416 862-3154 Camilla Sutton +1 416 866-5470


4/17


The average trading level of the Canadian dollar against the US dollar during the month of July was the weakest sinceFebruary of this year. Though Canadian economic fundamentals remain very solid, shorter term US economic indicatorscontinue to show a perceptible decline in the underlying growth momentum of the US economy. This led to a deteriora-

tion in what had been robust CAD-bullish speculative sentiment, leading to a noticeable increase in short CAD positionsThough the market seems to be pricing the knock-on effect of a US growth slowdown into the CAD, we view the incom-ing data as only marginally impacting the 2010/2011 growth outlook; we expect the Canadian economy to grow by 3.3%in 2010 and 2.6% in 2011. With the release of the July monetary policy report, the Bank of Canada pushed out the datefor which it expects the Canadian output gap to close by two quarters (to the end of 2011). However, the Banks outlookfor Canadas core inflation profile remained stable, at close to 2% through the end of 2012. The lack of any deflationaryconcerns, along with the sustained strong performance of the Canadian labour market, justifies the Banks continuedtightening bent for monetary policy, a key supportive factor for the currency. However, we only expect another 25 basispoints of tightening in the short-term rate by the end of this year, before the Bank resumes increases in 2011. On theexternal front, international capital flows into Canada have been highly robust. The most recent data from May shows arecord net $23.2 billion inflow of foreign money into Canada, predominantly focused on government fixed income securities, as Canadas constructive fiscal profile continues to underscore CAD strength. Thus, even though we have observed a weaker average CAD trading level over the month of July, its inability to retest 2010 lows implies that with such

a solid fundamental backdrop, periods of CAD weakness will be only temporary, rather than indicative of a trend. Theglobal macro outlook remains very positive with emerging Asia and Latin America continuing to lead growth. This wilensure that commodity prices remain supportive and sustain global energy consumption. Additionally, speculative sentiment has improved over early July levels with net CAD longs stabilizing as short positions hit their lowest since April of2004. This is consistent with our view that it is a risky prospect to be short such a fundamentally sound currency.

CANADA Camilla Sutton +1 416 866-5470Sacha Tihanyi +1 416 862-3154

12 m 6 m 3 m 3 m 6 m 12 m

AUDCAD 0.901 0.946 0.941 0.906 0.907 0.908 AUDCAD

CADJPY 87.9 84.3 92.2 90.1 93.0 97.3 CADJPY

EURCAD 1.536 1.484 1.353 1.235 1.242 1.253 EURCAD

USDCAD 1.078 1.070 1.018 1.007 0.997 0.977 USDCAD

Currency TrendsSpot

5-Aug

OutlookGoing BackFX Rate FX Rate

0.926

84.7

1.340

1.014

AUDCAD CADJPY

EURCAD USDCAD

0.87

0.89

0.90

0.92

0.94

0.95

0.97

0.98

Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10

79

81

83

85

88

90

92

94


1.25

1.29

1.34

1.38

1.43

1.47

1.51

1.56

1.60


0.99

1.01

1.04

1.06

1.09

1.11



5/17


UNITED STATES - Our base case is that job growth willaccelerate into year-end and early next year, while inflationwill continue to moderate through 2010, before beginning

to rise towards 2% in the second half of 2011. As such, theFed will remain on hold before embarking on a gradual pol-icy tightening in the first half of next year. The next sixmonths are key to our views on rates; if the job market con-tinues to disappoint, then the Fed may further delay itstightening cycle. The U.S. economy advanced at a slowerpace than expected in the second quarter, but still postedthe fourth consecutive quarterly increase. Real GDP ex-panded by 2.4% q/q annualized, slightly below the consen-sus forecast of 2.6%. While the top print may have disap-pointed, the underlying data are stronger, with most of thestrength concentrated in domestic demand. The mix ofgrowth still looks reasonably solid, with final domestic de-mand posting growth of 1.3% q/q annualized, up from 1.1%in the previous quarter. As such, it added 4.1 percentagepoints to the GDP headline, the most since the first quarterof 2006, well before the onset of the recession. The in-crease in real GDP in the second quarter primarily reflectedpositive contributions from non-residential fixed investment(1.6 percentage points), exports (1.2 percentage points),personal consumption expenditures (1.1 percentagepoints), private inventory investment (1.0 percentagepoints), federal government spending (0.8 percentagepoints), and residential fixed investment (0.6 percentagepoints). Imports took away 3.9 percentage points from theheadline, as demand for foreign goods picked up in thesecond quarter, business equipment in particular. Exclud-

ing international trade (both imports and exports), domesticdemand advanced 5.1% q/q annualized.

CANADA - After a strong turn-over-the-year performanceCanadas economic expansion has lost some momentummirroring the broader slowing trend in global growth. We

expect real GDP increased around a 2% annualized ratein the second quarter, less than half its first-quarter advance. Job creation has been one important area whichcontinues to outperform expectations. The economy hasrecouped virtually all of its recession job losses as of Juneand hiring surveys pointing to further modest gains in themonths ahead. Nonetheless, consumer sentiment and bigticket spending have cooled over the summer, suggestingsome trepidation among households over the sustainabilityof the global economic recovery. Housing activity too hasrapidly come off the boil as high home prices, tighter lending criteria and recent tax increases temper home salesprices and residential construction intentions. On balancehowever, we expect continued, even if more moderateoutput growth through the latter half of the year and into2011. Resource-related exports, production and investmenare ramping up again amid the continuing strength oemerging market demand and profitable commodity pricing, helping to offset a winding down in public infrastructurespending. Similarly, business investment in machinery &equipment as well as industrial and commercial leasingactivity are on the rise, supported by increased capacityutilization and healthy corporate balance sheets. Inventoryrestocking will continue to add to production this yeargiven lean stockpiles at the manufacturing, wholesale andretail levels. Leading composite indictors are still showing abroadly based expansion. While slowing global growth is

expected to moderate the growth in domestic export volumes in the latter half of the year and into 2011, Canadasrelatively healthy fiscal and banking sector fundamentalsshould keep the nation at the top end of the G7 performance ladder.

CANADAAND UNITED STATES Adrienne Warren +1 416 866-4315Fundamental Commentary Gorica Djeric +1 416 862-3080

MONETARY POLICY COMMENTARY Derek Holt +1 416 863-7707 Gorica Djeric +1 416 862-3080UNITED STATES - The outlook for the Fed is marked byenormous uncertainties. If the Fed does not begin gentlylifting rates by Q2 of 2011, then it could remain sidelineduntil as long as 2013-14. An in-between scenario seemsunlikely, as 2012 is the expected year of stepped-up fiscal

retrenchment, Basel III, and a presidential election. Hikingat that time would have monetary, fiscal and regulatory pol-icy all tightening simultaneously. Historically, the Fed hashiked in seven of the past eleven Presidential electionyears, but there has never been such a debate over Fedindependence occurring simultaneously to sharp downsiderisks to growth by the next presidential election. The Fed isunlikely to tempt controversy by commencing a hiking cam-paign during the challenges of 2012 versus, at best, gentlylifting off the emergency floor. Whats more, the Fed hasenormous other powers (reverse repos, term deposit sales)to withdraw liquidity, and is likely to exercise these first in aprocess measured in years.

CANADA - The Bank of Canada (BoC) raised its overnighrate by 25 bps to 75% on July 20 th; however, its latest policy statement was mildly more dovish. On global growthexpectations, the BoC generally flags more concern. Theconsensus is calling for further tightening on September 8th

after which views diverge. We expect the BoC to be onhold for the last two meetings of 2010, October 19th andDecember 7th. The key to the July Monetary Policy Reporwas the BoCs effort toward explaining why despite pushing out, by two additional quarters to Q4 2011, the point atwhich the capacity gap closes it has chosen to leave itsinflation views largely unchanged. Downside influencesinclude lower commodity prices, fiscal repair, the transitoryeffects of the HST and dissipating wage growth. Upsidefactors comprise a weaker loonie, sticky price expectationsand rising inflationary pressures as the capacity gap narrows. Overall, a fair balancing of projected influences thasupports further withdrawal of monetary stimulus.


6/17


EURO ZONE - EURUSD remains in a sharp bull channel since reaching a bottom in early June. Should the channel trendhold, EURUSD is on track to close August somewhere within channel support and resistance at 1.3325 and 1.3850 re-spectively. The combination of a dovish Fed and a softening economic outlook, risking a sudden revival of the USD

funded carry trade, are all supporting EURs push higher. Accordingly, a test up to 1.35 before the rally loses steamseems increasingly likely. In the medium term, we would expect EUR to drop back below 1.30 as markets refocus on thelarge risks that still overhang Europe.

JAPAN - JPY strengthened to its highest level against the USD since late November of 2009 as speculators continuedto rapidly reduce shorts and increase longs through the month. Government policymakers have yet to intervene in themarket, physically or verbally, though further sustained JPY strength may trigger a more forceful response. We expecUSDJPY to close the year at 92.

UNITED KINGDOM - GBP began August with a two month-plus recovery well underway. This constitutes the longesGBPUSD uptrend in more than a year, though the pair remains well below post-recession highs. GBP speculative posi-tioning has recovered, becoming less bearish, however the market remains net short pounds. Fundamentally, the combi-nation of sticky inflation, below trend growth and a central bank that might be forced to tighten policy could stem GBP's

rally into year-end.

SWEDEN - SEK began August on a bid tone, with EURSEK breaking downside support at the 9.40 level. A sustainedtrade through this price point brings EURSEK back in line with its pre-financial crisis range against EUR, generally holding in a 9.00 to 9.50 range.

MAJOR CURRENCIES Camilla Sutton +1 416 866-5470Currency Outlook Sacha Tihanyi +1 416 862-3154

12 m 6 m 3 m 3 m 6 m 12 m

EURUSD 1.43 1.39 1.33 1.23 1.25 1.28 EURUSD

USDJPY 95 90 94 91 93 95 USDJPY

GBPUSD 1.67 1.60 1.53 1.51 1.53 1.56 GBPUSD

EURSEK 10.25 10.24 9.64 8.99 9.49 9.41 EURSEK

EURUSD USDJPY

GBPUSD EURSEK

1.32

86

1.59

9.40

Currency TrendsSpot

5-Aug


1.21

1.25

1.29

1.33

1.37

1.41

1.45

1.49


86

88

90

91

93

95

97

98


1.42

1.46

1.50

1.53

1.57

1.61

1.65

1.68


9.30

9.50

9.70

9.90

10.10

10.30

10.50



7/17


EURO ZONE - The process of financial stabilization inEurope is gathering speed as concerns regarding fiscal sus-tainability issues in some highly indebted euro zone coun-

tries are showing some signs of easing. Moreover, the July23rd release of the European bank stress test resultsshowed no major systemic weaknesses in the banking sec-tors health. The euro zone is well entrenched on a moder-ate growth trajectory, at least for now. Investors percep-tions of economic conditions are improving, with the eurozones business and consumer confidence in July jumpingto its highest level in more than two years. Solid industrialproduction and export performance point to robust outputgrowth in the second quarter of the year. While Germanyremains the regional engine of growth, there are significantdifferences in economic performance between the corecountries and the euro zone periphery. Moreover, tough

austerity measures implemented in some European nationsto restore fiscal credibility will dampen domestic demandprospects. We expect that the European Central Bank(ECB) will maintain an accommodative monetary policystance for an extended period of time, maintaining the keyinterest rate at 1.0% until the final quarter of 2011. More-over, price pressures remain well contained. While inflationpicked up to 1.7% y/y in July (according to a flash esti-mate) towards the ECBs target of below, but close to,2%, the rise was likely stemming from higher oil and foodprices, that cannot be directed by monetary policy.

JAPAN - Japanese exports contracted in the second quar-ter after expanding at an extraordinary 12% q/q rate in theprevious two quarters. Up to this point, exports had been

the key economic driver; however, yen strength vis--visthe euro seems to be withdrawing some wind from the ex-port sector. The relative cost of capital intensive Europeanproducts has fallen with the 18.5% year-to-date appreciation of the yen. Japanese industrial output decreased intandem, 1.5% m/m in June, after a 0.1% previous monthgain. The fall in production contrasts with reports fromJapanese corporations consumer electronics makers andautomobile manufacturers that indicated improved earnings projections. Japanese vehicle output reached 860,000units in June, a 26% y/y rise, with all automakers increasing monthly output. The slowdown in output contrasts withan improved picture for consumers as real household

spending rose 2.8% m/m in June after a 0.7% pickup inMay; this is consistent with six consecutive increases inretail sales and a 0.1% q/q increase in bank loans out-standing to individuals during the three months to JuneImproving employment numbers have set the backdrop foconsumption with labour participation rates trending up inthe second quarter. Although the unemployment rate continued to increase through June to 5.3%, it still lies belowthe 5.6% peak reached in July of 2009. We expect theJapanese economy to expand by 2.5% in 2010 and by1.3% in 2011.

UNITED KINGDOM - Economic recovery in the UK is prov-ing stronger than previously anticipated at least for now with the manufacturing sector being the driving force. Thepreliminary data show that real GDP jumped by 1.1% q/q(1.6% y/y) in the second quarter of the year following a0.3% q/q growth rate (-0.2% y/y) in the January-March pe-riod. Output details show a broad-based expansion acrossthe services, manufacturing and construction sectors; retailssales depict a similar story. If output growth (in quarterlyterms) were to remain flat for the rest of the year, carry-overeffects from the first two quarters would take real GDP ex-pansion to 1.2% this year; we expect the economy to reach1.4% growth in 2010 as a whole. Nevertheless, forthcomingfiscal consolidation in the form of tax increases and reducedgovernment spending will dampen growth prospects in the

medium-term; real GDP will likely expand by 1.2% in 2011.Indeed, housing sector data are hinting that households arealready becoming more cautious. Accordingly, British mone-tary policymakers will likely keep the benchmark interestrate the Bank Rate unchanged at 0.5% until the secondquarter of 2011. While inflation eased for a second consecu-tive month in June to 3.2%, it remains significantly abovethe official medium-term target of 2% y/y - and will jumphigher once the 2 percentage point hike in the valueadded tax takes effect in January 2011.

SWEDEN - The Swedish economy continues to showstrength. Preliminary data indicate that real GDP expandedby 1.2% q/q and 3.7% y/y in the second quarter of the yearWith industrial production, new orders and exports performing strongly, the country is well positioned to outpace themajor euro zone economies and the UK in 2010-11; Riks-bank the central bank expects the economy to grow by3.8% in 2010 followed by a slight cooling to 3.6% next yearThough price pressures remain muted for now inflationwas 0.9% y/y in June Swedish monetary policymakersassess that inflation will accelerate in the coming months aseconomic activity strengthens; nevertheless, the rate willikely remain near the 2.0% inflation target. On the back ostrong economic recovery, and the fact that household indebtedness has significantly increased in recent years

Sweden began a monetary tightening phase following theExecutive Boards meeting on July 1st, when the benchmarkinterest rate was increased by 25 basis points to 0.5%Further gradual tightening can be expected in the comingmonths; Riksbank forecasts that the benchmark interesrate will be 0.9% by end-2010 and climb further to 2.1% bythe end of the third quarter of 2011. While Swedens gov-ernment finances remain healthy (the fiscal deficit was 0.8%of GDP in 2009), the monetary authorities see the depth ofiscal consolidation elsewhere in Europe to create majouncertainties for the countrys economic outlook.

MAJOR CURRENCIES Tuuli McCully +1 416 863-2859Fundamental Commentary Oscar Snchez +1 416 862-3174


8/17


AUSTRALIA - AUD speculative longs have once again found their legs and shorts have retreated from the market, contributing to a very bullish speculative sentiment shift back in favour of AUD. However, AUDUSDs two month uptrend hasbeen turbulent, with waning momentum in the global economic recovery likely to limit AUDUSDs upside into year-end

when we see the pair at 0.90.

NEW ZEALAND - NZD longs have rebounded in line with those in AUD. However, a surprisingly dovish Reserve Bank ofNew Zealand may now serve to restrain NZDs uptrend. Despite this, NZDUSD has broken through the May topside lev-els in late July and early August (near 0.7325), opening up an attempt at the 2010 highs near 0.7450.

TAIWAN - The Taiwanese dollar (TWD) is currently undergoing a strengthening phase after being captured by globarisk aversion trends earlier in the second-quarter. Continued strength in export orders will lead to further gains as thecountry is well positioned to exploit its proximity to China and the recently adopted trade agreement with the mainlandThe central bank already began a normalization of monetary conditions providing further support to the TWD.

NORWAY - USDNOK traded below its 200-day moving average for the first time in over three months at the beginningof August, nullifying the potential hurdle that support at 6.00 would hold. In early 2010, the 5.80 to 6.00 range proved to

be an area of congestion, with buyers providing support at 5.80. We are looking for NOK strength to push USDNOKlower to 5.60 by the end of 2011. A relatively strong economy, interest rate differentials, and strong oil prices shouldkeep the currency supported.

ASIA/OCEANIA/EUROPE Oscar Snchez +1 416 862-3174Currency Outlook Camilla Sutton +1 416 866-5470 Sacha Tihanyi +1 416 862-3154

12 m 6 m 3 m 3 m 6 m 12 m

AUDUSD 0.84 0.88 0.92 0.90 0.91 0.93 AUDUSD

NZDUSD 0.66 0.70 0.73 0.71 0.70 0.72 NZDUSD

USDTWD 32.8 31.9 31.3 30.8 29.9 29.1 USDTWD

USDNOK 6.12 5.93 5.90 5.87 5.78 5.68 USDNOK

Currency TrendsSpot

5-Aug


0.91

0.73

31.8

5.97

AUDUSD NZDUSD

USDTWD USDNOK

0.77

0.79

0.82

0.84

0.86

0.88

0.91

0.93


0.61

0.63

0.65

0.67

0.70

0.72

0.74

0.76


31.25

31.50

31.75

32.00

32.25

32.50

32.75

33.00


5.51

5.65

5.79

5.92

6.06

6.20

6.34

6.47

6.61



9/17


10/17


CHINA - The Chinese renminbi (CNY) has been appreciating slowly against the US dollar since the lifting of the peg announced by the Peoples Bank of China in mid-June. Although the CNY is expected to reference to an unannouncedbasket of currencies, we anticipate a 2.5% appreciation vis--vis the US dollar by year end.

INDIA - The Reserve Bank of India will continue to tighten monetary conditions in the months ahead, with the policy pro-viding some near-term support for the Indian rupee (INR). The INR has weakened by barely 0.8% so far this year; whilemoderate gains may be evident in the near-term, a reversal will eventually be required to compensate for Indias ad-verse inflation differential.

KOREA - The South Korean won (KRW) has already regained the levels observed prior to the geo-political turmoil arising from the breaking of relations with the North. The recent central bank switch to a monetary tightening stance alongwith strong economic fundamentals will provide further support to the KRW. We expect the currency to close 2010 at1120 per US dollar.

THAILAND - The Thai baht (THB) has regained all the losses resulting from the countrys political turmoil during April-May. It trades currently at its strongest level in over two years, remaining well supported as the country's economic re-

covery has barely been affected by the political uncertainty. Notwithstanding moderated inflationary pressures, the central bank has already joined the bandwagon of monetary tightening, a trend that is expected to continue in comingmonths.

DEVELOPING ASIACurrency Outlook Oscar Snchez +1 416 862-3174

12 m 6 m 3 m 3 m 6 m 12 m

USDCNY 6.83 6.83 6.83 6.70 6.57 6.36 USDCNY

USDINR 47.9 46.2 44.4 45.6 45.2 46.2 USDINR

USDKRW 1228 1162 1108 1145 1114 1079 USDKRW

USDTHB 34.0 33.2 32.4 32.4 32.5 32.8 USDTHB

USDCNY USDINR

USDKRW USDTHB

6.77

46.2

1166

32.1

Currency TrendsSpot

5-Aug


6.823

6.825

6.827

6.829

6.831

6.832

6.834

6.836


44.2

44.8

45.5

46.1

46.7

47.3

48.0

48.6


1100

1131

1163

1194

1225

1256

1288

1319


32.0

32.3

32.6

32.9

33.3

33.6

33.9

34.2



11/17


CHINA - Economic momentum has moderated. However,we continue to expect output to expand at a 10% y/y rate in2010 and 9% in 2011. Real GDP growth slowed in the sec-

ond quarter for the first time in over a year to 10.3% y/y,less than the near-three-year high of 11.9% in January-March. While detailed figures on the sources of the expan-sion have not been released, high frequency data display amoderation in domestic spending: June retail sales were up18.3% y/y and fixed asset investment 25.5% y/y, both atouch lower from May readings, with the trade balancelikely pulling headline GDP up in the second quarter, as adownward trend that prevailed in the first was reversed.The modest loss of dynamism relies in a return to a moresustainable pace of expansion and an investment slow-down due to the credit tightening measures implementedthrough the first-half of 2010. Consumer and producer price

inflation fell for the first time in four months in June, with theCPI now growing at 2.9% y/y. Lower food costs are mostlyresponsible, although real estate prices came down on amonthly basis for the first time in also in June. The overalleconomic picture for China remains favourable given thatthe reduction in the credit impulse implemented at the out-set of 2010 seems to have effectively cooled-off demandpressures, opening the door for additional monetary stimu-lus. Moreover, a war chest in the form of close to US$2.5trillion in international reserves can be deployed in order tocounteract any significant economic slowdown.

INDIA - The Reserve Bank of India (RBI) announced afourth interest rate increase in July, raising the repo andreverse repo rates by 25 and 50 basis points to 5.75% and

4.5% respectively; so far in 2010 the benchmark rates havebeen uplifted by 100 and 125 bps, respectively. As two othe decisions have been made between meetings, the RBalso recognized the need to release statements more often(every six weeks, as opposed to once a quarter). Wholesale prices accelerated to a 10.5% y/y rate in June, as fuecost increases have reignited pressures notwithstandingdownward trending food inflation. In an implicit recognitionof the effect of the elimination of fuel subsidies, the RBrevised its inflation forecast to 6% from the original 5.5%for FY2011 (ending in March). The RBI also boosted itsexpectation of GDP growth to 8.5% GDP, up from the original 8%. The RBI recognized, however, that capacity con

straints are visible in several sectors. Domestic spendinggains have been providing a strong growth foundation, withupward price pressures in non-food manufacturing a testament of the healthy economic pulse. Food prices are expected to ease further as a result of an improved monsoonseason. Such a scenario would generate a pickup in con-sumer spending, a laggard in the recovery, complementingthe so far investment propelled domestic demand gainsWe continue to expect the Indian economy to expand at an8% rate in 2010 and 7% in 2011.

KOREA - The ongoing economic recovery in South Koreahas remained on a solid footing notwithstanding geo-

political uncertainty brought about by continued stringentrelations with its northern neighbour. Korean exports figureshave displayed persistent gains, with consumer confidencefinally improving in May for the first time in seven months.Industrial production has been the main beneficiary of theexport-led recovery, rising for the 5th straight month in June.Manufacturing output displayed resilience from global risksclimbing 5% q/q in seasonally adjusted figures during thesecond quarter. This picture is consistent with Korean cor-porations reporting record earnings on the back of an econ-omy that expanded 1.5% q/q in the three months throughJune. Economic activity gains have spilled to the job mar-ket, as unemployment fell to 3.5% in June from a 10-year

4.8% high in January. This has translated into favourabledomestic demand prospects with consumer spending indi-cators recovering recently. Retail sales picked up at a 2.9%y/y average rate in the April-June period pointing to an im-provement in private consumption, that has so far been themissing link as it edged up a sub-par 0.7% q/q in Q1. Theoutlook for inflation has recently turned unfavourable withconsumer prices rising 2.7% y/y in May breaking the down-ward trend prevalent since the start of the year. The uptrendprompted the Bank of Korea to raise the benchmark interestrate to 2.25% in July; in the same instance the central bankuplifted the countrys growth forecast for 2010 to 5.9%.

THAILAND - The Bank of Thailand raised its policy rate by25 basis points to 1.5% in July for the first time in over a

year. Although yearly inflation at 3.3% slowed in June, thereis scant evidence that the social unrest retrieved any economic momentum built up to that point. Export growth remains the backbone of the recovery with shipment ordersalready rebounding in June. Exports account for two-thirdsof the economy and remain supported by strong regionademand. Consumption and tourism were most affected, astourist arrivals fell significantly in April and May. Partly as aresult of the stressful political environment, Thailands industrial output eased as well, as the imposition of curfewsdisrupted night shifts and product shipments. Manufacturingoutput contracted by 1% in April-May vis--vis the first quarter, though the slowdown has proved temporary as produc

tion recovered most of the lost ground in June. Although apre-turmoil pickup in consumer spending failed to persist, acomeback is anticipated as labour market conditions remainsupportive of income gains and consumer confidence rebounded in June within a whisker of the pre-political-crisislevel. Business sentiment has already recovered significanground, as policy efforts by the Thai government offeringincentives to local firms and foreign investors have supported an expedite comeback. Contrary to global trends, thefiscal policy agenda has also been tilted towards expansioas government spending will take the 2010-11 public deficiall the way to the maximum allowed under the constitution.

DEVELOPING ASIAFundamental Commentary Oscar Snchez +1 416 862-3174


12/17


BRAZIL - Monetary policy tightening by the Brazilian central bank will continue to support the currency in coming months.The Brazilian real (BRL) has been strengthening on the back of an improved global scenario after European sovereigncredit uncertainty has been resolved at least for the time being. Although recent commodity price shifts have favoured the

BRL, the widening of the countrys current account deficit will start to play a role towards the end of the year limiting furthecurrency gains. We expect the BRL to close the year at 1.80.

MEXICO - The Mexican peso (MXN) has recently adopted a strengthening tone weathering favourably uncertaintiesabout the continuation of the US economic recovery. The MXN currently trades at 12.5 per US dollar, with supporstanding close to the 12.50 mark. The countrys economic recovery has been recently reignited as domestic demandindicators have finally started to show definitive gains. Although Banco de Mexico is nowhere near switching to a monetary tightening stance, the rise in the WTI oil price above US$80 per barrel has provided further wings to the MXN.

CHILE - The Chilean peso (CLP) may be facing a technical support point at around 510 per USD after an appreciatingtrend in place since late June strongly influenced by rallying copper prices. The monetary outlook now incorporates abias towards further tightening in line with the trend now led by Brazil, although the CLP is less sensitive to monetarypolicy shifts than other South American currencies. We expect USDCLP to close the year at 530.

ARGENTINA - The Argentine peso (ARS) continues to be subject to the active official intervention of the governmentcontrolled central bank. Dangerous signs of overvaluation continue to be accumulated amidst a strong sense of investocomplacency. A Venezuelan-style currency adjustment is not imminent, yet it should be incorporated in long-term financial and strategic planning exercises. Meanwhile, we expect USDARS to close the year at 4.25.

DEVELOPING AMERICAS Pablo Brard +1 416 862-3876Currency Outlook Oscar Snchez +1 416 862-3174

12 m 6 m 3 m 3 m 6 m 12 m

USDBRL 1.87 1.90 1.74 1.78 1.81 1.86 USDBRL

USDMXN 13.19 13.10 12.31 12.70 12.85 13.00 USDMXN

USDCLP 541 525 519 526 532 542 USDCLP

USDARS 3.83 3.83 3.89 4.12 4.29 4.56 USDARS

Currency TrendsSpot

5-Aug


1.75

12.51

516

3.93

USDBRL USDMXN

USDCLP USDARS

1.69

1.74

1.78

1.83

1.87

1.92


12.1

12.4

12.6

12.9

13.1

13.4

13.6

13.9


488

499

511

522

534

545

556


3.75

3.80

3.85

3.90

3.95



13/17


BRAZIL - Monetary tightening remains the norm; the Bra-zilian central bank decreed a third rise in the benchmarkSELIC interest rate by 50 basis points (bps) to 10.75%.

The central bank recognized that the risks to the inflation-ary outlook have fallen as a result of the recent evolution ofdomestic and external demand factors. Economic activity inBrazil is showing signs of peaking after being on an upwardtrend for a year and a half. The central banks economicactivity index inked a 0% change during May, the first non-expansionary mark since January 2009. Consistent withthis picture industrial output contracted in the three monthsthrough June. Readings on inflationary pressures havealso been somewhat tamer with inflation as measured bythe IPCA-15 index falling 0.1% in the month through thesecond week of July. Retail sales data showed a softeruptick during May as well, although lower vehicle sales

were due to expiring government incentives. The slowdowncan be sourced at the lapsing fiscal stimulus and a shift inthe monetary policy stance. However, the business outlookcontinues to be propelled forward by elevated publicspending, bank credit flows, and a supportive external envi-ronment. Employment generation has shown no sign ofstalling, as the unemployment rate fell to a record 7% lowin June. The Brazilian economy grew 8.5% y/y in the firstquarter, and although we expect the loss in momentum tocontinue in coming months, the persistent fiscal and creditstimulus will still drive to a 7.5% GDP expansion in 2010.

MEXICO - Local demand is climbing out of last yearsslump. Notwithstanding the stellar recovery in foreign sales

which has led to a rebound in the manufacturing secto

back to pre-crisis levels activity in domestically orientedsectors had been lagging. While latest industrial output fig-ures already show manufacturing returning within a whiskeof the peak of the previous cycle in mid-2008, the domesti-cally oriented construction sector still lies about 10% belowThis has been changing painstakingly with output in con-struction slowly creeping up by 2% so far in 2010. This hasmanifested in investment figures as well, with edificationrising over 2% so far this year, as the recovery retracesmore than half the loss resulting from the 2009 collapse incapital formation. Retail sales follow a similar script, withhigh frequency data for May displaying a fourth expansionreported so far in 2010. Consumer confidence gauges

have lagged with perceived future employment and incomeprospects improving only slowly. This, however, is finallybeing balanced given recent monthly increases in personabank credit flows which had been contracting for over ayear. Inflation indicators also provide indirect support of arecent spring in domestic demand factors as an upwardtrend in core-services inflation is detected since May. Wethus expect the economy to continue to gear back towardsa sustainable recovery path (we expect real GDP to expand by 4.8% this year) with spare capacity still condition-ing the inflationary outlook.

CHILE - The Chilean economy is rebounding remarkablyfrom the weak stage originated by the devastating effects

caused by the earthquake/tsunami activity of the first quar-ter of the year. In fact, we have revised our real GDPgrowth projection upwards (to 4.8%) for this year, but stillkeep intact our 5.8% growth rate for the year 2011 on theback of sizable fiscal stimulus injected by the newly electedadministration of President Sebastin Piera. On themonetary front, interest rate normalization seems to be thepreferred course of action by the Chilean authorities in themonths ahead; indeed, the policy-setting monetary policyrate has been increased by 50 basis points to 1.50% in midJuly, marking a second consecutive monthly rate hike. Wedo expect headline inflation to close this year at or abovethe 3.5% threshold. The commodity-sensitive CLP remains

strongly influenced by metal price developments: copperprices have been in ascendancy since early June (275 UScents per pound), approaching the 340 mark early in Au-gust. Increasing export receipts have helped the centralbank boost international reserves which reached US$25.2billion. Clearly, signs of economic deceleration in the UShave not been discounted in copper prices, as Chinese andIndian economic activity continue to show steady signs ofstrengthening. The recovery in the EUR has also reflectedeased concerns regarding European sovereign debt sus-tainability, boosting demand for commodity-linked emergingmarket currencies.

ARGENTINA - Unmanageable inflationary pressures, unreliable official statistics (like in Greece), Brazilian currency

dynamics and election-related politics shape the Argentinebusiness environment. The rate of inflation (and more importantly, inflationary expectations) is the most relevanmacroeconomic issue affecting the investment outlookThere is still a major discrepancy between the governmentcontrolled central bank survey and private sector surveysregarding the inflation outlook. Indeed, the expected headline (average) inflation rate is estimated at 32% for the nex12 months, a sharp contrast with the 11.5% rate for 2011reflected in the central bank survey. A better gauge of agenuine inflation rate has recently been the negotiation(between the government and powerful trade unions) owage adjustments averaging 25-30%. Meanwhile, the ap

preciating bias present in the Brazilian real (BRL) is alsoacting as a stabilizing factor in favour of the ARS; any major adjustment in the USDBRL will be immediately reflectedin the value of the ARS. The central bank survey projects areal GDP growth rate of 4.2% and 2.4% for 2010 and 2011respectively; however, given the lack of trustworthy (or internationally audited) official statistics, the data might bemasking a more adverse economic reality. Another sourceof investor concern is the level of international reserveswhich, official data places at US$51 billion. Again, unaudited creative accounting may overstate the amount oreserves in the event of a speculative attack on the peso.

DEVELOPING AMERICAS Oscar Snchez +1 416 862-3174Fundamental Commentary Pablo Brard +1 416 862-3876


14/17


RUSSIA - The Russian currency is poised to continue an appreciating trend in the near term despite narrowing interesrate differentials. While Russian authorities are committed to increasing exchange rate flexibility, the central bank will con-tinue its attempts to prevent excessive appreciation of the Russian ruble (RUB) in the short-term, as strong currency gains

would challenge the export-led economic recovery. We expect USDRUB to close the year at 30.

TURKEY - The Turkish lira (TRY) is in recovery mode following marked currency volatility in the midst of European debsustainability concerns. While prospects for monetary policy normalization and robust economic recovery should providesupport to the Turkish lira, a widening current account deficit together with investors concerns regarding delayed fiscadiscipline legislation will likely take the currency to 1.55 per USD by year-end.

SOUTH AFRICA - Interest rate differentials between South Africa and advanced economies have attracted capital inflows into South-Africa, providing support to the South African rand (ZAR). Nevertheless, deteriorating government fi-nances and a large current account deficit point towards modest depreciation vis--vis the USD. We expect USDZAR toclose the year at 7.50.

HUNGARY Uncertainty regarding Hungarys fiscal policy direction is causing increased short-term volatility for the forin

(HUF). The HUF will likely continue to face some selling pressures against the euro through 2011 on the back of thecountrys relatively weak economic fundamentals and persistent debt sustainability concerns. We expect EURHUF toclose the year at 285.

DEVELOPING EUROPE/AFRICACurrency Outlook Tuuli McCully +1 416 863-2859

12 m 6 m 3 m 3 m 6 m 12 m

USDRUB 31.5 30.3 29.3 30.1 30.1 30.9 USDRUB

USDTRY 1.47 1.50 1.49 1.53 1.56 1.61 USDTRY

USDZAR 7.76 7.63 7.39 7.42 7.54 7.79 USDZAR

EURHUF 266.10 271.36 269.09 284.59 286.22 293.66 EURHUF

USDRUB USDTRY

USDZAR EURHUF

29.8

1.50

7.24

279.59

Currency TrendsSpot

5-Aug


28.5

29.1

29.7

30.2

30.8

31.4

32.0

32.5


1.43

1.45

1.48

1.50

1.52

1.54

1.57

1.59

1.61


7.08

7.26

7.45

7.63

7.82

8.00

8.18

8.37


260

265

270

275

280

285

290



15/17


RUSSIA - The Russian economy is on solid growth trajec-tory on the back of a revival in the energy-rich export sectorand a recent pick-up in domestic demand; output is set to

grow by nearly 5% through 2011. As the worlds largest oilproducer, Russia is immediately affected by directionalshifts in energy prices; crude oil prices, currently trading atUS$82 per dollar (WTI based), have recovered from theearly-May high volatility and subsequent price adjustments.Following an aggressive monetary policy easing process which reduced the benchmark interest rate by 525 basispoints between April 2009 and May 2010 we expect thatthe policy-setting refinancing rate has now reached its bot-tom at 7.75%. Price pressures continued to ease in June,with the consumer price index increasing by 5.8% y/y; nev-ertheless, we expect base effects and higher food pricesresulting from a recent draught to bring an end to the disin-

flation process in the coming months, with the inflation ratehovering near 7% at year-end. Reflecting recent currencyappreciation pressures and interventions by monetary au-thorities, the central banks reserves continue to accumu-late; official reserve assets are approaching the US$500billion mark. While the Russian rubleremains vulnerable toprofit-taking activity in equity markets, the robust foreignexchange reserves position allows the central bank to inter-vene in the market to moderate speculative exchange rateswings.

TURKEY - The Turkish economy is immersed in a robusgrowth path, with output poised to expand by 5% thisyear. Diminishing joblessness the unemployment rate

decreased to 12% in April from 14.5% in January

isboosting consumer confidence. While exports, industriaoutput, business confidence indicators and purchasingmanagers indices remain firmly in expansionary territoryslightly weaker perceptions regarding business conditionsreflect persistent uncertainties in the external outlook. ReaGDP growth will likely slow to around 4% in 2011 as someEuropean economies adopt fiscal-consolidation measuresdampening demand for Turkish exports, and as domesticdemand slows in response to gradual monetary tighteningFollowing the Monetary Policy Committee meeting on July15th, Turkish policymakers maintained the new benchmarkinterest rate, the one-week repo rate, at 7.0%. As risks re

garding the global outlook remain in place while the countrys inflation outlook is becoming somewhat more favour-able, we expect the central bank to delay the beginning othe monetary tightening cycle until the final months o2010. Inflationary pressures continued to ease in July; theconsumer price index increased by 7.6% y/y comparedwith 8.4% the month before. We expect inflation to hovenear the current level at the end of 2010. The robust eco-nomic recovery accompanied by strong import growth wilcause the current account deficit to widen to around 5% ofGDP by end-2010 from 2.3% in 2009.

SOUTH AFRICA - The South African economy is on amoderate recovery path; output is poised to expand by

around 3% in 2010, having received a boost from the 2010FIFA World Cup. The recovery has so far been driven bythe manufacturing and mining sectors; consumer spendingremains constrained by high unemployment and householdindebtedness. Meanwhile, improving business confidenceis reflected in private sector credit growth (particularlyamong corporations) that turned positive in May for the firsttime since the recovery took hold. The gold price, whichhovers near the US$1,200 per ounce mark, is strongly in-fluenced by speculative investment flows as investors reas-sess their views on the global economic recovery and thefiscal position of key euro zone countries. Monetary condi-tions will likely remain on hold for the time being, with the

policy rate at 6.5%, as policymakers remain concernedabout rapidly changing investor risk aversion and the un-certainty surrounding the strength of global recovery; thepolicy-setting rate was reduced by 550 basis points be-tween December 2009 and March 2010. Price pressuresweakened to 4.2% y/y in June (from 4.6% the month be-fore), remaining within the South African Reserve Banks 3-6% inflation target range. Due to recent wage settlementsand higher administered prices, inflationary pressures willlikely start creeping higher in the coming months thoughinflation will likely remain contained within the central bankstarget range through 2011.

HUNGARY - Hungarys new Fidesz-led government continues to cause fiscal sustainability uncertainties. The Fidesz

party seems to be resuming its pre-election policy stancewhen it campaigned for a speedy economic recovery, emphasizing that restoring economic growth should have a priority over improving government finances. Hungarys negations with the International Monetary Fund (IMF) and theEuropean Union stalled in mid-July following disagreementsregarding the countrys fiscal deficit targets; while the government has since confirmed its commitment to bringing thebudget shortfall to 3.8% of GDP in 2010 (as was agreed under the countrys IMF-supervised economic program), its isnot planning to implement any new austerity measures, buaims to introduce a bank tax. Elevated uncertainty in Julytriggered sovereign credit rating implications; Moodys

placed Hungarys Baa1 rating under review for a possibledowngrade while Standard & Poors assigned the countrysBBB- rating a negative outlook, with Hungary potentiallydropping out of the investment grade category. As uncertainties regarding the economic outlook persist, Hungarianmonetary authorities left their policy rate unchanged a5.25% in July for a third consecutive month after reducing ion a monthly basis since July 2009. The authorities expressed concerns regarding the recent credibility losses othe countrys fiscal policy. The economy has started to recover, led by exports; we expect output to grow by around% this year before picking up to close to 3% in 2011.

DEVELOPING EUROPE/AFRICAFundamental Commentary Tuuli McCully +1 416 863-2859


16/17


GLOBAL CURRENCY FORECAST (end of period)2008 2009 2010f 2011f

Q1a Q2a Q3 Q4 Q1 Q2 Q3 Q4

MAJOR CURRENCIES

Japan USDJPY 91 93 92 97 93 88 90 92 94 95 95 97

Euro zone EURUSD 1.40 1.43 1.24 1.30 1.35 1.22 1.22 1.24 1.26 1.28 1.29 1.30

EURJPY 127 133 114 126 126 108 110 114 118 122 123 126

UK GBPUSD 1.46 1.62 1.53 1.55 1.52 1.49 1.50 1.53 1.54 1.56 1.56 1.55

EURGBP 0.96 0.89 0.81 0.84 0.89 0.82 0.81 0.81 0.82 0.82 0.83 0.84

Switzerland USDCHF 1.07 1.04 1.05 1.01 1.05 1.08 1.06 1.05 1.03 1.02 1.01 1.01

EURCHF 1.49 1.48 1.30 1.31 1.42 1.32 1.29 1.30 1.30 1.31 1.30 1.31

AMERICAS

Canada USDCAD 1.22 1.05 1.00 0.97 1.02 1.06 1.01 1.00 0.99 0.98 0.97 0.97

CADUSD 0.82 0.95 1.00 1.03 0.98 0.94 0.99 1.00 1.01 1.02 1.03 1.03

Mexico USDMXN 13.7 13.1 12.8 13.2 12.4 12.9 12.7 12.8 12.9 13.0 13.1 13.2

CADMXN 11.2 12.4 12.8 13.6 12.2 12.2 12.5 12.8 13.1 13.2 13.5 13.6

Argentina USDARS 3.45 3.80 4.25 4.80 3.88 3.93 4.06 4.25 4.38 4.52 4.66 4.80

Brazil USDBRL 2.31 1.74 1.80 1.90 1.78 1.80 1.77 1.80 1.82 1.85 1.87 1.90

Chile USDCLP 639 507 530 550 524 546 525 530 535 540 545 550

Colombia USDCOP 2249 2044 1900 1950 1920 1900 1866 1900 1912 1925 1937 1950

Peru USDPEN 3.13 2.89 2.75 2.75 2.84 2.83 2.79 2.75 2.75 2.75 2.75 2.75

Venezuela 1/ USDVEB 2.15 2.15 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30

ASIA / OCEANIA

Australia AUDUSD 0.70 0.90 0.90 0.94 0.92 0.84 0.88 0.90 0.91 0.92 0.93 0.94

China USDCNY 6.83 6.83 6.60 6.20 6.83 6.83 6.75 6.60 6.50 6.40 6.30 6.20

Hong Kong USDHKD 7.75 7.75 7.75 7.75 7.76 7.79 7.76 7.75 7.75 7.75 7.75 7.75

India USDINR 48.8 46.5 45.0 47.0 44.9 46.5 45.8 45.0 45.5 46.0 46.5 47.0

Indonesia 2/ USDIDR 11.12 9.40 9.25 9.50 9.10 9.07 9.07 9.25 9.31 9.37 9.44 9.50

Malaysia USDMYR 3.47 3.43 3.15 3.20 3.26 3.24 3.17 3.15 3.16 3.17 3.19 3.20

New Zealand NZDUSD 0.58 0.72 0.70 0.74 0.71 0.68 0.72 0.70 0.71 0.72 0.73 0.74

Philippines USDPHP 47.5 46.2 44.0 46.0 45.2 46.4 44.9 44.0 44.5 45.0 45.5 46.0

Singapore USDSGD 1.43 1.40 1.36 1.30 1.40 1.40 1.36 1.36 1.34 1.33 1.31 1.30

South Korea USDKRW 1260 1164 1120 1050 1131 1222 1157 1120 1102 1084 1067 1050

Thailand USDTHB 34.7 33.4 32.5 33.0 32.3 32.5 32.3 32.5 32.6 32.7 32.9 33.0

Taiwan USDTWD 32.8 32.0 30.0 28.5 31.8 32.1 31.2 30.0 29.6 29.2 28.9 28.5

EUROPE / AFRICA

Czech Rep. EURCZK 26.9 26.4 25.0 25.0 25.4 25.7 24.9 25.0 25.0 25.0 25.0 25.0

Iceland USDISK 121 126 125 120 127 128 122 125 124 122 121 120

Hungary EURHUF 266 270 285 300 265 285 284 285 289 292 296 300

Norway USDNOK 6.95 5.79 5.80 5.60 5.94 6.50 5.90 5.80 5.75 5.70 5.65 5.60

Poland EURPLN 4.15 4.10 4.05 4.15 3.86 4.15 4.03 4.05 4.07 4.10 4.12 4.15

Russia USDRUB 29.4 30.0 30.0 31.5 29.4 31.2 30.1 30.0 30.4 30.7 31.1 31.5

South Africa USDZAR 9.53 7.40 7.50 8.00 7.29 7.67 7.38 7.50 7.62 7.75 7.87 8.00

Sweden EURSEK 10.94 10.25 9.50 9.35 9.75 9.54 9.55 9.50 9.46 9.42 9.39 9.35

Turkey USDTRY 1.54 1.50 1.55 1.65 1.52 1.58 1.52 1.55 1.57 1.60 1.62 1.65

a: actual; f: f orecast; 1/ a new "strong bolivar" w as announced on January 1st, 2008, equivalent to 1000 bolivars ; 2/ in thousands

2011f

North

South

2010f


17/17


This Report is prepared by Scotia Economics as a resource for the

clients of Scotiabank and Scotia Capital. While the information is from

sources believed reliable, neither the information nor the forecast shall

b t k t ti f hi h Th B k f N S ti

Scotia Economics

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Tel: (416) 866-6253 Fax: (416) 866-2829

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ScotiaBank AUG FX Outlook

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