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MAY LOSE VALUE

Citibank Wealth Management

Jun 4, 2018
with data as of Jun 1, 2018

Weekly FX Strategy FX Analysis Data Forecasts

Weekly FX Insight Please note and carefully read the

Important Disclosure on the last part
0
Please note and carefully read the Important Disclosure on the last part

Weekly FX Strategy: AUD

AUD news Strategy for AUD holders - Diversify into USD
• USD was supported as non-farm Payrolls grew 223K in May • Since US posted strong employment report, Q2 GDP may
and unemployment rate dropped to 3.8% with average hourly accelerate. The rising rate hike expectation may benefit the
wage accelerating to 0.3%, beating expectations.
USD and suppress the AUD.
• Major currencies retreated amid Italian political uncertainty.
But situations changed afterwards and AUD rebounded from • The RBA may not hike rates until 1Q19. Late rate hikes may
lows restrain AUD.
• Australia’s private capital expenditure grew 0.4%, worse than
expectation of 1.0%
Strategy Reference Level Target Level
AUD outlook
Bearish on AUD USD 0.7648 0.7390
• The short dollar squeeze may pose risk to AUD in the short
term. In the medium term, as a downtrend in dollar may Bearish on AUD HKD 6.00 5.80
resume and strong commodity prices may support Australia’s
terms of trade, AUD may be underpinned. 0-3 month forecast:
0.76; 6-12 month forecast: 0.80. Strategy for USD holders - Buy AUD upon retracement
AUD/USD – Daily Chart • Historically, USD tended to depreciate in Jun. Since 2008,
the dollar index dropped for seven times in Jun.
• The RBA may keep the interest rate unchanged this Tue,
0.7648(fibo 0.50) with a neutral policy statement, which may support AUD.

0.7390(fibo 0.382)
Strategy Reference Level Target Level
Bullish on AUD USD 0.7390 0.7648
Bullish on AUD HKD 5.80 6.00
Source: Bloomberg L.P., as of Jun 1, 2018

• Since the RSI rebounded from oversold territory, AUD/USD

may range trade between 0.7390-0.7648 in the short term. The brackets are the exchange rates in terms of Hong Kong
dollar, with HKD $7.8456 exchange rate for reference 1
Please note and carefully read the Important Disclosure on the last part

Weekly FX Strategy: NZD

NZD news Strategy for NZD holders - Diversify into USD
• NZ ANZ business confidence dropped to -27.2, which may • New RBNZ Governor Orr said the direction of our next move
restrain NZD. is equally balanced, up or down, triggering concerns over
• China is NZ major trading partner. China’s manufacturing possible rate cuts, which may restrain NZD.
PMI rose from 51.4 to 51.9 in May.
• We expect the RBNZ not to hike rates until 1Q19. Late rate
hikes may restrain NZD.
NZD outlook
• NZD/USD may continue to range trade between 0.68-0.74.
First, NZD may rebound as USD downtrend may resume in Strategy Reference Level Target Level
the medium term. Second, although New RBNZ Governor
Bearish on NZD USD 0.7169 0.6817
Adrian Orr announced in his first OCR statement that “the
direction of our next move is equally balanced, up or down”, Bearish on NZD HKD 5.63 5.35
we does not expect the RBNZ to cut the OCR with rising
economic upside risk and the bank may even hike rates in
1Q19. 0-3M forecast : 0.69; 6-12M forecast: 0.73. Strategy for USD holders - Buy NZD upon retracement
NZD/USD – Daily Chart • Historically, USD tended to depreciate in Jun. Since 2008,
the dollar index dropped for seven times in Jun.
• NZ dairy product auction price rose 13.6% YTD. Since NZ
mainly exports dairy products, rising prices may underpin NZ
0.7169(fibo 0.50)
export income.

0.6817(Dec 2017 low)

0.6781(Nov 2017 low)
Strategy Reference Level Target Level
Bullish on NZD USD 0.6817 0.7169
Source: Bloomberg L.P., as of Jun 1, 2018 Bullish on NZD HKD 5.35 5.63
• Since the RSI rebounded from oversold territory, NZD/USD
downside may be limited at 0.6781-0.6817 and the pair may
The brackets are the exchange rates in terms of Hong Kong
range trade between 0.6817-0.7169 in the short term.
dollar, with HKD $7.8456 exchange rate for reference 2
Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

Dollar Index dollar, with HKD $7.8461 exchange rate for reference
USD outlook:
• Most indicators suggest recent USD strength was fueled by a
positioning squeeze rather than anything meaningful on the
fundamental side. This may continue in the short term and USD 0-3 month forecast: 94.16
may consolidate.
• In the medium term, USD downtrend may resume:
6-12 month forecast: 88.76
• 1) The fiscal boost may cause a further deterioration in twin
deficits.
• 2) Tapered LSAPs in the EA and Japan mean less funding is
likely to be forthcoming for larger US fiscal deficits.
• 0-3 month forecast: 94.16; 6-12 month forecast: 88.76. USD
may have 4.5% downside over 6-12m and 10%+ in the long run.

Source: Bloomberg L.P., as of Jun 1, 2018

USD/CNH
RMB outlook:
• We maintain our view of two-way fluctuation of USDRMB and
the pair may fluctuate within 6.2-6.6 this year. with the trade
factor playing a larger role in its movements. Key risks include
DXY strengthening , Fed rate hike view change and trade talk 6.4443 (Dec 2017 low)
with the US. 0-3m forecast: 6.30; 6-12m forecast:6.45; Long-
term forecast: 6.10.
Strategy Reference Level Target Level 6.2453(fibo 0.236)

Bearish on RMB USD 6.2453 6.4443

Bearish on RMB HKD 1.2562 1.2175

Bullish on RMB USD 6.4443 6.2453

Bullish on RMB HKD 1.2175 1.2562 Source: Bloomberg L.P., as of Jun 1, 2018 3
Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

USD/JPY dollar, with HKD $7.8461 exchange rate for reference
JPY outlook:
• Japan’s current account surplus has continued to grow, which may
underpin JPY. JPY remains fundamentally undervalued, according to the
REER. Moreover, the risk of BoJ YCC changes is still looming, which may
underpin JPY in the medium and long term. 0-3m forecast: 111; 6-12m 111.48(Jan 18 top)
forecast: 105.

Strategy Reference Level Target Level 106.96(fibo 0.764)

Bearish on JPY USD 106.96 111.48
Bearish on JPY HKD 7.34 7.04

Bullish on JPY USD 111.48 106.96

Bullish on JPY HKD 7.04 7.34 Source: Bloomberg L.P., as of Jun 1, 2018

USD/CAD
CAD outlook:
• Canadian data has been fairly robust and oil prices rose above $70,
which supported CAD. Despite recent USD strength, CAD adjustment has
been the smallest, compared with major currencies. USD/CAD remains
1.3124 (Mar top)
significantly above the level implied by fundamental drivers. As the USD
bear market kicks, USD/CAD may fall back to reasonable levels. 0-3
month forecast: 1.26; 6-12 month forecast: 1.24.

1.2528 (Apr low)

Strategy Reference Level Target Level
Bearish on CAD USD 1.2528 1.3124
Bearish on CAD HKD 6.26 5.98

Bullish on CAD USD 1.3124 1.2528

Bullish on CAD HKD 5.98 6.26 Source: Bloomberg L.P., as of Jun 1, 2018 4
Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

GBP/USD dollar, with HKD $7.8461 exchange rate for reference
GBP outlook:
• GBP was undermined on recent USD strength, disagreements over a
customs union and dovish May MPC meeting. GBP remains cheap 1.3842(fibo 0.764)
with its REER close to all time lows. That said, there is no reason why
it can’t get cheaper. GBP/USD has confirmed a double top pattern, it
may target the 1.31 area. But 1.35 seems to be acting as reasonable 1.3243(fibo 0.50)
support. 0-3 month forecast: 1.31; 6-12 month: 1.39.

Strategy Reference Level Target Level

Bearish on GBP USD 1.3842 1.3243
Bearish on GBP HKD 10.86 10.39

Bullish on GBP USD 1.3243 1.3842

Bullish on GBP HKD 10.39 10.86
Source: Bloomberg L.P., as of Jun 1, 2018

EUR/USD
EUR outlook:
• EUR was most over positioned on the long side, but flows data show
leveraged investors have unwound. The squeeze may continue in the 1.2032(fibo 0.764)
short term. EUR may be supported and USD may be undermined as
the need for financing twin deficits may increase US bond supply and
FI investment flow from the EA (and Japan) may be reduced due to
LSAP tapers. 0-3 month forecast: 1.17; 6-12 month forecast: 1.25. 1.1448-1.1510(fibo 0.50, May low)
Strategy Reference Level Target Level
Bearish on EUR USD 1.2032 1.1448
Bearish on EUR HKD 9.44 8.98

Bullish on EUR USD 1.1448 1.2032

Bullish on EUR HKD 8.98 9.44 Source: Bloomberg L.P., as of Jun 1, 2018 5
Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

USD/CHF dollar, with HKD $7.8461 exchange rate for reference
CHF outlook:
• Despite the more upbeat growth backdrop in Switzerland over 1.0071(fibo 0.236)
the past couple of quarters, the SNB may not turn more hawkish.
• We expect the SNB to move some time after the ECB
normalizes its monetary policy 0.9766(fibo 0.50)
• A key risk to the Swiss economy in the form of global trade wars
remains.
• 0-3 month forecast: 1.02; 6-12 month forecast: 0.97

Technical Analysis:
• Since the RSI has risen to overbought territory, upside may be
limited, and USD/CHF may range trade between 0.9902-1.0071.

Source: Bloomberg L.P., as of Jun 1, 2018

EM Currencies
EM Currencies outlook:

• Over the past month, we saw EM FX sell-off roughly 4% vs the

dollar, driven mainly by a stronger USD and higher US rates.
• We see EM FX 1.6% stronger in 3m time and 3.2% in 12m. This
is largely based on a stronger EUR forecast, higher equities, and
broadly stable oil prices that Citi predicts.
• However, we remain cautious EMFX until the EUR bottoms.

Source: Bloomberg L.P., as of Jun 1, 2018 6

Please note and carefully read the Important Disclosure on the last part

Appendix1: Last week performance, Citi interest rate and FX Forecasts

Citi FX Outlook Forecast Citi FX interest rate Forecast

0-3 month 6-12 month 6/1/2018 2Q ‘18 3Q ‘18 4Q ’18
Dollar Index 94.16 88.76 1.75 2.00 2.25 2.25
EUR/USD 1.17 1.25 0.00 0.00 0.00 0.00
GBP/USD 1.31 1.39 0.50 0.50 0.75 0.75
USD/JPY 111 105 -0.10 -0.10 -0.10 -0.10
USD/CHF 1.02 0.97 -0.75 -0.75 -0.75 -0.75
AUD/USD 0.76 0.80 1.50 1.50 1.50 1.50
NZD/USD 0.69 0.73 1.75 1.75 1.75 1.75
USD/CAD 1.26 1.24 1.25 1.25 1.50 1.75
USD/CNY 6.30 6.45 3.35 3.55 3.75 3.75
Source: Citi, forecast as of May 18, 2018 Rate cut Rate hike
expectations expectations

Major Currencies Weekly Performance

Last week Weekly Year-To-Date
1 month high 1 month low 3 month high 3 month low 52 week high 52 week low
CCY close Change Change
USD 94.16 -0.1% 94.82 92.41 94.82 89.03 97.87 88.25 2.2%
EUR/USD 1.1659 0.3% 1.1993 1.1540 1.2444 1.1540 1.2555 1.1119 -2.8%
USD/JPY 109.54 0.1% 111.05 108.77 111.05 104.74 114.73 104.56 -2.9%
GBP/USD 1.3346 0.3% 1.3614 1.3249 1.4339 1.3249 1.4377 1.2589 -1.2%
USD/CAD 1.2951 -0.3% 1.3018 1.2767 1.3096 1.2551 1.3540 1.2062 3.0%
AUD/USD 0.7569 0.3% 0.7582 0.7455 0.7877 0.7455 0.8136 0.7408 -3.1%
NZD/USD 0.6982 0.6% 0.7042 0.6862 0.7376 0.6862 0.7558 0.6781 -1.6%
USD/CHF 0.9882 -0.5% 1.0050 0.9858 1.0050 0.9374 1.0057 0.9188 1.4%
USD/CNY 6.4204 0.4% 6.4204 6.3340 6.4204 6.2690 6.8442 6.2431 -1.3%
USD/CNH 6.4131 0.2% 6.4239 6.3298 6.4239 6.2540 6.8597 6.2361 -1.6%
GOLD 1293.40 -0.4% 1321.60 1290.53 1353.50 1290.53 1366.15 1204.90 -0.6%

Source: Bloomberg L.P., as of Jun 1, 2018 7

Please note and carefully read the Important Disclosure on the last part

Appendix 2: Last week’s Economic Figures

Time Importance Event Period Actual Survey Prior

Tuesday
05/29/18 07:30 JN ! Jobless Rate Apr 2.50% 2.50% 2.50%
05/29/18 22:00 US !! Conf. Board Consumer Confidence May 128.0 128.0 125.6
Wednesday
05/30/18 20:15 US !! ADP Employment Change May 178k 190k 163k
05/30/18 20:30 CA ! Current Account Balance 1Q -$19.5b -$18.2b -$16.49b
05/30/18 20:30 US !! GDP Annualized QoQ 1Q 2.20% 2.30% 2.30%
05/30/18 22:00 CA !! Bank of Canada Rate Decision May 1.25% 1.25% 1.25%
Thursday
05/31/18 02:00 US !! U.S. Federal Reserve Releases Beige Book May
05/31/18 07:01 UK ! GfK Consumer Confidence May -7 -8 -9
05/31/18 09:00 NZ ! ANZ Business Confidence May -27.2 -- -23.4
05/31/18 09:00 CH !! Non-manufacturing PMI May 54.9 54.8 54.8
05/31/18 09:00 CH !! Manufacturing PMI May 51.9 51.4 51.4
05/31/18 09:30 AU !! Private Capital Expenditure 1Q 0.40% 1.00% 0.20%
05/31/18 17:00 EC !! CPI Estimate YoY May 1.90% 1.60% 1.20%
05/31/18 20:30 US !! Personal Income Apr 0.30% 0.30% 0.20%
05/31/18 20:30 US !! Personal Spending Apr 0.60% 0.40% 0.50%
05/31/18 20:30 US ! Initial Jobless Claims May 221k 228k 234k
05/31/18 20:30 CA !! GDP YoY Mar 2.90% 2.90% 3.00%
Friday
06/01/18 16:00 EC !! Markit Eurozone Manufacturing PMI May 55.5 55.5 55.5
06/01/18 16:30 UK !! Markit UK PMI Manufacturing SA May 54.4 53.5 53.9
06/01/18 20:30 US !!! Change in Nonfarm Payrolls May 223k 190k 164k
06/01/18 20:30 US !!! Unemployment Rate May 3.80% 3.90% 3.90%
06/01/18 21:30 CA !! Markit Canada Manufacturing PMI May 56.2 -- 55.5
06/01/18 22:00 US !! ISM Manufacturing May 58.7 58.2 57.3

Source: Bloomberg L.P. 8

Please note and carefully read the Important Disclosure on the last part

Appendix 3: Upcoming Economic Figures (Jun 4, 2018 – Jun 8, 2018)

Time Importance Event Period Actual Survey Prior

Monday
06/04/18 09:30 AU !! Retail Sales MoM Apr -- -- 0.00%
06/04/18 22:00 US !! Durable Goods Orders Apr -- -- --
06/04/18 22:00 US !! Durables Ex Transportation Apr -- -- --
Tuesday
06/05/18 12:30 AU !!! RBA Cash Rate Target Jun -- 1.50% 1.50%
06/05/18 16:00 EC !! Markit Eurozone Services PMI May -- -- 53.9
06/05/18 16:30 UK !! Markit/CIPS UK Services PMI May -- -- 52.8
06/05/18 22:00 US !! ISM Non-Manf. Composite May -- 57 56.8
Wednesday
06/06/18 09:30 AU !! GDP YoY 1Q -- -- 2.40%
06/06/18 20:30 CA !! Int'l Merchandise Trade Apr -- -- -4.14b
06/06/18 20:30 CA ! Building Permits MoM Apr -- -- 3.10%
06/06/18 20:30 US !! Trade Balance Apr -- -$51.3b -$49.0b
06/06/18 22:00 CA !! Ivey Purchasing Managers Index SA May -- -- 71.5
Thursday
06/07/18 09:30 AU !! Trade Balance Apr -- -- A$1527m
06/07/18 17:00 EC !! GDP SA YoY 1Q -- -- 2.50%
06/07/18 20:30 US ! Initial Jobless Claims Jun -- -- --
Friday
06/08/18 07:50 JN !! GDP Annualized SA QoQ 1Q -- -- -0.60%
06/08/18 20:15 CA ! Housing Starts May -- -- 214.4k
06/08/18 20:30 CA !! Net Change in Employment May -- -- -1.1k
06/08/18 20:30 CA !! Unemployment Rate May -- -- 5.80%
06/08/18 CH !! Trade Balance Mar -- -- $28.78b
06/08/18 CH !! Exports YoY Mar -- -- 12.90%
06/08/18 CH !! Imports YoY May -- -- 21.50%

Source: Bloomberg L.P. 9

Please note and carefully read the Important Disclosure on the last part

Appendix 4: Upcoming Economic Figures (Jun 11, 2018 – Jun 15, 2018)

Time Importance Event Period Actual Survey Prior

Monday
06/11/18 16:30 UK !! Industrial Production YoY Apr -- -- 2.90%
06/11/18 16:30 UK !! Manufacturing Production YoY Apr -- -- 2.90%
Tuesday
06/12/18 16:30 UK !! Average Weekly Earnings 3M/YoY Apr -- -- 2.60%
06/12/18 16:30 UK !! ILO Unemployment Rate 3Mths Apr -- -- 4.20%
06/12/18 20:30 US !!! CPI YoY May -- -- 2.50%
06/12/18 20:30 US !!! CPI Ex Food and Energy YoY May -- -- 2.10%
Wednesday
06/13/18 08:30 AU ! Westpac Consumer Conf SA MoM Jun -- -- -0.60%
06/13/18 16:30 UK !! CPI YoY May -- -- 2.40%
Thursday
06/14/18 02:00 US !!! FOMC Rate Decision (Upper Bound) Jun -- 2.00% 1.75%
06/14/18 07:01 UK !! RICS House Price Balance May -- -- -8%
06/14/18 09:30 AU !! Employment Change May -- -- 22.6k
06/14/18 09:30 AU !! Unemployment Rate May -- -- 5.60%
06/14/18 10:00 CH !! Retail Sales YoY May -- -- 9.40%
06/14/18 10:00 CH !! Industrial Production YoY May -- -- 7.00%
06/14/18 16:30 UK !! Retail Sales Ex Auto Fuel YoY May -- -- 1.50%
06/14/18 16:30 UK !! Retail Sales Inc Auto Fuel YoY May -- -- 1.40%
06/14/18 19:45 EC !!! ECB Main Refinancing Rate Jun -- -- 0.00%
06/14/18 20:30 US !! Retail Sales Advance MoM May -- -- 0.30%
06/14/18 20:30 US !! Retail Sales Ex Auto MoM May -- -- 0.30%
Friday
06/15/18 17:00 EC !! CPI YoY May -- -- 1.20%
06/15/18 21:15 US !! Industrial Production MoM May -- -- 0.70%
06/15/18 22:00 US !! U. of Mich. Sentiment Jun -- -- 98
06/15/18 JN !! BOJ Policy Balance Rate Jun -- -- -0.10%

Source: Bloomberg L.P. 10

Important Disclosure
“Citi analysts” refers to investment professionals within Citi Research (CR) and Citi Global Markets (CGM) and voting
members of the Global Investment Committee of Global Wealth Management.
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11
Important Disclosure
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12
Important Disclosure
Unrated or non investment grade Debt Securities typically offer a higher yield than investment grade Debt Securities, but
also present greater risks with respect to liquidity, volatility, and non-payment of principal and interest. As a result of being
classified as non investment grade Debt Securities, these Debt Securities present a greater degree of credit risk relative to
many other fixed income Debt Securities.
Higher Credit Risk – Unrated or non investment grade Debt Securities generally have predominantly speculative
characteristics with respect to the issuer’s capacity to pay interest and repay principal. There is greater risk of non-payment
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their debt obligations, which has led to default and restructurings. The issuers of these Debt Securities generally have to
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Higher Liquidity and Secondary Market Risk – The markets in which unrated or non investment grade Debt Securities are
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Downgrade Risk – Downgrades in the credit rating of unrated or non investment grade Debt Securities by rating agencies
are generally accompanied by declines in the market value of these Debt Securities. In some circumstances, investors in
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being placed on “credit watch” by rating agencies, causing volatility and speculation of further credit deterioration.
Higher Vulnerability to economic cycles - During economic downturns, unrated or non investment grade Debt Securities are
typically more susceptible to price volatility and fall more in value than investment grade Debt Securities as i) investors may
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more risk averse; and iii) default risk rises. This is often referred to a “flight to quality”.
Event Risk – This includes any of a variety of events that can adversely affect the issuer of unrated or non investment
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generally upon the overall economy. It could have a direct or indirect impact on the issuer and their outstanding debts.

13
Important Disclosure
Risk relating to RMB – If you choose RMB as the base currency or the alternate currency, you should also note the
following:

RMB is currently not freely convertible through banks in Hong Kong. Due to exchange controls and/or restrictions imposed
on the convertibility, utilisation or transferability of RMB (if any) which in turn is affected by, amongst other things, the PRC
government's control, there is no guarantee that disruption in the transferability, convertibility or liquidity of RMB will not
occur. There is thus a likelihood that you may not be able to convert RMB received into other freely convertible currencies.

CNH exchange rates and CNY exchange rates are currently quoted in different markets with different exchange rates,
whereby their exchange rate movements may not be in the same direction or magnitude. Therefore, the CNH exchange
rate may be different from the CNY exchange rate.

14