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Pre-reading Risk Currency Mock Session

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Adrien Verdelhan will be discussing currency risk. AdMITs attending this session should read the focus on ‘Carry and the Yen move – Fade or Follow?’ from the attached Goldman Sachs report (p 6 to 11 …

Adrien Verdelhan will be discussing currency risk. AdMITs attending this session should read the focus on ‘Carry and the Yen move – Fade or Follow?’ from the attached Goldman Sachs report (p 6 to 11 of the pdf, marked ii to vii).

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  • 1. The Global FX Monthly AnalystMarch 2012 SEK C$ RUB NOK £ PLN US$ € CHF CNY ¥ MXN INR HK$ BRL ZAR A$ ARS NZ$„„ The beginning of the year has seen a strong performance in FX carry strategies.„„ We look at the drivers and conclude that this mainly reflects an improvement in risk sentiment.„„ The recent strong rally in $/JPY surprised, given most fundamentals remain Yen-supportive...„„ ...although the recent BoJ shift may be important if the Yen remains weak in the new fiscal year.
  • 2. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystContentsOverview Asia Recommended FX Trade Ideas i Australian Dollar 26 Feature ii Chinese Yuan 27 Hong Kong Dollar 28G3 Indian Rupee 29 US Dollar 1 Indonesian Rupiah 30 Euro 3 Korean Won 31 Japanese Yen 5 Malaysian Ringgit 32 New Zealand Dollar 33Europe, Middle East & Africa Philippine Peso 34 British Pound 7 Singapore Dollar 35 Czech Koruna 8 Taiwan Dollar 36 Hungarian Forint 9 Thai Baht 37 Israeli Shekel 10 Norwegian Kroner 11 FX Analytics Polish Zloty 12 Interest Rate Forecasts 38 Russian Ruble 13 GS Sentiment Index 39 South African Rand 14 FX Currents 41 Swedish Krona 15 GS Trade Weighted Indices 43 Swiss Franc 16 GS Anecdotal Flows 45 Turkish Lira 17 GSDEER 47 Key Economic Data 49Americas Policy Rate Forecasts 54 Argentine Peso 18 Exchange Rate Forecasts 55 Brazilian Real 19 Canadian Dollar 20 Chilean Peso 21 Colombian Peso 22 Mexican Peso 23 Peruvian New Sol 24 Venezuela Bolivar 25The source for all tables/charts is Goldman Sachs Global ECS Research unless otherwise stated. March 2012
  • 3. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystRecommended FX Trade IdeasOur Recommended Top Trades for 2012 Trade Opened At Now At Potential Gain1. Close protection on the iTraxx Europe Xover Index 30-Nov-11 759 n/a -3.4 %2. Close short 10-yr German Bunds 30-Nov-11 2.28 n/a -3.5 %3. Long EUR/CHF 30-Nov-11 1.23 1.21 -1.97 %4. Long S&P TSX vs Nikkei, FX unhedged 30-Nov-11 100 94.7 -5.30 %5. Long CNY, MYR vs GBP, USD 30-Nov-11 100 102.54 2.54 %6. Close long July 2012 ICE Brent Crude Oil Futures 30-Nov-11 107.80 n/a 11.6 %Tactical FX Trade Performance 2012 Number Cum Return Avg Return Avg DurationAll Trades 5 5.1% 1.01% 18 daysProfitable 5 5.1% 1.01% 18 daysLoss-Making 0 0.0%Recent Tactical FX Recommendations Description Open Close Open Quote Close Quote Potential Day Time Day Time ReturnShort USD CNY (expiry 10Jun11) 01-Jan-11 "00:00" 10-Jun-11 "02:15" 6.5326 6.4853 0.73%Short AUD CAD 11-Jan-11 "23:43" 08-Feb-11 "17:00" 0.9703 1.0076 -3.70%Long EUR USD 13-Jan-11 "13:51" 28-Jan-11 "15:37" 1.3267 1.3636 2.78%Short USD PHP (expiry 09May11) 07-Feb-11 "11:07" 07-Apr-11 "05:57" 43.5900 43.0900 1.16%Long EUR TRY 09-Feb-11 "09:06" 12-Sep-11 "17:00" 2.1620 2.4349 9.04%Short EUR&USD RUB 01-Mar-11 "12:50" 19-Apr-11 "17:09" 33.6800 33.8472 -0.49%Long EUR USD 18-Mar-11 "10:06" 23-Sep-11 "17:00" 1.4085 1.3517 -4.03%Short USD MYR (expiry 29Mar12) 31-Mar-11 "01:58" 04-Aug-11 "21:36" 3.0660 3.0270 1.29%Short USD PHP (expiry 04Apr12) 07-Apr-11 "05:57" 04-Aug-11 "21:36" 43.1300 42.7300 0.94%Short MXN CLP 06-Jun-11 "12:22" 10-Aug-11 "17:09" 39.9703 38.2700 4.44%Long AUD JPY 29-Jun-11 "09:03" 18-Jul-11 "17:00" 85.7802 83.5749 -2.57%Long Basket (NZD, RUUSD 10-Aug-11 "14:20" 14-Sep-11 "17:00" 100.0000 97.7400 -2.26%Short USD, EUR SGD, MYR 18-Oct-11 "00:11" 01-Jan-12 "00:00" 100.0000 99.0000 1.01%Short AUD JPY 31-Oct-11 "16:02" 02-Nov-11 "16:34" 82.7092 80.7573 2.42%Long RUB HUF 09-Nov-11 "11:16" 06-Dec-11 "17:00" 7.4200 7.1550 -3.57%Short USD, EUR SGD, MYR 01-Jan-12 "00:00" 18-Jan-12 "12:36" 99.0000 97.1702 1.88%Short USD MXN 25-Jan-12 "20:17" 15-Feb-12 "13:35" 13.0300 12.7387 2.29%Short USD CAD 25-Jan-12 "20:17" 10-Feb-12 "17:00" 1.0056 1.0016 0.40%Long EUR USD 25-Jan-12 "19:43" 15-Feb-12 "13:35" 1.3059 1.3086 0.21%Short GBP NOK 22-Feb-12 "18:15" 08-Mar-12 "16:30" 8.8685 8.8424 0.30%Please see our Global Markets Daily Comment and Trade Updates for changes in these live trading strategies, as theychange in line with market developments and our views. i March 2012
  • 4. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystFeatureCarry and the Yen move – Fade or Follow?Since the beginning of the year, FX carry strategies have had a very good run. More recently, Thomas Stolpereven the Yen—historically one of the prime funding currencies for FX carry strategies—has thomas.stolper@gs.com +44 (0)20 7774 5183started to depreciate notably. These developments raise the question of whether carry is backand whether the recent moves could be the beginning of a new multi-year uptrend. We look at Robin Brooksthe evidence and find little indication of a change in the underlying fundamentals so far. robin.brooks@gs.comInstead, continued gains in carry strategies are still likely to depend mainly on broader risk +1 (212) 902 8763sentiment. More specifically on the Yen, we continue to believe that most of underlyingappreciation forces remain in place and we are particularly suspicious of sudden Yen moves Themistoklis M. Fiotakis themistoklis.fiotakis@gs.comaround fiscal year-end. However, before shifting too quickly into the ‘fade’ camp, we have to +44 (0)20 7552 2901acknowledge the potentially important recent policy shift by the BoJ. The price action aroundthe next BoJ meeting and the beginning of the new fiscal year will be particularly interesting. Fiona LakeLastly, we take a more detailed look at the NOK, which in many respects seems to be following fiona.lake@gs.coma pattern that is more customary in Asia. We see the potential for significantly more NOK +852 2978-6088strength in the near future, which is reflected in our new forecasts. Constantin Burgi constantin.burgi@gs.com1. How FX Carry Works in Theory +44 (0)20 7051 4009FX carry strategies are based on the so-called forward rate bias, which is a violation of George Coleuncovered interest rate parity (UIP). On average, significant returns could be earned over george.cole@gs.comlong periods of time in the past simply by investing in high-yielding currencies, funded out +44 (0)207552 3779of low-yielding ones. In a more technical sense, the high-yielding currencies did notdepreciate as much as UIP would have suggested.Many FX carry strategies are A Rebound in FX Carry after a Difficult 2011implemented in more or lesssophisticated baskets, such as our own 1.14investable FX Carry Index, which hasrecently been revamped to reduce 1.12transaction costs (BBG ticker 1.10GSIMCAR1). 1.08Since the beginning of the year, these 1.06simple FX carry strategies have been 1.04performing well, recovering fully thelosses accumulated in 2011, as can be 1.02seen in the chart. For example, our GS 1.00Carry Index has posted a total return ofabout 3.5%, with a high Sharpe ratio 0.98and virtually no pullback. This has been 0.96the best performance window since 07 08 09 10 11 12 Source: GS Global ECS Researchearly 2009, when FX carry strategiesrebounded from the 2008 slump. Summary and Key Points The beginning of the year has seen strong performance in FX carry strategies. We look at the drivers and conclude that this mainly reflects an improvement in risk sentiment, rather than a fundamental shift back towards a more carry-supportive environment. The recent strong rally in $/JPY surprised given that most fundamentals remain firmly Yen-supportive. Also, the Yen tends to display sudden trend reversals around fiscal year-end in Japan, which would support our bias to ‘fade’ the recent move. But the recent BoJ shift may be important and warrant a change in view. Much will depend on the BoJ’s determination and the response to additional policy easing in fixed income markets. We look at Norway (and the NOK), which increasingly seems to follow the pattern of Asian ‘surplus’ countries. Given rising appreciation and inflation pressures and low interest rates, this creates scope for further NOK appreciation. ii March 2012
  • 5. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystSuch a period of strong carry returns always raises the Cross Sectional Standard Deviation Remainsquestion of whether FX carry could again become a at Levels Close to Post-GFC Lows 8major investment theme. Back in the years leading up tothe Global Financial Crisis (GFC), diversified carry 7strategies delivered some of the highest Sharpe ratios ofany investment strategy. A revival of FX carry wouldtherefore be an important development for FX investors. 6There is a considerable body of academic research about 5carry strategies and the violation of UIP, but relativelylittle has been said so far about the reasons why carry has 4performed so badly in recent years. Depending onimplementations, total returns have been close to zerosince 2007 in most cases. As a starting point, we describe 3 Std Devn of 2Y Swap Ratessome key characteristics that drive carry returns and why. Average of 2Y Swap Rates 2Most simple FX carry implementations start with a 01 02 03 04 05 06 07 08 09 10 11 12 Source: Bloomberg, GS Global ECS Researchbasket of currencies on the long side and another bunchof currencies on the funding side. These strategies currencies from appreciating in response to easing bytypically perform well in the following broadly defined other countries, in particular the mature but debt-riddensituations: developed economies. In recent months, the Fed, BoE, ECB and BoJ have all engaged in additional non- When the average interest rate differential between conventional easing. Many central banks in smaller the high-yielding and the low-yielding currencies is developed countries and emerging markets (EM) were relatively high, as this represents the primary source of obliged to follow, unless they were willing to engage in returns. In the most basic description of carry returns, some form of ‘macro-prudential’ capital controls or one can assume that spot exchange rates follow a intervention to prevent their currencies from excessive random walk, which means that on average the return appreciation. The latest measures by Brazil are an will be close to the interest rate differential between excellent example of how the carry potential is being these two currencies. eroded by central bank rate cuts in combination with tighter capital controls. When the high-yielding currencies appreciate relative to the low-yielding ones (a strong violation of UIP). In Even from a slightly forward-looking perspective, when this case, a second source of return, spot looking at 2-yr swap rates, the overall level of rates appreciation, will be added to the gains from the remains low in most countries, with few expectations of interest rate differential. future tightening. Moreover, the cross-sectional standard deviation of interest rates also remains at levels close to When the correlation among the basket constituents the post-GFC lows (see chart). Simply put, interest rate is relatively low. This helps the diversification of differentials are small across the world, which means that idiosyncratic risks and hence increases risk-adjusted the primary driver of carry returns in the long run returns of carry strategies. remains very subdued. When the correlation between currency moves and broader risky asset returns are low, as this reduces Hypothetical return of shorting $/TRY % the likelihood of market-wide risk aversion swings via 1-year forwards affecting the risk-adjusted returns of the strategy. 120 100There is some overlap between these loosely definedconditions but each of them can be tracked relatively 80easily. 60 402. Many Headwinds for FX Carry Strategies RemainTaking the criteria introduced in the section above one by 20one, we can only conclude that the broader situation 0remains very unfriendly for FX carry. -20Interest rate differentials remain low across the globe. -40If anything, central banks seem to be engaging in a kindof competitive easing, as discussed by Kamakshya -60Trivedi and Stacy Carlson in a recent Global Economics 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: GS Global ECS ResearchWeekly. This is also partly an attempt to prevent iii March 2012
  • 6. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystThe second issue above, additional spot returns, is easy Correlation Between FX Carry Strategiesto benchmark given that, on average, total returns on and SPX Remains High Indexcarry strategies have been almost perfectly flat since 0.62007. Although there have been periods of Correlation* between FX 230 Carry Basket and SP500outperformance, there have also been comparable 0.5 (lhs)stretches of underperformance. On average, the 210 0.4 FX Carry Basket (rhs)negligible total returns suggest that higher-yieldingcurrencies have depreciated sufficiently, while lower- 190 0.3yielding ones have appreciated, erasing all positivereturns from interest rate differentials. One could even go 170 0.2as far as to assert that UIP actually did hold in recentyears. Even at the country level, this is true for some of 0.1 150the higher-yielding currencies. In the chart on theprevious page, we plot the potential percentage return 0 130from buying the Turkish Lira against the USD via a 1-year forward and holding it to expiry. Starting right after -0.1 110 00 01 02 03 04 05 06 07 08 09 10 11 12the last Turkish financial crisis in 2001, total returnswould have been exceptionally high, at times reaching Source: GS Global ECS Research; *255 day correlationmore than 100%. However, since 2008, potential losseshave been about as frequent as gains in the +/-20% range. Finally, with individual currencies highly correlated withOn average, the spot moves in the Lira have fully offset each other and given broader risk sentiment, it is notany gains from higher interest rates. unexpected that diversified FX carry strategies also have a high correlation to risky assets. Indeed, theThe correlation between currencies has also remained daily return correlation between FX carry and the SPXvery high on our measures. It is not particularly easy to remains at high levels at around +40%, which is close tomeasure the cross currency correlation among the 30-odd where it has been since the GFC. As a benchmark, beforeliquid currency pairs, as there are around 200 possible the crisis started in 2007/08, the same correlationcross rates that one could compare. Depending on the typically oscillated around the +10% mark.specific choices, very different correlation patterns mayemerge. To tackle this issue in the past, we have simply After analysing all these related indicators, we concludelooked at the correlations of trade-weighted exchange that the recent rally in FX carry was probably no morerates to some third factor, typically some measure of than a correlated reaction to the improvement in broadermarket risk. If all currencies respond similarly to the risk risk sentiment. The forward-looking implication is thatfactor, they are likely also highly correlated among each the recent FX carry rally can only continue if the broaderother. The chart shows the average correlation in daily risk rally continues with little pullback.returns of the G10 and the most liquid EM currencieswith US stock markets. Given that we are not interested Alternatively, a broader shift back into a carry-favourablein the direction of this correlation but rather its strength, regime, similar to the pre-crisis period, would also help.we remove the sign and use the average ‘absolute’ However, this would imply that a number of centralcorrelations. As can be seen, these have been persistently banks would have to tighten monetary policy to raisehigh since the GFC; hence, we think it is unlikely that the interest rate differentials, which will take time. Crossconstruction of a broad carry basket offers any major asset correlations would have to become smaller, too. Sodiversification benefits. Most currency moves seem to be far, there is little evidence of this happening, as our chartsthe result of systemic risks. suggest. But that doesn’t mean the situation couldn’t change soon. We will watch our indicators closely. FX-Risky Asset Correlation Remains Exceptionally High0.45 3. Carry, the BoJ and the Yen Average of abolute return 0.4 correlation* between G10 After months of debating the latest twist in the ongoing currencies and the S&P500 Euro area crisis, a sudden BoJ-induced move in the Yen0.35 was a welcome distraction for many in FX markets. And, Average of abolute return 0.3 correlation* between EM as we have already seen several times in recent years, a currencies and the S&P500 sharp move higher in $/JPY triggers market speculation0.25 about the fundamentals finally changing. 0.2 Memories of high carry returns funded out of the Yen0.15 may be a factor as well, in particular if—as we discussed 0.1 above—FX carry seems to be experiencing a superficial revival. As in the previous section, ‘fade or follow’0.05 would seem to be the key question. 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: GS Global ECS Research; *255 day correlation iv March 2012
  • 7. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst $/JPY A Sharp Move Higher in $/JPY since February JPY Bn Trade Balance Deteriorates but Income Balance Improves Notably 82 1200 Current Account Balance JPY spot (lhs) 1000 Net Portfolio Investment Income 81 Net Direct Investment Income 800 80 600 79 400 78 200 0 77 -200 76 -400 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 75 01Jan12 15Jan12 29Jan12 12Feb12 26Feb12 11Mar12 Source: Bank of Japan/ Ministry of Finance/ Haver Analytics/ Source: GS Global ECS Research GS Global ECS ResearchPerhaps the easiest way to approach the issue is simply to purchases have been concentrated at the very front endsummarise what has changed and what has not. We start of the yield curve so far has reduced the effectivenesswith the JPY factors that have changed recently: of QE. Moreover, the BoJ has remained substantially behind the asset purchase targets, which also suggests The most important factor is that the BoJ has recently a lack of conviction. Without a more convincing become more dovish. A redefinition of the inflation implementation of asset purchases and front-loaded target and a stronger commitment to reach this target purchases of longer maturity bonds, the JPY impact faster via increased asset purchases marks a significant may remain quite limited. departure from past policy—at least by Japanese standards. However, even if the BoJ became fully committed to more aggressive QE, the BoJ would still be at risk of Japan also experienced a substantial deterioration in being ‘out-eased’ by the Fed. Although growth has the trade balance, which moved into deficit in 2011 been surprising on the positive side in the US recently, for the first time since the early 1980s at least on a we still expect the Fed to ease more via a new program calendar year basis. of non-conventional policies to kick in after the ongoing ‘Operation Twist’. Further strong activity dataThe combination of a trade deficit and easier monetary in the US could change this, but for now there are nopolicy appear, on the surface, to reflect a substantial reasons to change our Fed forecast.deterioration in the factors that have supported the JPY inthe past. However, the situation remains much more In that respect it is interesting to note that $/JPY hascomplex, and so far it is far from clear if the JPY moved far ahead of essentially unchanged ratefundamentals have really changed that much. We would differentials. For example, if we look at 5-yr ratehighlight the following points, largely based on earlier differentials, BoJ QE would need to push 5-yr swapanalysis by Fiona Lake and our Japanese Economics rates down from currently slightly less than 50bp toteam: almost zero in order to bring the rate differential in line with the current spot rate above $/JPY 80. A large part of the deterioration in the trade balance appears to be of temporary nature, linked to global Foreign official investors continue to like the put more demand weakness and the disruptions from the Yen into their FX reserves. The regular IMF COFER earthquake as well as the floods in Thailand. data shows that over the last couple of quarters the Relocation of production to other countries with share of JPY-allocated FX reserves has been growing cheaper and more abundant labour has also played a steadily. Historically, the low interest rates in Japan role. However, the income balance remains strong and have probably been a hurdle to a larger allocation, but has improved notably recently, along with the with European and US interest rates now at deterioration in the trade balance. Overall, the current comparable levels the opportunity cost of holding account position of Japan is likely to remain in JPY-denominated bonds has gone down. From a pure solid surplus, as our Japanese colleagues have also diversification point of view, a larger Yen allocation argued. appears to be a rational choice, and without any monetary policy tightening expected in the rest of G3 a The degree of conviction conveyed by the BoJ continued increase in JPY reserve allocations should leadership through its actions and communications not be ruled out. has so far been slightly unclear. With regards to the change in the BoJ’s stance, the fact that bond v March 2012
  • 8. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst $/JPY $/JPY has Moved Far Ahead of Rate Index US$/YEN vs GS Sentiment Index US$/YEN % Differentials 10 140125 4.5 Sentiment 8 Index (lhs)120 130 4.0 US$/YEN (rhs)115 6 3.5 120110 4 3.0 2105 110100 2.5 0 100 95 -2 2.0 90 -4 90 JPY spot (lhs) 1.5 85 -6 5Y Swap Rate Differential US 1.0 80 80 less Japan (rhs) -8 75 0.5 -10 70 1Jan04 1Jan06 1Jan08 1Jan10 1Jan12 08 09 10 11 12 Source: GS Global ECS Research Source: GS Global ECS Research With rate differentials failing to correlate with the Overall, most factors point to a likely reversal of the recent spot move, the search for alternative recent JPY move, and in that respect the ‘follow or fade’ explanations points to speculative long positioning in question would be relatively easy to answer. $/Yen. Our latest GS Sentiment Index (see page 39) suggests that $/JPY positioning is now longer than at However, we also have to recognise that the BoJ policy most times over the last two years, and probably shift is potentially a very important event, as also stretched. This would also imply that unwinding of highlighted by our Japanese colleagues. With the these positions could lead to a notable Yen rally. situation remaining fluid and with fiscal year-end still a few weeks away, we want to remain open-minded to the Returning to a point made above, risky asset possibility that a more substantial change has taken place correlations remain quite strong, and hence it is quite with regard to the JPY. In that respect, March 13 will be a likely that the continued rally in cyclical assets has key date as both the BoJ and the FOMC announce their helped $/JPY higher. monetary policy decisions. Any signs of continued reluctance by the BoJ to engage in more aggressive QE Lastly, it is important to signal that Japan is approaching would strengthen our preference for the ‘fade’ camp. The fiscal year-end, a period that has historically seen same applies for a dovish FOMC. strong seasonal trends. When we have analysed this phenomenon in the past, $/Yen displayed the strongest The ultimate litmus test will likely be interest rate trends, regardless of direction, in March. And in the last differentials on longer maturities. If they catch up with three years these trends have seen JPY weakness of the recent move, $/JPY may have more upside. comparable magnitude into fiscal year-end, only to reverse into JPY strength straight after the beginning of the new fiscal year in April. % of Rising Share of Yen Holdings Rally in Cyclical Assets may Have Helped total $/JPY Index in Global FX Reserves* $/JPY higher3.5 1375 85 JPY spot (lhs)3.0 Yen denominated S&P 500 (rhs) 1325 reserves2.5 83 12752.0 81 12251.51.0 79 11750.5 77 11250.0 05 06 07 08 09 10 11 75 1075 1-Mar-11 1-Jun-11 1-Sep-11 1-Dec-11 1-Mar-12 * Developing Nations, Source: IMF, GS Global ECS Research Source: GS Global ECS Research vi March 2012
  • 9. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst $/JPY Another Temporary Fiscal Year End Rally for €/NOK EUR/NOK Moved Lower Recently $/JPY?102.5 10.50100.0 JPY spot (lhs) EUR/NOK 10.00 97.5 95.0 9.50 92.5 9.00 90.0 87.5 8.50 85.0 82.5 8.00 80.0 7.50 77.5 75.0 7.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 07 08 09 10 11 12 Source: GS Global ECS Research Source: GS Global ECS Research4. Norges Bank in the ‘Asian’ Corner prices now well above pre-crisis levels, as can be seen inThe following scenario is very much the standard case for the chart. Unsurprisingly, this credit-driven rise in housemost Asian surplus countries: prices also led to rather high levels of household indebtedness. Key measures of inflation also point to theCurrency appreciation is continuously resisted by a upside. And, in response to the Euro area crisis, Norgescombination of rather accommodative monetary policy Bank has already cut rates aggressively—by 50bp inand ongoing FX interventions. Every now and then, December.however, inflation starts to materialise, including in assetprices, which then triggers concerns for the monetary The situation now looks very much like the typical Asianauthorities. In practice, we often see Asian ‘surplus’ appreciation case. Without much scope to ease furthercountries tolerate more nominal appreciation during these and concerns about asset and goods prices, the logicalperiods of higher inflation and strong growth. But history conclusion would be to allow the currency to appreciate.has shown that many Asian currencies ONLY appreciate This is already happening to some extent but we thinkin these circumstances. there is more scope for appreciation and hence we have strengthened our already bullish NOK forecasts. We nowThe same dynamics seem to be at play in Norway see EUR/NOK at 7.30, 7.20 and 7.20 in 3, 6 and 12currently. Intervention is being conducted on behalf of months. Indeed, the trading range for our forecasts couldthe ‘Petroleum Fund’ (Government Pension Fund— easily reach 7.00, so there is potential for an even largerGlobal) to neutralise the revenues from oil exports. As ‘Asia-type’ move in the Nokkie.Lasse Nielsen has highlighted, growth is accelerating, asevident in strong positive surprises from business surveys We are also adjusting our EUR/SEK forecasts to reflectand industrial production. Moreover, years of low real recent strength but see much less upside for the Swedishrates have led to continued property price increases, with Krona than for its Norwegian cousin. Index Low Real Rates Have Led to Continued Property Price Increases 160 Norway House Price Index 140 New FX Forecasts New Forecasts Old Forecasts 120 3m 6m 12m 3m 6m 12m 100 EUR/NOK 7.30 7.20 7.20 7.70 7.70 7.60 EUR/SEK 8.80 8.70 8.60 9.00 8.90 8.80 80 EUR/CZK* 25.00 25.50 24.25 27.50 27.00 25.50 EUR/HUF* 315 315 325 340 350 320 60 EUR/PLN* 4.25 4.10 4.10 4.80 4.70 4.30 40 $/RUB 28.9 28.2 27.4 28.8 28.0 27.4 $/CNY 6.27 6.22 6.10 6.28 6.24 6.12 20 $/ARS 4.50 4.80 5.20 4.45 4.70 5.20 $/BRL 1.70 1.70 1.75 1.80 1.85 1.90 0 92 94 96 98 00 02 04 06 08 10 *Forecast changes released since our last FX Monthly was published Source: GS Global ECS Research Source: GS Global ECS Research vii March 2012
  • 10. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystG3US DollarFX Forecasts: We maintain our EUR/$ forecast at 1.33, 1.38 and 1.45 in 3, 6 and 12 months respectively. Our $/¥forecast is unchanged at 77.0, 76.0 and 74.0. Current GSDEER for EUR/$: 1.20; $/¥: 105.7.Motivation for Our FX View: Since early February, the USD trade-weighted index has remained broadly flat. And inthe near term, until more of the Euro area risks are resolved, we could see renewed bouts of USD strength. But in themedium and longer term, broad Dollar weakness remains our core view. Underpinning our Dollar-bearish views are thestructural, large twin deficits that will likely persist. The overall monetary stance of the US is also one of the easiest inthe world following Operation Twist last September and given the likelihood of QE3 this year. In addition, theaccommodative policy in the majors should eventually prove supportive for risky assets and bearish for the Dollar.Monetary Policy and FX Framework: The Fed has a dual growth and inflation target. As a result, monetary policyhas generally been more volatile and reactive than in pure inflation-targeting countries. The exchange rate floats freely.The US Treasury is in charge of FX policy, although the Fed occasionally comments on currency issues too.Growth/Inflation Outlook: We expect real GDP growth to be around 1.9%qoq ann in Q1, as the strong contributionof inventories to the 3.0%qoq ann growth in Q4 is likely to fade. Also, consumer spending has decelerated and the dataflow was more mixed recently. We see considerable spare capacity in the economy, which underpins our view of adeceleration in core inflation.Monetary Policy Forecast: At the January meeting, the FOMC remained dovish despite the stronger data recently andpublished its forecast for the Fed Funds rate. The projections show that the Fed intends to keep rates close to zerothrough the end of 2014. The FOMC continued to highlight the slack in the economy and slowing inflation, and weexpect further easing through outright asset purchases in 1H2012.Fiscal Policy Outlook: Over the next few years, the US will need to undertake fiscal tightening of at least 6% of GDP.We expect only a modest fiscal tightening in the near term and most is likely to take effect after the presidentialelections.Balance of Payments Situation: The US BBoP deficit has narrowed sharply to -0.9% of GDP in Q3, reflecting to alarge extent the record level of foreign buying of US treasuries in August. The current account deficit narrowedmarginally to 2.9% of GDP in Q3, but we expect it to widen again in coming months.Things to Watch: The pace of the US cyclical recovery remains key to monitor given the implications for the relativemonetary stance and also for overall risk sentiment. In addition, we continue to monitor capital flow trends in themonthly TIC data for signs of any persistent improvement in the BBoP, and the fiscal and monetary policyannouncements. Fiona Lake and Constantin Burgi % of GDP EUR/$ 4qtr avg US: BBoP vs. Current Account1.70 21.50 01.30 -21.10 -40.90 -6 Current Account0.70 Spot BBoP GSDEER0.50 -8 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Haver Analytics, National Source, Global ECS Research. 1 March 2012
  • 11. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystUS Dollar %yoy US Industrial Production and real GDP %yoy US Inflation 15 6 Fcast 5 Fcast 10 4 5 3 2 0 1 -5 0 -1-10 G10 Inflation Industrial Production -2 US CPI Real GDP-15 -3 90 92 94 96 98 00 02 04 06 08 10 12 14 92 94 96 98 00 02 04 06 08 10 12 14 % yoy US Trade Volumes Index 1990=100 US Terms of Trade 3-mth ma 24 112 20 110 16 108 12 106 8 104 102 4 100 0 98 -4 96 -8 94-12 92 TOT-16 Exports Improvement 90-20 Imports 88-24 86 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 90 92 94 96 98 00 02 04 06 08 10 12Index GS Commodity Indices Index % FED rate vs. 10y yield and S&P500 Index600 1000 7 1600 S&P GSCI® Energy Index UST 10y yield S&P GSCI® Industrial Metal Index 900 FED funds rate 1500 S&P GSCI® Agriculture Index 6500 S&P GSCI® Index (rhs) SPX (rhs) 800 1400 700 5400 1300 600 4 1200300 500 3 1100 400200 1000 300 2 200 900100 1 100 800 0 0 0 700 00 01 02 03 04 05 06 07 08 09 10 11 12 99 00 01 02 03 04 05 06 07 08 09 10 11 12 2 March 2012
  • 12. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystEuroFX Forecasts: We maintain our EUR/$ forecast at 1.33, 1.38 and 1.45 in 3, 6 and 12 months respectively. EUR/¥ is at102.4, 104.9 and 107.3. Current GSDEER for EUR/$: 1.20.Motivation for Our FX View: Since late January, the Euro has been broadly flat against the USD, with the secondLTRO and stronger data supporting the EUR, and the uncertainties regarding the Greek PSI (which are yet to be fullyresolved) pulling in opposite directions. The Euro may thus remain volatile in the short term, before strengthening asper our medium- and long-term views. The key driver of our view is that FX markets will remain dominated by broadDollar weakness, particularly on the back of the weakness of the US external balance. The Euro area BBoP remainsstrong on a trend basis, whereas the US has recorded large deficits for some time. A gradual further decline in the Euroarea fiscal risk premium should boost the Euro. These factors should enable the Euro to trade strongly relative to fairvalue for a protracted period.Monetary Policy and FX Framework: The ECB is a strict inflation targeter. As a central bank serving 17 countries,the ECB is arguably the most independent central bank in the world. The Euro is a freely-floating currency. FX policyresponsibility is not clearly defined, but in practice the ECB is unlikely to act in FX markets without Eurogroupapproval.Growth/Inflation Outlook: The Euro area manufacturing PMI increased marginally in February to 48.9; thiscompares with the February US ISM decrease to around 52.4. Euro area business surveys suggest upside risks to ourcurrent GDP forecasts and we expect Q1 GDP to come in at -0.3%qoq. For the entire year, we forecast -0.4% real GDPgrowth in 2012 followed by 0.7% in 2013. We see inflation falling to 1.8% in 2012 from 2.7% in 2011 and to 1.5% for2013 as the food and energy contribution declines.Monetary Policy Forecast: The ECB left rates unchanged at 1.00% in March and specified that while there aretentative signs of stabilisation, downside risks to activity prevail. The inflation risks remained broadly balanced. Wethink the ECB will keep rates at 1.00% through 2013.Fiscal Policy Outlook: Many governments in Europe are heading into substantial fiscal consolidation, which is likelyto prove a drag on growth. However, the relative fiscal positions between the Euro area and the US are what mattersfor the EUR/$, and the US also faces large adjustment needs of its own, which have not yet been addressed.Balance of Payments Situation: The Euro area runs a small current account deficit, which is fully financed by netFDI and net portfolio flows on a trend basis, leading to a quite positive BBoP.Things to Watch: Developments in the European Sovereign Situation, in particular the outcome of the Greek PSI deal. Fiona Lake and Constantin Burgi % GDP Euro area: BBoP vs Current Account EUR/$ 12-mma1.70 5% CA 4% BBoP1.50 3% 2%1.30 1%1.10 0% -1%0.90 -2%0.70 Spot -3% GSDEER -4%0.50 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 -5% 98 00 02 04 06 08 10 12 3 March 2012
  • 13. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystEuro %yoy Euro area Industrial Production and real GDP %yoy Euro area Inflation 10 5 Fcast Fcast 4 5 3 0 2 -5 1 0-10 Industrial Production -1 Real GDP-15 -2 G10 Inflation Euro area CPI-20 -3 90 92 94 96 98 00 02 04 06 08 10 12 14 92 94 96 98 00 02 04 06 08 10 12 14 % yoy Euro area Trade Volumes Index Euro area Terms of Trade 3-mth ma 2000=100 20 130 16 125 12 120 8 115 4 110 0 105 -4 100 -8 95-12 TOT-16 Exports 90 Improvement-20 Imports 85-24 80 01 02 03 04 05 06 07 08 09 10 11 12 90 92 94 96 98 00 02 04 06 08 10 12 % EUR/$ Vol EUR/USD: 3-mth Risk Reversals EUR/$ vs 2-yr Rate Differential 3 1.8 2.0 2-yr Germany Swap Minus 2-yr US Swap EUR/$ (rhs) 1.7 1.0 2 1.6 0.0 1 1.5 -1.0 0 1.4 -2.0 1.3-1 1.2 -3.0-2 1.1 -4.0-3 1.0 06 07 08 09 10 11 12 -5.0 08 09 10 11 12 4 March 2012
  • 14. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystJapanese YenFX Forecasts: Our views have not changed. We continue to expect $/JPY to trade at 77, 76 and 74 in 3, 6 and 12months. EUR/¥ is 102.4, 104.9 and 107.3. The current $/¥ GSDEER is 105.7 and EUR/¥ is 126.6.Motivation for Our FX View: JPY has depreciated by about 6% against the USD since early February, with the bulkof the move generated by a surprise easing move from the BoJ at the February meeting, which included a firming ofthe commitment to 1% inflation in the medium term. At this point we would be inclined to fade this weakness unlessthere is further, more aggressive easing from the BoJ. Our view is based on our expectation of further QE from theFed, the fact that Japan continues to run a more positive external balance than the US and that positioning in USD/JPYappears to be rather long. Further reserve diversification into the Yen would also be supportive.Monetary Policy and FX Framework: The BoJ has effectively shifted back to a zero interest rate policy. The Yen isformally a freely floating currency, but the MoF is in charge of FX policy and has often intervened in the past. SinceSeptember 2010, there have been several examples of bilateral intervention, as well as the post-earthquake co-ordinated intervention.Growth/Inflation Outlook: While the Japanese economy has recovered more strongly than expected from the Marchearthquake, it faces the challenge of a slower global environment over the next 6 months and beyond. This will weighon export performance, as will the strength of the Yen. We now expect growth to be 2.0% in FY2012, with public-sector demand offsetting the global slowdown. We expect growth to be 1.8% in FY2013, a fairly strong print, which islikely to be helped by the frontloading of demand ahead of a potential consumption tax hike in 2014. We expectinflation to turn positive in 4Q2012, but price pressures are likely to remain mild.Monetary Policy Forecast: The BoJ increased, and extended to end 2012, its Asset Purchase Program by JPY10trn toJPY65trn on February 14, probably due to an ongoing dovish Fed and domestic political pressure. For the Yen toremain weak, the BoJ is likely to need to extend its recent easing further. As yet, progress on the asset purchaseprogram remains slow.Fiscal Policy Outlook: Japan has introduced several rounds of supplementary budgets after the earthquake, totalling atouch above 4% of GDP. A consumption tax hike is being debated for 2014 to stabilise the worrying debt trajectory.Balance of Payments Situation: Japan continues to run a BBoP surplus on the back of a current account surplus,which is dominated by a positive income balance. Unlike in other countries, bond outflows in recent years havetypically coincided with Yen strength.Things to Watch: Any further aggressive policy action from the BoJ/Japanese government. Any increased focus onthe Japanese fiscal and debt levels, particularly if question-marks over unsustainability start to emerge more forcefully. Fiona Lake % GDP Japan: BBoP vs Current Account $/¥ 12-mma300 8% Spot 6%250 GSDEER 4% 2%200 0% -2%150 -4%100 -6% CA -8% BBoP 50 -10% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 5 March 2012
  • 15. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystJapanese Yen %yoy Japan Industrial Production and real GDP %yoy %yoy Japan Inflation 15 40 5 Fcast G10 Inflation Fcast 30 4 Japan CPI 10 20 3 5 10 2 0 0 1 -10 0 -5 -20 -1-10 Real GDP -30 -2 Industrial Production (rhs)-15 -40 -3 90 92 94 96 98 00 02 04 06 08 10 12 14 92 94 96 98 00 02 04 06 08 10 12 14 % yoy Japan Trade Volumes Index Japan Terms of Trade 3-mth ma 2000=100 50 150 40 140 30 130 20 120 10 110 0 100-10 90-20 80 TOT Exports 70 Improvement-30-40 Imports 60-50 50 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 % $/JPY Vol USD/JPY: 3-mth Risk Reversals $/JPY vs 2-yr Rate Differential 8 125 2 2-yr US Swap Minus 2-yr Japan Swap 7 $/JPY (rhs) 120 0 6 115 5 110 -2 4 105 -4 3 100 2 95 -6 1 90 -8 0 85-1 80 -10-2 75 06 07 08 09 10 11 12 -12 08 09 10 11 12 6 March 2012
  • 16. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystEurope, Middle East & AfricaBritish PoundFX Forecasts: We maintain our EUR/GBP forecasts at 0.87 in 3, 6 and 12 months. Given our EUR/$ forecasts, thistranslates into GBP/$ at 1.53, 1.59 and 1.67 in 3, 6 and 12 months. Current GSDEER for EUR/GBP is 0.79 and forGBP/$ is 1.51.Motivation for Our FX View: Sterling is trading at a discount to fair value vs the EUR. However, persistently highinflation prints have started to erode GBP valuation. GBP has recently benefited from safe haven flows linked to theEuro area crisis and a broader weakening of the EUR. Therefore, it has overshot our forecast. Cyclically, theconsolidation in fiscal policy combined with an accommodative monetary policy stance is typically negative for FX(the BoE eased monetary conditions by increasing asset purchases by GBP50bn over three months). These forcesshould keep GBP within our flattish forecast path, with the recent strength reversing in the near term. Broader USDweakness should lead to considerable strength in Cable.Monetary Policy and FX Framework: The Bank of England is tasked with price stability, defined as CPI at 2% overtime. If inflation falls below 1% or rises above 3%, the BoE must write a letter of explanation to the Chancellor of theExchequer. Sterling operates under an entirely free float, although the BoE occasionally comments on exchange ratedevelopments.Growth/Inflation Outlook: We expect the economy to grow by 1.2% in 2012 (above consensus of 0.5%) and by 2.3%for 2013. The composite PMI fell to 53.6 in February, with both manufacturing and services falling. In January,headline CPI fell sharply to 3.6% as the effect of the 2011 VAT hike faded. We expect inflation to continue to fall inthe coming months and average 2.6%yoy in 2012 and 2.0%yoy in 2013.Monetary Policy Forecast: The BoE extended asset purchases at its February meeting (GBP50bn over three months),due to weak growth and thus considerable easing in inflation pressures. We expect a further easing by GBP50bn inMay.Fiscal Policy Outlook: The government has set out a plan for an 8% of GDP reduction in the structural deficit and 9%of GDP in the primary structural deficit. Three-quarters of the adjustment will occur via spending cuts, while thechange in taxes is minor in comparison.Balance of Payments Situation: We expect further improvements in the current account balance. Our forecast is foran improvement to -1.8% of GDP for 2012 before moving back to -2.3% for 2013, after -2.4% in 2011. Meanwhile,portfolio flows remain notoriously difficult to assess given the large gross cross-border flows linked to London as afinancial centre.Things to Watch: The impact of fiscal policy on final demand and the trajectory of the PMI remain the key factors towatch. A sudden change in the Bank of Englands stance would be relevant as well. Constantin Burgi % GDP UK: BBoP vs Current Account EUR/£ 4-qtr ma1.00 20% CA0.90 15% BBoP0.80 10%0.70 5%0.60 0%0.50 -5% Spot0.40 -10% GSDEER0.30 -15% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 91 93 95 97 99 01 03 05 07 09 11 7 March 2012
  • 17. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystCzech KorunaFX Forecasts: We recently revised our EUR/CZK forecasts to 25.00, 25.50 and 24.25 in 3, 6 and 12 months,respectively, from 27.5, 27.0 and 25.5. This implies a USD/CZK forecast of 18.80, 18.48 and 16.72. Current GSDEERfor EUR/CZK is 23.09, equivalent to a 7.0% undervaluation against the EUR. USD/CZK GSDEER is 19.28.Motivation for Our FX View: We expect the Koruna to be supported in the near term by a more positive outlook forthe Euro area and its banks, and global liquidity in general. We see a risk that the CZK weakens towards the middle of2012, on profit-taking and repatriation of FDI income, but a generally strong balance sheet, low stock of external debtand limited reliance on foreign funding should help the Koruna appreciate in 2H2012. Euro area news will continue toaffect the Koruna; however, it should remain the least sensitive currency in the CE-3.Monetary Policy and FX Framework: The CZK is a freely-floating currency. However, since the economy is veryopen, the CNB monitors FX movements when setting interest rates. The inflation target is 2%.Growth/Inflation Outlook: Growth is likely to stay below potential in 2012 as the external environment weakens,especially in the Euro area; domestic demand should remain weak because of low consumer sentiment and continuedfiscal restraint. We expect inflation to stay above the target for the rest of 2012 following a VAT hike in January, but itshould start to decline from 2H2012 onwards; weak domestic demand should reduce other inflationary pressures.Monetary Policy Forecast: The CNB has kept the policy rate at a record low 0.75% since April 2010, after a total of300bp in cuts. In the absence of domestically generated inflationary pressures and a weakening growth outlook, theCNB will not respond to the recent inflation jump. However, cuts are unlikely as well, suggesting an even longer waitand see period.Fiscal Policy Outlook: The three-party governments determination to keep public finances in check and balance thebudget in the medium term has been appreciated by investors and rating agencies, and has kept long-term rates well-anchored, leading to a two-notch upgrade by Standard and Poors in 2012. The ongoing consolidation resulted in alarge deficit reduction in 2010 and 2011, but it is affecting consumer sentiment, which was already low following thecrisis, and will continue to weigh heavily on domestic demand.Balance of Payments Situation: The Czech Republic maintains a trade surplus although the income account remainsin deficit due to the high repatriation of FDI profits. The current account should therefore stay in deficit in 2012-13,although it should be easily financed with steady FDI and other inflows.Things to Watch: The economy is highly integrated with the Euro area through trade and financial links, and hencealso with the global economy. The growth outlook abroad therefore has direct implications for Czech exports anddomestic growth, while the financial standing of Euro area banks has a strong impact on the Koruna outlook. Still, awithdrawal from the country or deleveraging is unlikely, given the strong balance sheets of local banks and ampledomestic funding. Magdalena Polan % GDP Czech Rep: BBoP vs Current Account EUR/CZK 4-qtr ma 45 10% Spot 8% 40 GSDEER 6% 35 4% 2% 30 0% 25 -2% 20 -4% -6% 15 CA -8% BBoP 10 95 97 99 01 03 05 07 09 11 13 -10% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 8 March 2012
  • 18. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystHungarian ForintFX Forecasts: We recently revised our EUR/HUF forecasts to 315 in 3 and 6 months and 325 in 12 months, from 340,350 and 320, respectively. This implies USD/HUF at 236.8, 228.3 and 224.1 in 3, 6 and 12 months. Current GSDEERfor EUR/HUF is 288.9, which implies a 2.2% undervaluation against the Euro. USD/HUF GSDEER is 241.2.Motivation for Our FX View: The HUF will likely remain under pressure in 2012 as the government proceeds withthe difficult negotiations with the IMF/EU, and as uncertainties over the eventual outcome persist. Setbacks innegotiations, an escalation of disagreements with the EU, or increased risk that Hungary again loses access to debtmarkets, could lead to a rapid weakening of the Forint, although the recent improvement in the Euro area outlook andglobal liquidity could limit the downside risks. An eventual agreement would stabilise the HUF; nevertheless, theForint will likely remain under sustained depreciation pressure as domestic deleveraging continues and risks toprogram implementation persist. The Forint will remain vulnerable to domestic political news and changes in globalrisk appetite. Positive news, such as a lasting solution to the FX debt problem or visible progress in negotiations, wouldbe HUF-positive.Monetary Policy and FX Framework: The NBH targets inflation at 3% in the medium term (18 months-2 years). TheMPC normally holds rate-setting meetings every fourth Tuesday of the month.Growth/Inflation Outlook: Growth reached 1.4% in 2011, thanks to a recovery in external demand; domestic demandremained depressed. The combination of an external slowdown and further fiscal austerity will likely result in a small0.5% contraction in 2012. Inflation will stay above the NBHs target until end-2013 as indirect tax hikes, higher energyand fuel prices, and the effects of a weaker Forint drive up inflation.Monetary Policy Forecast: The NBH hiked rates by 100bp in late 2011 to support the Forint and reduce the risk ofcapital outflows. We think it may have to hike by 100bp more if negotiations with the EU/IMF stall and the HUFweakens sharply; an eventual agreement should lead to gradual cuts.Fiscal Policy Outlook: The Fidesz government is implementing structural reforms to stabilise public finances in thelong term and plans to follow a restrictive budget in 2012 to counteract weakening growth as it aims to meet anambitious deficit goal. Long-term fiscal sustainability will be at the core of the eventual IMF/EU agreement but weakgrowth would likely necessitate a lengthy adjustment.Balance of Payments Situation: The current account should remain in surplus in 2012-13, but capital outflows arelikely to put pressure on the financial account and the HUF. Without additional financing or a new IMF/EU program,Hungary could face a 7%-of-GDP funding gap in 2012.Things to Watch: Risks of a BoP crisis have increased and Hungary needs another sizeable IMF/EU deal to securesubstantial external financing. But the negotiations will be difficult as the government tries to minimise theconditionality associated with another program, and the recent improvement in risk sentiment reduces the urgency tosecure a credible program. Magdalena Polan EUR/HUF % GDP Hungary: BBoP vs Current Account 4-qtr ma320 20% CA BBoP290 15%260 10%230 5%200 0%170 -5%140 Spot GSDEER -10%110 80 -15% 95 97 99 01 03 05 07 09 11 13 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 9 March 2012
  • 19. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystIsraeli ShekelFX Forecasts: We maintain our 3-, 6- and 12-month $/ILS forecasts at 3.70, 3.70 and 3.60. This implies €/ILS at 4.92,5.11 and 5.22 in 3, 6 and 12 months. The current $/ILS GSDEER is 4.09 and €/ILS GSDEER is 4.90.Motivation for Our FX View: We have consistently held constructive ILS views over the past few years. However, awidening current account deficit and slowing growth should cap the upside on the ILS in the short term. Over themedium run, we expect moderate appreciation, on the back of stronger growth and a widening of interest ratedifferentials in favour of the ILS.Monetary Policy and FX Framework: The Bank of Israel enjoys operational independence and targets inflation of1%-3%yoy. Previously, on the MPCs recommendation, the governor set the policy interest rate with a view to keepinginflation within the target band. From October 2011 onwards, the MPC started setting policy rates.Growth/Inflation Outlook: Domestic financial conditions remain supportive of growth, and headline inflation is nowrunning below the BoIs 3% upper target boundary. However, with tighter external financial conditions and weakerdemand in Israels main export markets, we see growth falling to 2.8% in 2012, from 4.8% in 2011. Low directexposure to the Euro area, a strong balance sheet structure and monetary policy accommodation should all help to keepIsraeli growth fairly resilient to the Euro area crisis. However, as one of the smaller and more open economies inCEEMEA, developments in global demand conditions will continue to have a strong bearing on the growth outcome inIsrael. For now, most indicators continue to point to weakening domestic and external growth, but we continue toexpect a fairly strong sequential recovery over 2H2012.Monetary Policy Forecast: As a result of the improved domestic inflation outlook (thanks to more favourable baseeffects, a widening output gap and cuts in regulated prices), and previous policy tightening, the BoI had room to easegoing into late 2011. Addressing slowing global growth and rising uncertainty over the situation in the Euro area, theBank has cut rates by 75bp since September. We now expect rates to remain on hold for most of 2012, and from4Q2012 we see the beginning of a normalisation cycle, with cumulative rate hikes taking the policy rate to 4.5% byend-2013. That said, a further slowdown would indicate the risk of further rate cuts and/or a later start to thenormalisation cycle.Fiscal Policy Outlook: The budget deficit widened to 4.5% of GDP in 2009, due mainly to the economic slowdown.However, the government has taken a number of corrective measures and, as the economy recovers from recession, thenominal deficit should fall to around 2.5% of GDP by 2012.Balance of Payments Situation: The current account surplus has narrowed substantially, to 0.9% of GDP in 3Q2011,consistent with previously robust domestic investment. Slowing external demand now poses additional downside risks,although domestic demand is also slowing and the domestic savings rate remains quite high.Things to Watch: Ongoing political developments across MEAN, including the situation in Iran, are relevant for Israeland should be monitored closely. Ahmet Akarli % GDP Israel: BBoP vs Current Account $/ILS 4-qtr ma5.0 10%4.8 8% CA4.6 6% BBoP4.4 4%4.2 2%4.0 0%3.8 -2%3.6 -4%3.4 Spot -6%3.2 GSDEER -8%3.0 -10% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 10 March 2012
  • 20. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystNorwegian KronerFX Forecasts: We are revising our EUR/NOK forecasts to 7.30, 7.20 and 7.20 from 7.70, 7.70 and 7.60 in 3, 6 and 12months respectively. This equates to 5.49, 5.22 and 4.97 for the USD/NOK rate. The NOK looks cheap vs the Euro atcurrent levels, according to our GSDEER valuation of 5.65, reflecting Norways terms-of-trade gains. However,because Norway keeps the bulk of its oil revenues offshore, the Norwegian Kroner is unlikely to erode thisundervaluation substantially.Motivation for Our FX View: Since early February, EUR/NOK has moved lower on the back of the sharp oil priceincrease. We expect the NOK to strengthen further on the back of Norways relative growth and external balancepositions. If risk aversion rises rapidly again, the NOK could potentially strengthen sharply as a safe haven. NorgesBank is likely to be uncomfortable with this and could become more dovish to temper currency appreciation.Growth/Inflation Outlook: Norwegian Q4 (mainland) GDP printed at +0.6%qoq, higher than indicated by the surveys(around +0.3%qoq). In 2012 so far, the PMI has rebounded sharply and Norges Banks Regional Network survey hasalso shown a robust improvement. Combined, the surveys point to an acceleration to around +0.8%qoq in Q1. Januaryhard data has also improved: manufacturing output expanded by a solid +1.1%mom. The January PMI improvedsharply and we expect (mainland) GDP growth to tick up slightly in Q1 to +0.2%qoq. With Brent still elevated, weexpect some positive spillover effects for mainland output; our Norwegian forecast remains relatively better than thatfor Sweden and the Euro area core.Monetary Policy Forecast: Norges Bank cut the policy rate by 50bp in December. Amid concerns over the Euro areadebt crisis, the Bank had turned dovish in August after remaining hawkish in June and hiking in May. While we hadexpected 50bp of cuts to occur over two meetings, we continue to see the policy rate at 1.75% by end-2012. The keydownside risk is a strong NOK; however, this seems to be a result of the strong Norwegian economy, rather than safehaven flows. As such, having already cut 50bp in December, we see limited room for further cuts and we expect hikesto occur in 2Q2013.Fiscal Policy Outlook: The fiscal spending rule aims to limit the use of oil revenues to the return on the GovernmentPension Fund-Global. The 2012 budget shows a small easing of fiscal policy of around 0.3% of GDP.Balance of Payments Situation: As the worlds fifth-largest oil exporter, Norway enjoys a healthy current accountsurplus due to oil exports; the increase in oil prices has raised the current account surplus from 11.2% of GDP to 14.1%in recent quarters. Norway runs a large BBoP surplus due to strong FDI and portfolio inflows.Things to Watch: Notable NOK appreciation is likely to generate a more voluble response from Norges Bank. Fiona Lake and Lasse Holboell W. Nielsen % GDP Norway: BBoP vs Current Account EUR/NOK 4-qtr ma 10 60% 50% 9 CA 40% BBoP 8 30% 20% 7 10% 6 0% -10% 5 Spot -20% GSDEER -30% 4 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 -40% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 11 March 2012
  • 21. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystPolish ZlotyFX Forecasts: We recently revised our EUR/PLN forecast to 4.25, 4.10 and 4.10 in 3, 6 and 12 months, respectively,from 4.80, 4.70 and 4.30. Given our USD/EUR forecast, this implies USD/PLN at 3.20, 2.97 and 2.83 in 3, 6 and 12months. Current GSDEER for EUR/PLN is 3.70, indicating an 11% undervaluation against the Euro. USD/PLNGSDEER is 3.09.Motivation for Our FX View: We expect the Zloty to remain supported in the near term by a more positive outlookfor the Euro area and better prospects for external financing. Easier funding for Euro area banks should remain aparticularly positive factor. But we see no strong catalysts for a further rally, and see a risk of profit-taking andconsolidation at a weaker than current level. Overall solid and stable growth prospects in Poland and more progress onthe resolution of the Euro area fiscal crisis should be positive for the Zloty in the medium term but current accountdeficits and substantial net errors and omissions in the BoP will limit appreciation. The Zloty will remain sensitive tonews from the Euro area and global liquidity conditions.Monetary Policy and FX Framework: The PLN is a freely-floating currency. That said, the NBP intervened tosupport the Zloty in 2011 and the government sold EU funds in the spot FX market. The capital market is fullyliberalised and the NBP maintains an inflation target of +2.5% (+/- 1%).Growth/Inflation Outlook: The economy grew strongly, at 4.3%, in 2011, supported by domestic demand and risingexports. We expect growth to slow in 1H2012, on an external slowdown and domestic fiscal consolidation, but recoverin 2H2012. Headline and core inflation should stay above the NBPs target (2.5% +/- 1%) in 2012, but then start tomoderate around mid-year and continue to fall steadily towards the target in 2013.Monetary Policy Forecast: The MPC hiked policy rates by 100bp in 1H2011. We expect it to remain on hold in 2012and carefully monitor growth and inflation outlooks, while maintaining a tightening bias. A combination of persistentlyhigh inflation and stronger-than-expected growth could even trigger a hike.Balance of Payments Situation: The current account deficit remained wide in 2011 but fiscal consolidation andweaker growth should bring a small correction in 2012. International reserves are high, around EUR76bn; any tail-risksare limited by the SDR20bn Flexible Credit Line from the IMF, which the government can use in the event of short-term liquidity problems.Fiscal Situation: The growth slowdown in 2008-09 has led to a significant deterioration in public finances. Followingits re-election, the government announced a few important reforms that should help long-term fiscal stability, as well asadditional measures to cut the deficits in the next few years to below 3% and avoid crossing the 55%-of-GDP debtthreshold. Poland has signed the EU fiscal pact, implying even more tightening in the next few years.Things to Watch: Poland is heavily integrated with the Euro area through extensive trade and financial links. Inaddition, the PLN is the most liquid currency in the region, and may respond more markedly to external news. Magdalena Polan % GDP Poland: BBoP vs Current Account EUR/PLN 4-qtr ma5.10 6% CA BBoP4.60 4%4.10 2%3.60 0%3.10 -2%2.60 -4% Spot2.10 -6% GSDEER1.60 -8% 95 97 99 01 03 05 07 09 11 13 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 12 March 2012
  • 22. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystRussian RubleFX Forecasts: We roll forward our forecasts for the Ruble to 33.3, 33.0 and 33.0 against the basket in 3, 6 and 12months. This implies USD/RUB at 28.9, 28.2 and 27.4. The current GSDEER value for USD/RUB is 33.9 and forEUR/RUB is 40.6.Motivation for Our FX View: We expect oil markets to remain tight. The seasonal current account widening toalmost US$35bn in 1Q should therefore continue to support the Ruble in the short term despite ongoing capitaloutflows. Rollover of external debt in 4Q was above 100% and there are no signs of forced deleveraging. Hence, weexpect capital outflows to subside again into 2Q assuming the Euro area continues to stabilise and Russian businessesand consumers gain confidence after the election. This should keep the Ruble well-supported on a 6-month horizon.Monetary Policy and FX Framework: The monetary policy framework has shifted towards more FX flexibility and agreater focus on inflation (the target is 5%-6% inflation in 2012). The CBRs intervention band against the USD0.55 +EUR0.45 basket is now RUB32.2-38.2. The CBR is attempting to shift towards interest rates as its primary monetarypolicy tool, and has scaled down its presence in the FX market. To do this, we think the CBR will need to narrow thecorridor between its different repo rates and the deposit rates further, and continue to broaden the exchange ratecorridor (we think the next widening is likely in April).Growth/Inflation Outlook: Domestic demand has accelerated significantly: it is now growing at 8%-9%yoy and as faras consumption is concerned is above potential. It is supported by a less restrictive fiscal stance than previously,together with sharply lower food prices and delayed increases to utility tariffs. We think headline inflation troughed inFebruary at 3.7% but it should remain below 4.5% until May, before rising once more. However, given the current paceof growth, we expect core inflation pressures to continue to increase.Monetary Policy Forecast: The CBR, like a number of other central banks, now appears to be in wait-and-see mode,and rates are likely to remain on hold until 2Q2012. However, thereafter we see rates rising by 50bp in 2012. Meetingthe 5%-6% inflation target for December 2012 will, in our view, depend on the appreciation of the Ruble in 2H.Fiscal Policy Outlook: Rising oil prices have helped to lift the federal budget into surplus in 2011 and 2012. Fiscalpolicy has been tightened since mid-2010 but we expect it to be broadly growth-neutral in 2012.Balance of Payments Situation: Based on our Commodity Strategists positive view on oil prices, we expect thecurrent account to accumulate a surplus of 4.6% of GDP in 2012.Things to Watch: Following the March 4 elections, we await announcement of the new governments policy agenda.We think the market may be positively surprised. We will be watching closely to see whether the CBR remainscommitted to controlling inflation through interest rates while allowing a greater degree of flexibility on the exchangerate, or if it will inject liquidity to subsidise banks but undermine the currency. Clemens Grafe % GDP $/RUB 4-qtr ma Russia: BBoP vs Current Account 40 20% CA 35 BBoP 15% 30 25 10% 20 15 5% 10 Spot 0% 5 GSDEER 0 -5% 95 97 99 01 03 05 07 09 11 13 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 March 2012
  • 23. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystSouth African RandFX Forecasts: We maintain our 3-, 6- and 12-month forecasts for $/ZAR at 7.40, 7.35 and 7.70. This implies €/ZAR at9.84, 10.14 and 11.17 in 3, 6 and 12 months respectively. The current $/ZAR GSDEER is 6.35 and €/ZAR GSDEER is7.61.Motivation for Our FX View: With a better global growth environment and the stabilising effect of ECB LTROoperations, we see near-term upside for the ZAR (around 4%TWI appreciation over the next 3 months). However, thedomestic growth outlook remains uncertain and inflation differentials have been rising. A widening current accountdeficit is also likely to exert depreciation pressures on the ZAR. Accordingly, we expect a trade-weighted depreciationover a 6- to12-month horizon (taking the TWI to around 5% weaker than current levels).Monetary Policy and FX Framework: The South African Reserve Bank is operationally independent and sets itspolicy rate to keep CPI inflation within the official 3%-6%yoy target and, secondarily, to support growth and promotefinancial stability. The key policy rate is the 2-week repo rate.Growth/Inflation Outlook: Softer global growth appears to been weighed on South African exports. However,stronger domestic demand probably more than offset this weakness, as growth reaccelerated to 3.2% ann in 4Q2011(from 1.7% in Q3). Over 2012 we see growth remaining below trend, at 2.7%. Sustained cost-push pressures and baseeffects continue to drive headline inflation for now. However, over 2012 we expect core inflation pressures togradually rise and start driving inflation more visibly. The net outcome is that we see headline inflation remainingabove target until 2H2013.Monetary Policy Forecast: Despite a recent uptick in growth, the outlook for 2012 remains uncertain, with significantdomestic (lower wage settlements and/or industrial action) and global (renewed slowdown) risk factors. Inflation alsolooks set to remain high for some time. We expect the SARB to keep rates on hold through most of 2012, but risingcore inflation and inflation expectations should ultimately prompt a 50bp rate hike in 4Q2012. That said, slowerrecovery (due to either external or domestic events) and/or a general acceptance of lower wage settlements would posea risk that rates remain on hold for longer. Fiscal Policy Outlook: Thanks to stronger than expected revenue performance (as well as some under-spending), thebudget deficit for the current fiscal year looks set to come in at 4.8% of GDP, much less than the initially planned5.5%. Although fiscal policy will remain accommodative for some time to come, the 2012 Budget reiterated acommitment to ongoing fiscal consolidation, at almost the same pace as previously outlined, taking the deficit to 3% byFY2014/15. Given the relative outperformance of revenues recently and risks to growth in 2012, we see a similar, butslightly slower, pace of consolidation.Balance of Payments Situation: The current account deficit widened to 3.8% of GDP in 3Q2011. Softening externaldemand is likely to put pressure on the trade balance in the short run, while greater domestic absorption posesadditional downside risks later in 2012H2. We see the CA deficit widening to around 4.5% of GDP by end-2012. Michael Hinds % GDP South Africa: BBoP vs Current Account $/ZAR 4-qtr ma 12 2% Spot 10 GSDEER 1% 8 0% 6 -1% 4 2 -2% CA BBoP 0 -3% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 14 March 2012
  • 24. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystSwedish KronaFX Forecasts: We are revising our EUR/SEK forecasts to 8.80, 8.70 and 8.60 from 9.00, 8.90 and 8.80 in 3, 6 and 12months, respectively. This equates to a USD/SEK rate of 6.62, 6.30 and 5.93. Current GSDEER for EUR/SEK is 8.12.Motivation for Our FX View: The Swedish Krona has traded in a broad range around our 3-month forecast sinceearly January, after EUR/SEK moved lower as the ECB effectively eased policy more than the Riksbank. That said, thecross is notably stronger than the 2-yr swap rate differential would suggest. Given that the Swedish data isnt thatstrong, we are not convinced EUR/SEK can move sharply lower from current levels - rather, the cross is likely to tradein a new range of 8.80-9.00 in the near term before strengthening more sustainably on a 12-month horizon.Monetary Policy and FX Framework: A flexible inflation targeter, responding to output fluctuations over and abovewhat they imply for future inflation. The Riksbanks objective is to keep CPI inflation at around 2%. CPIF is theRiksbanks effective target. A flexible FX regime.Growth/Inflation Outlook: The PMI rose above 51 in January, but eased to about 50 in February. The KI/NIERsurvey and the PMI now both point to flat or slightly positive growth in Q1. Q4 GDP came in very weak at -1.1%, incontrast to the surveys, which suggested about flat growth. However, we expect Q4 to be revised up in the same way asQ3 was revised down (from +1.6%qoq to +0.9%qoq) towards what the surveys would suggest (about +0.2%qoq inQ3). The Riksbank discounted the strong Q3 GDP number in December when cutting, and we think it will also partlydiscount the weak Q4 figure in April.Monetary Policy Outlook: The Riksbank cut the policy rate by 25bp in December and in February, in line with ourexpectation, as demand for Swedish exports declined. Despite the weak Q4 GDP figure, we expect the Riksbank toremain on hold in the near term as surveys point to a rebound in momentum. We see hikes occurring from 2Q2013.Fiscal Policy Outlook: The announced budget contained easing initiatives worth around SEK15bn (around 0.4% ofGDP) as a consequence of a weaker growth outlook in 2012. Although this easing has reduced the structural balance,we continue to expect it to improve (now by around 5ppt of GDP). The Swedish fiscal position remains healthy, withthe government budget close to balance and public debt at around 40% of GDP and declining.Balance of Payments Situation: On a trend basis, Swedens current account surplus remains relatively robust at 6.5%of GDP. The BBoP surplus stands at 5.0% of GDP on a trend basis, which is lower than the 20% surplus a couple ofquarters ago. Other things equal, the BBoP surplus is positive for the SEK.Things to Watch: Given that Sweden is a high beta to global growth, the momentum of our proprietary GLI is key towatch with regards to the performance of the external sector. Fiona Lake and Lasse Holboell W. Nielsen % GDP Sweden: BBoP vs Current Account EUR/SEK 4-qtr ma12 25%11 CA BBoP 20%10 15% 9 10% 8 5% 7 6 0% Spot 5 GSDEER -5% 4 -10% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 90 92 94 96 98 00 02 04 06 08 10 12 15 March 2012
  • 25. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystSwiss FrancFX Forecasts: We have not changed our view and expect EUR/CHF to trade at 1.30, 1.30 and 1.30 in 3, 6 and 12months. This equates to USD/CHF at 0.98, 0.94 and 0.90. EUR/CHF GSDEER is 1.40 and USD/CHF GSDEER is1.17.Motivation for Our FX View: The SNB announced in September 2011 that it would set a minimum rate for the CHFvs the EUR at 1.20 to prevent more CHF strength on the back of ongoing European sovereign tensions. In addition, theSNBs intention was to prevent deflation through ongoing declines in imported prices, and prevent a sharp decline inSwitzerlands export performance. Although we think deflation risk will prompt the SNB to raise the minimum floor to1.30, the resilience in growth is likely to keep the SNB in wait and see mode for the very near term. Any concreteresolution of the European crisis would also push the CHF weaker. As one of our Top Trade recommendations, werecommend going long EUR/CHF for a target of 1.35 and a stop at 1.20.Monetary Policy and FX Framework: The SNB targets inflation, with a ceiling on CPI set at less than 2% pa.Usually, the SNB uses 3-month libor as its policy instrument. However, in order to prevent deflation, the SNB hasannounced a minimum rate for EUR/CHF at 1.20 for the time being, and has said it is prepared to buy FX in unlimitedquantities.Growth/Inflation Outlook: The Swiss PMI increased to 49 in February but it remains to be seen how sustainable theuptick will prove. While Switzerland appears to have skirted a contraction in 4Q2011, we expect one quarter ofcontraction this year in Q1 at -0.5%qoq, 0.1%yoy growth for the entire year and 1.4% for 2013. We expect the weakgrowth to increase deflationary pressure, with CPI rising by just 0.4%yoy in 2012 and 0.7% in 2013.Monetary Policy Forecast: We expect the SNB to raise the minimum level for the EUR/CHF to 1.30 to reflect therisks of deflation, and for that rate to remain in place until the risks of deflation have subsided. At that point, we wouldexpect the Bank to switch back to using interest rates as its main policy instrument.Fiscal Policy Outlook: Switzerland has a relatively low debt-to-GDP ratio and we forecast a small budget deficit of -0.3% of GDP this year.Balance of Payments Situation: The Swiss current account surplus remains strong owing to a surplus on allcomponents. As a result, the NBoP remains in surplus despite negative net FDI flows. Switzerlands portfolio flow datais complicated by its position as an international financial centre.Things to Watch: The risk of further measures from the Swiss National Bank to prevent deflation has risen afterseveral months of declining inflation. Fiona Lake & Constantin Burgi % GDP Switzerland: BBoP vs Current Account EUR/CHF 4-qtr ma 2.1 20% 2.0 Spot 15% 1.9 GSDEER 10% 1.8 1.7 5% 1.6 0% 1.5 -5% 1.4 -10% 1.3 1.2 -15% CA BBoP 1.1 -20% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 00 01 02 03 04 05 06 07 08 09 10 11 12 16 March 2012
  • 26. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystTurkish LiraFX Forecasts: We maintain our 3-, 6- and 12-month $/TRY forecast at 1.75, 1.80 and 1.85. This implies €/TRY at2.33, 2.48 and 2.68 in 3, 6 and 12 months. The current $/TRY GSDEER is 2.29 and €/TRY GSDEER is 2.74.Motivation for Our FX View: The large current account deficit continues to exert downward pressure on the TRYalthough a resumption of capital inflows has helped stabilise the currency since the start of the year. However, this islikely to have a stimulating impact on domestic demand and lead to a wider current account deficit, in the absence ofstrong countercyclical economic policy. As a result, we believe the TRY will remain under fundamental depreciationpressure and be susceptible to external shocks.Monetary Policy and FX Framework: The CBRT formally adopted inflation targeting in 2006. The current medium-term targets are 5.0% for 2012 and 2013.Growth/Inflation Outlook: Growth reached 8.9% in 2010 and continued to expand at an annualised rate of over 7% in1Q2011, helped by still accommodative financial conditions. Since then, the economy has shown stronger signs ofexternal rebalancing through a slowdown in investment demand and a weaker TRY. We expect growth to continue toslow over the coming quarters and forecast annual growth of 8.5% in 2011 and 2.5% in 2012. Inflation rose to 10.5% atend-2011, overshooting the CBRTs 5.5% target substantially. We expect inflation to remain elevated over 1H2012,before easing towards 6.5% by end-year, thanks to recent TRY appreciation.Monetary Policy Forecast: The CBRT has been following an unorthodox policy of tightening domestic creditconditions while simultaneously driving the TRY weaker, in an effort to help rebalance the economy. However, inresponse to intensifying external risks and rapidly rising inflation, the Bank switched to a broader tightening policy(raising short-term money market rates, widening the corridor from the top and holding variable price repo auctions) inlate 2011. Since January, rates on central bank funding (and O/N money market rates) have fallen and the corridor hasbeen narrowed again. This should be more growth-supportive, but it presents risks to the ongoing rebalancing effortand policy may have to tighten again to achieve a narrowing in the CA deficit. We see O/N money market rates around9.5% by mid-year, up from around 8% currently.Fiscal Policy Outlook: Following a widening to 5.5% of GDP in 2009, the government introduced correctivemeasures in late 2010 and the deficit fell to slightly below 4%. Thanks to one-off items and robust domestic activity,the deficit is likely to fall to around 1.5% in 2011, by our estimates. Over 2012 and 2013, fiscal policy should remainrelatively well anchored, and we see the deficit in a 3.6%-3.8% range over the next two years.Balance of Payments Situation: The current account deficit widened to 6.4% in 2010, peaked at 10.6% in 1Q2011and is currently running close to 9.4% of GDP (3Q sa annualised). We expect further moderation in the remainder of2011 and 1H2012, but the pace of rebalancing looks to have slowed markedly.Things to Watch: External uncertainty continues to pose downside risks for Turkey. Ahmet Akarli % GDP Turkey: BBoP vs Current Account $/TRY 4-qtr ma2.5 4% Spot 2%2.0 GSDEER 0% -2%1.5 -4%1.0 -6% CA -8%0.5 BBoP -10%0.0 -12% 95 97 99 01 03 05 07 09 11 13 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 17 March 2012
  • 27. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystAmericasArgentine PesoFX Forecasts: We revise our 3-, 6- and 12-month forecasts for $/ARS to 4.50, 4.80 and 5.20 from 4.45, 4.70 and 5.20.This implies €/ARS at 5.99, 6.62 and 7.54 in 3, 6 and 12 months respectively. The current $/ARS GSDEER is 3.06 and€/ARS GSDEER is 3.67. Our valuation model uses official inflation, which is thought to have significantlyunderestimated actual inflation since 2007. If higher non-government inflation estimates are used, undervaluationvirtually disappears.Motivation for Our FX View: The ARS continues to be used as the main nominal anchor to prevent further escalationof inflationary pressures but this strategy has generated significant real exchange rate appreciation. The ARS weakened4.3% against the USD in 2010 while inflation rose an estimated 27%. In 2011, the $/ARS depreciated 7.9% (butinflation remained entrenched at 22%-23%). The loss of external competitiveness during 2010-11 will likely oblige theauthorities to validate a faster ARS depreciation drift in 2012. Since October the authorities have adopted a number ofFX market restrictions and financial measures to limit demand and increase the supply of USD in the local market. Theauthorities have also adopted a number of non-tariff trade barriers to limit imports.Monetary Policy and FX Framework: The Central Bank conducts monetary policy through quantitative targets onM2. The 2012 monetary program is lax: M2 growth target is set at 26.4% (± 4.0%). The Central Bank intervenesheavily in the FX market. The Bank mops up the excess liquidity by issuing Lebacs/Nobacs.Growth/Inflation Outlook: Real GDP grew a high 9.3% in 3Q2011 driven by a supportive external backdrop andoverly stimulative fiscal and monetary policy. Real activity is decelerating at the margin given the constraints imposedby a significantly positive output gap, softening external demand (particularly from Brazil) and significant real currencyappreciation. We expect real GDP to have expanded to around 9.0% on average in 2011 but to moderate to 4.0% in2012. The government is thought to continue to under-report inflation: official figures put headline inflation at 9.5% in2011 while non-government estimates put headline inflation at 20%-plus; i.e., more than double the official figure.Monetary Policy Forecast: The Central Bank has a weak record of inflation control, and monetary policy remainssubordinated to fiscal priorities. The Bank transferred US$16.2bn in reserves to the government in 2011-12 and isexpected to transfer another US$5.7bn in 2012.Fiscal Policy Outlook: Fiscal policy remains pro-cyclical and the fiscal surplus has been eroded at the margin. Thegovernment posted a 0.3% of GDP primary deficit in 2011 (consistent with a 2.2% of GDP overall fiscal balance).Cyclically adjusted the fiscal stance is lax.Balance of Payments Situation: The trade surplus has been gradually eroded given the rise in imports (driven bycurrency appreciation and overly stimulated domestic demand). The current account posted a 0.8% of GDP surplus in2010 (down from 3.6% of GDP in 2009) and is estimated to have ended 2011 at close to broad balance.Things to Watch: The negotiation with the Paris Club and the measures to control the FX market and limit imports. Alberto M. Ramos $/ARS % GDP Argentina: BBoP vs Current Account 4-qtr ma5.0 12%4.5 Spot 10%4.0 GSDEER 8%3.5 6%3.0 4%2.52.0 2%1.5 0%1.0 -2% CA0.5 -4% BBoP0.0 -6% 91 93 95 97 99 01 03 05 07 09 11 13 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 18 March 2012
  • 28. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystBrazilian RealFX Forecast: We are revising our 3-, 6- and 12-month forecasts for $/BRL to 1.70, 1.70 and 1.75 from 1.80, 1.85 and1.90. This implies €/BRL at 2.26, 2.35 and 2.54 in 3, 6 and 12 months, respectively. The current $/BRL GSDEER is2.58 and €/BRL GSDEER is 3.09.Motivation for Our FX View: Improving global risk sentiment and a sharp acceleration in capital inflows are likely tocontinue to support the carry-rich BRL despite increased FX market activism by the authorities. The strong BRLappreciation pressure prompted the authorities to escalate the level of FX market intervention in February (through spotmarket USD purchases and the auction of Dollar reverse swaps). Furthermore, the authorities increased the taxation ofcertain types of capital inflows, and cautioned that capital controls could be broadened (and existing controls mademore restrictive) if the pressure on the BRL to appreciate continues.Monetary Policy and FX Framework: The 2012 IPCA inflation target was set at a generous 4.5% ± 2.0%. The MPCconducts monetary policy chiefly by setting the SELIC policy rate. The managed floating FX regime has been markedby large, frequent and discretionary interventions in the spot and derivatives FX markets.Growth/Inflation Outlook: After the flat 3Q2011 (qoq sa) print, we expect real GDP growth to have recovered to0.8% in 4Q2011. We forecast that real GDP growth will accelerate to 3.5% in 2012 from an estimated 3.0% in 2011.We expect IPCA inflation (yoy) to moderate slightly in 2012, to 5.4% from 6.5% in 2011, but to remain visibly abovethe 4.5% inflation target midpoint. Inflation expectations remain misaligned from the inflation target all the way to2013. Services inflation remain high and outside the 6.5% upper limit of the inflation target band. The labour marketpicture remains tight.Monetary Policy Forecast: The Central Bank has been easing monetary policy since August 2011 and seems inclinedto deepen the easing cycle in the near term. We expect the MPC to deliver three more 50bp rate cuts, driving the Selicpolicy rate to 9.0% by June 2012.Fiscal Policy Situation: Fiscal policy remains loose, which reduces the degrees of freedom available for the CentralBank to set monetary policy at a less restrictive level. The government met its primary fiscal surplus of 3.10% of GDPfor 2011, and should meet it again in 2012.Balance of Payments Situation: The current account deficit has been relatively stable at slightly over 2% of GDP since2010. However, over the past few years the capital account has posted large inflows driven by solid FDI, portfolio anddebt creating flows. In order to prevent additional pressure on the BRL the Central Bank increased the stock ofinternational reserves to US$356bn at the end of February 2012, from US$181bn at end-2008.Things to Watch: The authorities degree of FX market activism in response to accelerating capital inflows and BRLovervaluation. Alberto M Ramos % GDP $/BRL 4-qtr ma Brazil: BBoP vs Current Account4.0 8% CA Spot3.5 6% GSDEER BBoP3.0 4%2.5 2%2.0 0%1.5 -2%1.00.5 -4%0.0 -6% 92 94 96 98 00 02 04 06 08 10 12 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 19 March 2012
  • 29. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystCanadian DollarFX Forecasts: We maintain our $/CAD forecast at 0.99, 0.97 and 0.95 on a 3-, 6- and 12-month horizon. This impliesEUR/CAD at 1.32, 1.34 and 1.38 in 3, 6 and 12 months. The current GSDEER for $/CAD is 1.15 and EUR/CADGSDEER is 1.37.Motivation for Our FX View: We expect Canada to outperform the US modestly in relative growth terms, buoyed byour constructive view on commodities, and this should be positive for the CAD. We also continue to expect broad USDweakness due to persistently wide twin deficits. This is in contrast to Canada, which, despite a negative current account,has a positive BBoP position. The Dollar will also likely continue to be weighed on by the Feds monetary stancerelative to elsewhere, as we expect another round of asset purchases beyond Operation Twist in 1H2012.Monetary Policy and FX Framework: The Bank of Canada (BoC) operates an inflation targeting regime (2% within a1%-3% range), with a generally flexible stance on the currency. In the past, the BoC has only commented on FX duringperiods of disruptive FX price action in terms of levels and/or the speed of a move.Growth/Inflation Outlook: Q4 GDP fell to 1.8%qoq ann after strong growth in Q3. This brings overall growth for2011 to 2.5%. We expect 2.2%yoy growth in 2012 and 2.5% in 2013, above consensus. On inflation, we expect someslight relief in the months to come due to base effects, and forecast 2.1% for 2012 and 2.0% for 2013.Monetary Policy Forecast: The BoC remained on hold in March and took a neutral stance on policy changes. The BoCraised its growth forecasts but still expects a deceleration due to a weaker external outlook through the financial,confidence and trade channels. We forecast no change in the policy rate from 1.00% until 50bp of hikes in 4Q2013.Fiscal Policy Outlook: In the 2011 budget announcement, the deficit for fiscal year 2010-2011 was lowered by about10% to C$36.2bn. The announced budget for 2011-2012 foresees a deficit of C$32.3bn, which should be reducedgradually in the coming years. Temporary elements of the stimulus package (Canadas Economic Action Plan) concludein the current fiscal year and plans call for restrained spending growth over the next few years.Balance of Payments Situation: The current account balance remains in deficit, although this has been fully offset bystrong portfolio inflows, leaving the Broad Balance of Payments (BBoP) picture in Canada positive at present. Weexpect the current account deficit to narrow to 1.9% of GDP for 2012 and 1.9% for 2013.Things to Watch: Cyclical domestic growth momentum continues to be an important factor, in addition to the highlevel of exposure to the US business cycle. We are also watching the main drivers of the CAD, including risk sentimentand the oil outlook. Constantin Burgi % GDP Canada: BBoP vs Current Account US Dollar/Canadian Dollar 4-qtr ma1.7 4.0% Spot1.6 3.0% GSDEER 2.0%1.5 1.0%1.4 0.0%1.3 -1.0%1.2 -2.0%1.1 -3.0% CA1.0 -4.0% BBoP0.9 -5.0% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 90 92 94 96 98 00 02 04 06 08 10 12 20 March 2012
  • 30. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystChilean PesoFX Forecasts: We are maintaining our 3-, 6- and 12-month forecasts for $/CLP at 480, 475 and 465. This implies€/CLP at 638, 656 and 674 in 3, 6 and 12 months respectively. The current $/CLP GSDEER is 416 and €/CLPGSDEER is 498.Motivation for Our FX View: The $/CLP has strengthened approximately 7% since end-December 2011, slightlyunderperforming other LatAm currencies. Firming global sentiment and the 20% increase in copper prices since mid-December have been key drivers of CLP strength. Solid macro fundamentals (including still solid domestic demanddynamics) should continue to support the CLP. Additional currency appreciation is likely to trigger demand for CentralBank intervention. We do not expect the Central Bank to intervene formally in the FX market until the CLP/USD teststhe 450-465 level.Monetary Policy and FX Framework: The Central Bank targets inflation (3.0%±1.0%) under a free-floating FXregime. FX market intervention occurs seldom and only under exceptional circumstances. Disciplined rules-based fiscalexecution provides extra degrees of freedom to calibrate monetary policy.Growth/Inflation Outlook: Real GDP growth moderated to 4.8%yoy in 3Q2011 from 6.6% in 2Q2011. In sequentialseasonally adjusted terms, real GDP growth slowed in 3Q2011 to a below-trend 0.65%qoq sa, from 1.30% in 2Q2011.We estimate that real GDP grew a solid 6.3% in 2011 and expect it to downshift to 4.2% in 2012. Inflation pressuresintensified in 4Q2011 driven by food supply shocks and some pass-through from a weaker CLP. Core inflation andinflation expectations remain well anchored around the inflation target. The output gap remains closed and the economyis operating at around full employment.Monetary Policy Forecast: The Central Bank surprised the market consensus with a 25bp rate cut at the January MPCmeeting, taking the policy rate to 5.00%, but then paused in February. In our assessment, the Central Bank is still aheadof the curve and the rate cut in January signalled a predisposition to act by adding monetary support to the economy inthe event economic activity continues to slow. We could still see additional rate cuts in 1H2012, but if the global dataand sentiment continue to improve and oil prices remain well bid, the Central Bank will likely feel comfortable aboutextending the pause while maintaining an implicit easing bias.Fiscal Policy Outlook: Fiscal execution remains counter-cyclical. The central government posted a 1.4% of GDP fiscalsurplus in 2011, up from a 0.4% of GDP deficit in 2010. The authorities are ready to add fiscal stimulus in 2012 if theeconomy continues to decelerate.Balance of Payments Situation: The trade balance posted a solid US$15.9bn surplus in 2010 (7.8% of GDP) and thecurrent account closed the year with a 1.9% of GDP surplus. The trade surplus eroded to a still solid US$10.6bn in 2011(4.5% of projected 2011 GDP), pushing the current account into an estimated 1.8% of GDP deficit.Things to Watch: The resilience of domestic demand given the challenging external environment and the monetarypolicy stance. Alberto M. Ramos % GDP $/CLP 4-qtr ma Chile: BBoP vs Current Account800 8%700 6%600 4%500 2%400 0%300 -2%200 -4% Spot CA100 GSDEER -6% BBoP 0 -8% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 21 March 2012
  • 31. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystColombian PesoFX Forecasts: We are maintaining our 3-, 6- and 12-month forecasts for $/COP at 1,800, 1,800 and 1,750. This implies€/COP at 2,394, 2,484 and 2,538 in 3, 6 and 12 months. The current $/COP GSDEER is 1,948 and €/COP GSDEER is2,334.Motivation for Our FX View: Solid domestic demand growth, robust FDI flows and a hawkish Central Bank supportthe COP outlook. Given the recent significant, rapid COP appreciation (approximately 9% since end-December), inJanuary the Bank resumed its intervention in the FX market, and is to buy US$20mn/day at least until August 4. Inaddition, the Bank suspended the rules-based mechanism adopted in October involving the sale of US$200mn of dollarput/call options whenever the $/COP spot rate is ± 4.0% stronger/weaker than the 20-day moving average.Monetary Policy and FX Framework: The Central Bank targets inflation (3.0%±1.0%) under a managed-float FXregime but has in the past intervened in the spot FX market to prevent excessive volatility.Growth/Inflation Outlook: Real GDP grew 7.7%yoy in 3Q2011 (+1.7%qoq non-annualised, seasonally adjusted).Gross investment grew 18.7%yoy and total consumption firmed to 6.4%yoy; private consumption accelerated to7.3%yoy. The external sectors contribution to growth was negative as exports grew 10.5%yoy but imports grew aneven faster 18.8%yoy. We estimate that real GDP grew 5.7% in 2011, with the growth dynamics supported by buoyantdomestic consumption and investment. Core (non-food) inflation remains well anchored to the 3.0% inflation target.Monetary Policy Forecast: The MPC hiked the policy rate by 25bp to 5.25% at the February MPC meeting (matchingthe January move). The Bank would like to see domestic demand growth moderate in order to prevent the creation ofdemand-pull pressures on inflation. It is interpreting its inflation targeting mandate broadly rather than narrowly,inasmuch as it remains in tightening mode with a view to preventing the emergence of financial imbalances. That is, theMPC is taking a holistic view of monetary policy management: rather than being narrowly focused on meeting theinflation target, the MPC appears even more concerned with the potential formation of asset price bubbles (e.g., realestate) and/or excessive consumer leverage that could render households vulnerable to real and/or financial shocks. Thisimplies that the Central Bank may decide to complement any potential additional rate hikes with macro-prudentialmeasures (aimed at discouraging consumer borrowing and lending and/or discouraging domestic lending anchored inforeign funding).Fiscal Policy Outlook: The central government used the better than expected revenue performance in 2011 to over-comply with the fiscal deficit targets.Balance of Payments Situation: The current account deficit widened to US$8.9bn in 2010 (3.1% of GDP) fromUS$5.0bn in 2009 (2.1% of GDP). FDI flows reached a solid US$15bn in 2011. We expect the current account deficitto settle in the 2%-3% of GDP handle in 2011 and 2012, which should be more than fully financed by FDI inflowsexceeding US$10bn.Things to Watch: The real business cycle momentum and the Central Banks stance. Alberto M. Ramos % GDP Colombia: BBoP vs Current Account $/COP 4-qtr ma3000 6% Spot2500 4% GSDEER2000 2%1500 0%1000 -2% 500 -4% CA BBoP 0 -6% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 22 March 2012
  • 32. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystMexican PesoFX Forecast: We are maintaining our 3-, 6- and 12-month forecasts for $/MXN at 12.55, 12.50 and 12.00, respectively.This implies €/MXN at 16.69, 17.25 and 17.40 in 3, 6 and 12 months respectively. The current $/MXN GSDEER is12.69 and €/MXN GSDEER is 15.20.Motivation for Our FX View: The MXN has been one of the best-performing LatAm currencies year to date; it hasstrengthened approximately 9% against the USD since end-December on the back of improving global sentiment, strongUS data and a favourable technical position. The economys solid fundamentals, strong macro policy and a non-activistcentral bank should anchor the currency and lead it to partially mean-revert from its 2H2011 distressed levels. However,the MXN remains vulnerable to a deterioration in global market sentiment. In November the Central Bank suspendedthe monthly auction of US$600mn dollar put options and reinstated the rules-based mechanism that calls for the auctionof US$400mn cash whenever the MXN/USD is 2% or more weaker than the previous days fixing.Monetary Policy and FX Framework: The Central Bank targets inflation (3.0%±1.0%) by calibrating the TdF policyrate level under a managed-float FX regime. Banxico may intervene in the FX market to dampen volatility and/or avoiddislocations under thin market liquidity conditions.Growth/Inflation Outlook: Real GDP growth moderated to 3.7%yoy in 4Q2011 from 4.5%yoy in 3Q2011. Real GDPexpanded a moderate 3.9% in 2011 (down from 5.5% in 2010) and is likely to downshift further in 2012. The outputgap remains negative, with economic slack still visible in the non-tradable sectors (e.g., there is significant slack in thelabour market). The inflation outlook remains favourable although headline inflation has come under pressure since latein 2011 due to a local food-supply shock and some pass-through from a weaker MXN. The food price shock started tomean-revert in February. We expect core inflation to hover slightly above the 3.0% inflation target midpoint throughout2012.Monetary Policy Forecast: The policy rate has been unchanged at a stimulative 4.50% since July 2009. Givenevidence that the economy continues to expand at a moderate around trend pace and that core goods inflation isgradually starting to show the impact (albeit moderate) of the pass-through from a weak MXN during 2H2011, weexpect the Central Bank to leave the policy rate unchanged at 4.50% in the near term, and likely for the foreseeablefuture - unless compelling evidence emerges showing damage to the real business cycle.Fiscal Policy Situation: The fiscal/public-debt picture is solid. The central government posted a 2.5% of estimatedGDP deficit in 2011 (down from 2.8% of GDP in 2010).Balance of Payments Situation: The current account posted a mild 0.8% of GDP deficit in 2011 (-US$8.8bn) up froma small 0.3% of GDP deficit in 2010. The current account deficit was more than covered by US$19.4bn in FDI inflows.The capital account posted a large surplus in 2011 (US$52.4bn excluding errors and omissions) anchored in solid FDI,portfolio and debt creating inflows.Things to Watch: Outlook for US manufacturing production and the resilience of domestic demand. Alberto M Ramos % GDP $/MXN 4-qtr ma Mexico: NBoP vs Current Account16 4% Spot 3%14 GSDEER 2%12 1%10 0% -1% 8 -2% 6 -3% 4 -4% CA -5% 2 -6% NBoP 0 -7% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 91 93 95 97 99 01 03 05 07 09 11 23 March 2012
  • 33. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystPeruvian New SolFX Forecasts: We are maintaining our 3-, 6- and 12-month forecasts for $/PEN at 2.69, 2.70 and 2.67. This implies€/PEN at 3.58, 3.73 and 3.87 in 3, 6 and 12 months, respectively. The current $/PEN GSDEER is 3.11 and €/PENGSDEER is 3.72.Motivation for Our FX View: The PEN has been under appreciation pressure since late 2011 mainly due to a processof portfolio recomposition by local agents as they unwind USD positions acquired at the peak of the electoral cycle in2011, and stronger capital inflows. This has prompted the Central Bank to purchase US$3.5bn in FX reserves year-to-date in order to contain appreciation pressures. In our view, appreciation pressures are likely to moderate over the nextsix months as economic growth decelerates; however, appreciation pressures could strengthen if economic activitycontinues to surprise on the upside. Notwithstanding this, we expect low realised volatility in the $/PEN cross becausethe Central Banks policy is to intervene discretionally in the FX market to avoid sharp price action.Monetary Policy and FX Framework: The Central Bank pursues an inflation targeting regime: the target is achallenging 2%±1%. The Bank holds monthly monetary policy meetings and pursues a managed/floating FX regime.Growth/Inflation Outlook: We revised our real GDP growth forecasts for 2012 to 5.5%yoy from 4.9% due to largerstatistical carry-over from growth in 2011. Headline inflation at 4.16%yoy in February is outside the Central Bankstarget band (2% ± 1%). However, we expect inflation to gradually come back within target as the supply-side shocksthat pushed up inflation in 2011 recede and demand pressures remain subdued.Monetary Policy Forecast: We no longer expect the Central Bank to cut rates in 2012. Currently at 4.25%, the policyrate is at broadly neutral levels. This gives the Bank space to move the policy rate in either direction in line withchanges to the inflation outlook. The economy could still require monetary stimulus in 2012, but only if the globaleconomic outlook worsens considerably. There are also upside risks for rates, in the event growth is stronger than weforecast and the inflation outlook deteriorates, requiring the BCRP to hike. Even so, we think the balance of risks formonetary policy is neutral, once we consider the domestic and external risks to the macro outlook for Peru.Fiscal Policy Outlook: The government has already embarked on a fiscal stimulus package amounting toapproximately 1.2% of GDP, most of which would be disbursed in 2012. We expect the fiscal surplus to shrink to zeroin 2012 from a surplus of 1.8% of GDP in 2011.Balance of Payments Situation: We expect the current account deficit to shrink to US$2bn (1% of GDP) in 2012 fromUS$2.3bn (1.3% of GDP) in 2011 as lower than expected profit repatriation in the mining sector offsets the projectedmoderate weakening of the trade surplus. In terms of the financial account, we expect capital inflows to moderate toUS$7.8bn, leading to a solid US$5.8bn balance of payments surplus.Things to Watch: Resolution of ongoing mining disputes. Eduardo A Cavallo % GDP $/PEN 4-qtr ma Peru: Current Account4.5 4%4.0 2%3.5 0%3.0 -2%2.5 -4%2.0 -6%1.5 Spot1.0 GSDEER -8% CA0.5 -10% 91 93 95 97 99 01 03 05 07 09 11 13 90 92 94 96 98 00 02 04 06 08 10 12 24 March 2012
  • 34. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystVenezuelan BolivarFX Forecasts: We are maintaining our 3-, 6- and 12-month forecasts for $/VEF at a flat 4.3. This implies €/VEF at5.72, 5.93 and 6.24 in 3, 6 and 12 months respectively. The current $/VEF GSDEER is 4.19 and €/VEF GSDEER is5.02. The preferential of the two FX cash-rates operated by the Currency Control Board (CADIVI) was devalued inJanuary, 2010 from 2.6 to 4.3 to the Dollar. The non-preferential rate remained unchanged at 4.3. This unified the twoCADIVI rates. We estimate that the 39.5% devaluation of the strongest of the three official rates was equivalent to amoderate 13%-16% average devaluation of the VEF/USD.Motivation for Our FX View: We do not expect a devaluation of the CADIVI rate ahead of the October presidentialand December gubernatorial elections but would not rule out an adjustment to the upper limit of the SITME band. Asizeable devaluation early in 2013 seems highly likely: consumer prices have risen 63% since the January 2010devaluation. In June 2010 the Central Bank began operating a new FX market (SITME, involving the sale of Dollar-denominated government bonds that can be sold abroad for USD). Through the SITME, the Central Bank sets animplicit VEF trading band (between 4.3 and 5.3 to the Dollar).Monetary Policy and FX Framework: Monetary policy remains heavily subordinated to fiscal needs and theautonomy of the Central Bank has been compromised in recent years. The Bank sets a floor/ceiling on bankdeposit/loan rates and directs about half of total credit in the economy.Growth/Inflation Outlook: Headline inflation reached a high 29.0% in 2011 and we expect it to remain above 20% in2012. Headline and core inflation have been running above 20% since 2007. The Caracas CPI has printed above 1%per month for 54 consecutive months and the core measure averaged 33.1%yoy between January 2008 and December2011. This attests to how deeply ingrained inflation has become through inertia and policy accommodation, whichincreases the growth-inflation sacrifice-ratio (required output loss to disinflate the economy). Real GDP grew 4.9%yoyin 4Q2011 and 4.2%yoy in 2011. We expect real GDP to grow 4.0% in 2012.Monetary Policy Forecast: Domestic financial conditions have been lax over the past few years (with highly negativereal rates), which undermines the effectiveness of the fixed exchange rate as the economys nominal anchor.Fiscal Policy Outlook: Fiscal execution remains opaque. A significant amount of fiscal spending is taking placethrough the balance sheet of state-owned banks and PdVSA. The overall fiscal stance has been lax for many years.Balance of Payments Situation: Higher oil prices generated a large 15.3% of GDP trade surplus, which led to anothersizeable current account surplus in 2011 (9.0% of GDP). Sizeable private-sector capital flight is likely to persist, giventhe countrys deteriorating macro performance, legal/regulatory uncertainty and weak enforcement of the sanctity ofcontracts.Things to Watch: The health of President Chavez following surgery in February, fiscal spending and the politicaldynamics ahead of the October 2012 presidential elections. Alberto M. Ramos % of GDP Venezuela: BBoP vs Current Account $/VEF 25% CA5.0 Spot BBoP 20% GSDEER4.0 15%3.0 10% 5%2.0 0%1.0 -5%0.0 -10% 94 96 98 00 02 04 06 08 10 12 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 25 March 2012
  • 35. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystAsiaAustralian DollarFX Forecasts: Our 3-, 6- and 12-month forecasts for A$/US$ remain unchanged at 1.08, 1.08 and 1.08. This implies€/AUD at 1.23, 1.28 and 1.34 in 3, 6 and 12 months respectively. The current A$/US$ GSDEER is 0.87 and €/A$GSDEER is 1.37.Motivation for Our FX View: A fall in risk appetite, a weaker 4Q2011 Australian GDP print relative to consensusexpectations, comments from the RBA that the A$ may be overvalued and a downgrade in the official growth target inChina have prompted a pullback in the A$ in recent days after a period of relative stability in recent weeks. Furtherahead, the declining terms of trade, rising import bill and forecast deterioration in the trade balance point to a modestweakening in TWI terms. However, against the US$, these influences should be broadly offset by persistently highAUD-US interest differentials and a weakening in US BBoP flows.Monetary Policy and FX Framework: Inflation targeting: The RBA aims to keep CPI inflation between 2% and 3%on average over the cycle. Operationally, this is implemented by attempting to keep underlying inflation within thistarget band, but it allows sufficient flexibility for policy to take account of short-run developments in employment andeconomic growth. The FX regime is free-float.Growth/Inflation Outlook: We expect growth to accelerate from 2.0% in 2011 to 2.5% in 2012. Looking past therecovery in coal exports following flood disruptions in early 2011, the non-mining sectors of the economy contractedin 2H2011 and remain cyclically challenged. We expect a deteriorating unemployment rate to help to containunderlying inflation within the RBAs target band through 2012. We expect a more meaningful recovery in activity in2013, with growth of 3.7%.Monetary Policy Forecast: With underlying inflation contained, and in an environment of falling house prices, astrong A$, contractionary fiscal policy and an unemployment rate likely to exceed 5.5% in coming months, the riskthat a policy setting marginally below neutral leads to a meaningful break-out in inflation appears minor relative to therisk that growth slows meaningfully. We expect a further 50bp in easing, with 25bp reductions in March and June,taking the cash rate to 3.75%.Fiscal Policy Outlook: Even allowing for the recent slippage in revenue estimates, Australias fiscal position is benignrelative to comparable economies. The Federal Government is determined to consolidate the public finances promptlyand achieve a surplus by 2012-13, seeing net debt to GDP peak at just 8.9% of GDP.Balance of Payments Situation: A sharp rise in the terms of trade to a new all-time high in 2010-11 pushed Australiato its largest trade surplus (as a share of GDP) in 37 years. The trade balance has now come under pressure from aneasing in commodity prices and rising capital investment goods imports.Things to Watch: Further delay in the domestic easing cycle risks seeing the A$ gap meaningfully higher in thecoming months. The currency will also continue to be sensitive to shifting sentiment on prominent global risks. Tim Toohey A$/$ % GDP Australia: BBoP vs Current Account 4-qtr ma1.6 6% Spot CA1.4 GSDEER 4% BBoP 2%1.2 0%1.0 -2%0.8 -4%0.6 -6%0.4 -8% 74 77 80 83 86 89 92 95 98 01 04 07 10 13 90 92 94 96 98 00 02 04 06 08 10 12Economist: Tim Toohey tim.toohey@gs.com© 2012 Goldman Sachs Australia Pty Ltd. (ABN 21 006 797 897). All rights reserved. 26 March 2012
  • 36. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystChinese YuanFX Forecasts: We are adjusting our 3-, 6- and 12-month USD/CNY forecasts to 6.27, 6.22 and 6.10 respectively, from6.28, 6.24 and 6.12 previously. EUR/CNY: 8.34, 8.58 and 8.85 in 3, 6 and 12 months. GSDEER for the USD/CNY:7.04.Motivation for Our FX View: We still expect the CNY to appreciate modestly against the USD over a 12-monthhorizon. Specifically, we expect relatively slow CNY nominal bilateral appreciation against the USD in 1H2012 (2%annualised), as uncertainties over external demand are likely to remain high during that period. However, as sequentialgrowth in external demand recovers throughout the year, Chinas sequential export growth should recover and netexports are likely to rise again, which should alleviate the concerns of the Chinese government and result in amoderately faster appreciation of 4% per annum in 2H2012.Monetary Policy and FX Framework: The Peoples Bank of China (PBoC) is not independent from the centralgovernment and has multiple targets of maintaining price stability and high growth. The Monetary Policy Committeeof the PBoC holds meetings on a quarterly basis. However, it is an advisory body that does not determine policydirection. Instead, actual policy decisions are made by the PBoC governors subject to supervision/approval by the StateCouncil. The FX regime has been a managed float in July 2005 - August 2008 and again in June 2010.Growth/Inflation Outlook: Real activity growth appears to be holding up fairly well judging by the recent PMIreadings. Specifically, we expect January-February IP growth to be 12.6% yoy. This would imply an averagesequential growth rate of 14.3%mom ann in January- February, just a touch below its trend level of 15%-16%. On theinflation front, the January CPI print was distorted on the upside by the Lunar New Year effects and the Februaryreading is likely to be distorted on the downside. We expect February CPI inflation to fall to 3.3%yoy and the January-February average to be 3.9%yoy, down from 4.1%yoy in December.Monetary Policy Forecast: We still see room for further monetary policy loosening in the near term and expect thePBoC to continue cutting the reserve requirement ratio (RRR), maintaining a relatively ample loan supply, andpossibly interest rate cuts in the coming months.Fiscal Policy Outlook: In the public announcement following the Central Economic Working Conference, thegovernment mentioned structural tax cuts, which we believe would be a positive development in the light of the strongfiscal revenue growth we saw in 2011.Balance of Payments Situation: The Chinese economy has become more balanced than it was in the pre-crisis period.In 2011, the current account surplus was 2.8% of GDP, down from 5.1% in 2010 and the almost double-digit level atthe peak before the financial crisis.Things to Watch: Export growth trajectory; liquidity supply. Yu Song and Yin Zhang % of GDP China: BBoP vs Current Account $/CNY9.4 18% CA 16%8.4 BBoP 14% BBoP = Current Account + Net7.4 12% FDI + Net Portfolio Investment 10%6.4 8%5.4 6% Spot 4%4.4 GSDEER 2%3.4 90 92 94 96 98 00 02 04 06 08 10 12 0% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 27 March 2012
  • 37. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystHong Kong DollarFX Forecasts: We are maintaining our 3-, 6- and 12-month forecasts for $/HKD at 7.80, 7.80 and 7.80. This implies€/HKD at 10.4, 10.8 and 11.3 in 3, 6 and 12 months respectively. The current $/HKD GSDEER is 6.18 and €/HKDGSDEER is 7.40.Motivation for Our FX View: In our view, the political incentive to abandon (or modify) the HKD peg system is stilllow; in particular, the uncertainties surrounding the near-term global growth outlook may hold the authorities backfrom making changes to the current HKD peg system.Monetary Policy and FX Framework: The HKMA pursues just one goal: maintaining the USD/HKD peg. The HKDexchange rate follows a currency board regime, with a fixed USD/HKD Convertibility Zone of 7.75-7.85.Growth/Inflation Outlook: GDP for 4Q2011 expanded by 3.0%yoy, after 4.3%yoy in 3Q2011. On a sequential basis,GDP growth increased 1.2% quarter-on-quarter, annualised (qoq ann), after 0.4%qoq ann in 3Q2011. Annual GDPgrowth averaged 5.0%yoy in 2011, down from 7.0%yoy in 2010. The government forecasts 2012 GDP growth in arange of 1%-3%. We currently forecast below-trend GDP growth of 3.6% in 2012 and a rise to 5.0%yoy in 2013. Onthe inflation front, the government forecasts 2012 headline CPI inflation at 3.5%. This compares to our forecast of3.8%. Our CPI inflation forecast for 2013 stands at 4.4%.Monetary Policy Forecast: We think the HKD-USD peg is likely to remain in place for some time, given the lack of abetter alternative monetary policy regime for now. In our opinion, the costs of transitioning to a new regime wouldoutweigh the benefits. In the meantime, we think that, before eventually moving to a HKD-CNY peg, Hong Kong willhave little choice but to continue to import loose financial conditions from the US, with its interest rates still linked tothe USD interest rate cycle, as long as the US Fed maintains its accommodative monetary policy stance.Fiscal Policy Outlook: For FY2010/2011, the government budgeted a consolidated budget surplus of US$9.7bn, or4.3% of GDP. For FY2011/2012, the budgeted surplus is US$1.9bn, or 0.8% of GDP. In our view, the overall fiscalstance is net expansionary, with targeted support for households to cope with rising inflationary pressures.Balance of Payments Situation: We expect the current account surplus to be 3.6% of GDP in 2011, versus 6.6% ofGDP in 2010. Given the fixed exchange rate system in Hong Kong, the BBoP has not been a determining factor for itsmonetary policy system, or for the HKD exchange rate specifically. As Hong Kong is an entrepot trade centre for themainland and an offshore hub for investment in China, the relevance of the BBoP position for the currency relatesprimarily to portfolio capital flows.Things to Watch: We continue to monitor for further developments in soft and hard infrastructures to enhance theintegration with the mainland economy, including the expansion of CNY businesses. Shirla Sum % GDP Hong Kong: BBoP vs Current Account $/HKD 4-qtr ma10.30 50% Spot 40% CA 9.30 GSDEER BBoP 30% 20% 8.30 10% 7.30 0% -10% 6.30 -20% -30% 5.30 -40% 4.30 -50% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 00 01 02 03 04 05 06 07 08 09 10 11 12 28 March 2012
  • 38. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystIndian RupeeFX Forecasts: Our 3-, 6- and 12-month USD/INR forecasts remain unchanged at 53.0, 50.7 and 49.0 respectively.Our 3-, 6- and 12-month EUR/INR forecasts remain at 70.5, 70.0 and 71.1. Current GSDEER for USD/INR is 62.9.Motivation for Our FX View: After reaching our 3-month target of 53, the INR rose sharply on the back of increasedrisk appetite and equity inflows at the start of 2012. The INR remained stable in February, then started to depreciateagain, in part due to risk-off sentiment in markets, rising oil prices, delays in RBI policy rate cuts and uncertaintiesabout the forthcoming budget. In the near term, we expect the INR to depreciate further due to high oil prices and thefact that the poor performance of The Congress Party in the State Elections will likely push back critical economicreforms. We do not see a sharper depreciation as we would expect intervention by the RBI if this scenario plays out. Inthe longer term, we expect a slight recovery of the INR as policy rate cuts lead to a pick-up in the investment cycle andan improvement in global demand conditions.Monetary Policy and FX Framework: Following the operating procedure for monetary policy, the RBI targets theinterest rate corridor, with the repo rate in the centre, the reverse repo rate 100bp below it as a floor, and the newMarginal Standing Facility (MSF) rate 100bp above as a ceiling. The exchange rate is also managed to avoid excessvolatility.Growth/Inflation Outlook: October-December real GDP growth came in at 6.1%yoy. We think GDP is likely to havetroughed in the October-December quarter, although we continue to expect activity to remain weak in 1H2012, with agradual recovery thereafter. December IP came in at 1.8%yoy, with the slowdown broad-based and due to continuedweak investment and general activity levels.Monetary Policy Forecast: The RBI cut the cash reserve ratio (CRR) for banks by 50bp to 5.5% on January 24 butkept the repo rate unchanged at 8.5%. For the meeting on March 15, the RBI may be tempted to keep rates on holdgiven the high oil prices and the fact that the Union Budget is due to be presented a day after the meeting. We expect a50bp CRR cut between now and the policy meeting.Fiscal Policy Outlook: We recently revised our estimates for the fiscal deficit for FY2012 to 6.0% of GDP (from 5.8%previously), largely due to a fall in tax revenues, and a large increase in fuel subsidies. We expect the budget forFY2013 to focus on fiscal consolidation and estimate fiscal deficit at 5.3%.Balance of Payments Situation: Indias current account deficit for 2QFY2012 increased to 3.7% of GDP from 3.4%of GDP in 1QFY2012. The deterioration in the current account balance was led by a rise in the trade deficit. We expectthe current account deficit to remain high at 3.4% of GDP in FY2012, with upside risks due to higher crude oil prices.Things to Watch: IP, WPI, Union Budget, RBI Monetary Policy. Tushar Poddar, Prakriti Shukla and Vishal Vaibhaw % GDP India: BBoP vs Current Account $/INR 4-qtr ma77 6% CA Spot 5%67 BBoP GSDEER 4%57 3% 2%47 1%37 0% -1%27 -2%17 -3% -4%7 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 -5% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 29 March 2012
  • 39. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystIndonesian RupiahFX Forecasts: Our 3-, 6- and 12-month forecast for $/IDR is 8,900, 8,800 and 8,700 respectively. This implies €/ IDRat 11,837, 12,144 and 12,615 in 3, 6 and 12 months. The current $/IDR GSDEER is 10,429.Motivation for Our FX View: We expect the strength in the underlying fundamentals to remain a positive catalyst forthe IDR, especially against the backdrop of broad USD weakness that we continue to expect over the next 12 months.In the near term, however, doubts over the BIs dovishness (100bp in rate cuts) against a backdrop of rising inflationarypressures this year have led to some market jitters. There is a risk that this uncertainty leads to further weakness indomestic assets, including the IDR, in the near term. The BI can address this by reacting appropriately should higherinflationary pressures materialise, which would allow the IDR to resume an appreciation path.Monetary Policy and FX Framework: Bank Indonesia operates in an Inflation Targeting Framework, which aims toimprove effectiveness and governance in monetary policy, in order to achieve the ultimate goal of price stability insupport of sustainable economic growth and public prosperity. The IDR operates as a managed float with the aim ofpreventing excessive exchange rate volatility.Growth/Inflation Outlook: 4Q2011 real GDP growth came in at 6.5%yoy. Headline growth was boosted by risinginvestments and domestic consumption, offsetting weakening export growth. We maintain our GDP growth forecastsof 5.4% and 6.3% for 2012 and 2013. We expect an acceleration in headline CPI in the months ahead. Inflation hasbeen on a steady decline over the past year, but headline CPI will likely climb in the months ahead as base effects gointo reverse. There are also upside risks depending on the ongoing fuel subsidy deliberations. The government iscurrently mulling over options to adjust fuel subsidies, which could be implemented as soon as April.Monetary Policy Forecast: Bank Indonesia (BI) announced a 25bp reduction in its policy rate to 5.75% in itsFebruary meeting. We were surprised by the decision to cut rates by 25bp at the last meeting (a 100bp cumulative cutso far), given that the balance of risks in our view were tilting towards inflation rather than growth. Our baseline viewis that the BI will keep rates on hold at 5.75% this year. However, it could potentially reverse course and hike rates(depending on the fuel subsidy deliberations) against a backdrop of potentially stabilising growth and risinginflationary pressures.Fiscal Policy Outlook: The government unveiled a draft FY2012 budget that aims to cut the deficit to 1.5% of GDPfrom 2.1% expected in FY2011. Overall debt levels are expected to remain low at 24% of GDP.Balance of Payments Situation: The current account balance fell to -0.4% of GDP in 4Q2011 from 0.2% of GDP in3Q. We expect the current account balance to remain in small surplus for 2012.Things to Watch: Inflation trends, especially given the uncertainty on fuel subsidy adjustments.The Central Bankspotential measures for managing domestic liquidity, together with other macro-prudential measures. Longer-terminfrastructure investment trends. Mark Tan % GDP Indonesia: BBoP vs Current Account US$/Indonesian Rupiah 4-qtr ma14000 6% Spot12000 4% GSDEER10000 2% 8000 0% 6000 -2% 4000 2000 -4% CA BBoP 0 -6% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 30 March 2012
  • 40. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystKorean WonFX Forecasts: We are maintaining our 3-, 6- and 12-month forecasts at 1,150, 1,080 and 1,040. This incorporates ourfundamentally positive view on the KRW and receding yet still substantial near-term concerns on the Euro area. Thisimplies EUR/KRW at 1,530, 1,490 and 1,508 in 3, 6 and 12 months respectively. The current USD/KRW GSDEER is1,357 and EUR/KRW GSDEER is 1,626.Motivation for Our FX View: Our FX view reflects a reduction in the tail risks from the Euro area and a sharp fall inbond yields in Europes periphery. However, given lingering event and recession risks in Europe, as well as the adverseseasonality of Koreas current account and risks of oil supply disruptions, we continue to see the near-term risk for theUSDKRW as skewed to the upside.Monetary Policy and FX Framework: Korea has a formal inflation-targeting regime that looks for annual headlineinflation of 2%-4% over 2010-2012. The exchange rate policy is traditionally undertaken by the government. Theexchange rate regime has changed from a free-floating to a floating regime, according to the IMF, as a result ofsmoothing interventions in 2010 amid ample global liquidity.Growth/Inflation Outlook: Our real GDP growth forecast for 2012 is at 3.5%, with the improved external outlooklargely offset by the inventory accumulation data that could weigh on production in early 2012. We expect inflation tosoften gradually to the BoKs central target inflation rate of 3% by mid-2012 on the back of declines in food prices andslowing growth momentum in 1H2012. Supply disruptions for oil and a potential resultant surge in oil prices could be asignificant risk, though.Monetary Policy Forecast: We expect no rate cut in 2012, given the stronger-than-expected global growth momentumand signs of improvement in European financial conditions. Recent global macro indicators suggest that the growthmomentum is stronger than we were forecasting both in the US and Europe, and that European financial conditions arenot as tight as we thought.Fiscal Policy Outlook: Fiscal policy has already tightened substantially over the past year and so far this year. The2012 budget should envisage a further 0.9%-of-GDP decline in the budget deficit, with the aim of a balanced budget by2013.Balance of Payments Situation: We expect the current account surplus to decline marginally in 2012 but still record asurplus of around 2.0% of GDP in 2012. This, together with expected capital inflows, should help strengthen the KRW.Things to Watch: Uncertainties in Europe could be renewed amid bond auctions or unexpected political turns. Theupward trend in the oil price is another risk as it could cap growth and earnings momentum, while pushing upinflationary pressures. We expect the MPC to keep the policy rate on hold again at the next MPC meeting, possiblywith a hawkish tone, highlighting inflationary pressure amid rising oil prices. March export data, due out on April 1,will be important not only for Korea but also for the global economy. Goohoon Kwon and Sungsoo Chung % GDP Korea: BBoP vs Current Account US$/Korean Won 4-qtr ma1800 14% CA Spot 12% BBoP1600 GSDEER 10% 8%1400 6%1200 4% 2%1000 0% -2%800 -4%600 -6% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 91 93 95 97 99 01 03 05 07 09 11 31 March 2012
  • 41. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystMalaysian RinggitFX Forecasts: Our 3-, 6- and 12-month forecasts for $/MYR are 3.00, 2.98 and 2.96 respectively. This impliesEUR/MYR at 3.99, 4.11 and 4.29 in 3, 6 and 12 months respectively. The current $/MYR GSDEER is 2.64.Motivation for Our FX View: We continue to forecast Ringgit strength over the medium term, against the backdropof broad USD weakness. There are fundamental appreciation pressures on the currency, given the economys healthybroad balance of payments (BBoP) surplus. Structurally, a stronger exchange rate is also appropriate for what thegovernment is hoping will be an extended period of increased capital expenditure, given the long-term economicobjectives envisaged in its Economic Transformation Program.Monetary Policy and FX Framework: Monetary policy is set by the Board of Directors of Bank Negara Malaysia(BNM). The policy instrument is the Overnight Policy Rate, which is 3.0% currently. The Ringgit has operated in amanaged float framework since its USD peg was lifted in July 2005.Growth/Inflation Outlook: Real GDP grew 5.2%yoy in 4Q2011, versus 5.8%yoy growth in 3Q2011. Total domesticdemand grew by 7.5%yoy in 4Q2011 from 4.8%yoy in 3Q2011. Our expectations are for slowing growth drivenmainly by slowing external demand while domestic demand provides a relative buffer. Our GDP growth forecast for2012 is currently at 3.8%, down from 5.1% growth for 2011.Our forecast for CPI inflation is 2.8% for 2012,moderating from 3.2% in 2011. January CPI inflation came in at 2.7%yoy, moderating from Decembers print of 3.0%yoy.Monetary Policy Forecast: Bank Negara Malaysia kept the Overnight Policy Rate unchanged at its January meeting,which was in line with our and consensus expectations. We expect Bank Negara Malaysia to keep rates on hold at 3.0%for this year. In our view, inflation is likely to have peaked. While there is room for monetary accommodation shouldexternal conditions deteriorate further, we think the BNM will stand pat at current levels given the improved outlookthat we envisage for US and Europe.Fiscal Policy Outlook: The government is targeting a fiscal deficit at 4.7% of GDP in 2012 from 5.4% in 2011. Moreneeds to be delivered on fiscal consolidation if the government is to achieve its target of lowering the deficit to the 3%level by 2015.Balance of Payments Situation: The current account maintained a healthy surplus of MYR22.0 bn in 4Q2011 fromMYR26.6bn previously. Portfolio investments improved to MYR-2.7bn in 4Q2011 from MYR-23.4bn in 3Q2011,while net FDI fell further to MYR-7.90bn from MYR-7.7bn previously. We expect the broad balance of payments toremain in healthy surplus, currently around 12% of GDP on a rolling basis.Things to Watch: The timing of general elections, which have to be called before mid-2013. Progress on thegovernment and economic transformation programs. Progress on continued foreign exchange liberalisation and subsidy(especially fuel) reforms. Mark Tan % GDP Malaysia: BBoP vs Current Account US$/Malaysian Ringgit 4-qtr ma4.5 30% Spot CA 25%4.0 GSDEER BBoP 20%3.5 15%3.0 10% 5%2.5 0%2.0 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 -5% 00 01 02 03 04 05 06 07 08 09 10 11 12 32 March 2012
  • 42. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystNew Zealand DollarFX Forecasts: We have retained our 3-, 6- and 12-month forecasts for NZD/$ at 0.83, 0.84 and 0.87. This implies€/NZD at 1.60, 1.64 and 1.67 in 3, 6 and 12 months respectively. The current NZD/$ GSDEER is 0.64 and €/NZDGSDEER is 1.88.Motivation for our FX view: Over the past month, the NZD has traded broadly around our 3-month forecast andthere has been little to alter our view of the NZD rising slowly over a 12-month horizon. Slightly better domestic datahas seen the market effectively remove the possibility of interest rate cuts, and without a further escalation in Euro areaconcerns we see it as unlikely that the NZD will trade meaningfully lower in the near term. Despite a deterioratingcurrent account outlook, the BBoP remains in surplus. Ongoing US Dollar weakness will likely continue to be a keydriver of NZD appreciation.Monetary Policy and FX Framework: The RBNZ is a flexible inflation targeter. The RBNZ Governor is soledecision maker on the Official Cash Rate (OCR), and contracted to achieve "future CPI inflation outcomes between 1per cent and 3 per cent on average over the medium term." The FX regime is a free float.Growth/Inflation outlook: While some data has pointed to stabilisation, we believe domestic economic momentum iscurrently soft. Part of this will reflect activity returning to more normal rates after the Rugby World Cup. While weexpect sequential economic momentum to recover gradually over 2012, the combination of tight financial conditions,slowing population growth, a peak in the terms of trade, the delayed earthquake rebuild and contractionary fiscal policyresult in our below consensus growth view of 2.1% for 2012 as a whole. Headline inflation has fallen below 2%yoyand underlying inflation remains contained. Furthermore, inflation expectations are moderating. Supply constraintsfrom earthquake reconstruction work will boost inflation although rebuild delays mean this impact is being pushed out.Monetary Policy Forecast: We expect the RBNZ to gradually start to lift the OCR from 4Q2012, with 50bp of hikesover 2012 as a whole. If anything, we see the risk skewed to a modestly more delayed tightening cycle.Fiscal Policy Outlook: The social and economic cost of the earthquakes, as well as a weak cyclical recovery, haveresulted in a sharp deterioration in NZs fiscal position, although debt levels remain relatively low. Nevertheless, theNZ government appears strongly committed to a path of fiscal consolidation, with surpluses forecast to return inFY2015. This will be a challenge to achieve, in our view.Balance of Payments Situation: The annual current account balance sits at -4.3% of GDP. This is forecast to widen to-6.2% of GDP by the end of 2013 due to a peak in the terms of trade and weaker export demand. However, reinsuranceflows from the earthquakes should insure NZs BBoP remains in surplus for some time yet.Things to Watch: With global tail risks moderating (although not completely negated), domestic economicmomentum and the perceived timing of interest rate hikes will be important. Watch labour market indicators, as wellas the housing market and consumer spending trends. Philip Borkin NZ$/$ % GDP New Zealand: BBoP vs Current Account 4-qtr ma1.55 Spot 6% GSDEER 4%1.35 2%1.15 0% -2%0.95 -4% -6%0.75 -8% -10%0.55 -12% CA -14% BBoP0.35 74 77 80 83 86 89 92 95 98 01 04 07 10 13 -16% 01 02 03 04 05 06 07 08 09 10 11 12Economist: Philip Borkin philip.borkin@gs.com© 2012 Goldman Sachs New Zealand Limited. All rights reserved. 33 March 2012
  • 43. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystPhilippine PesoFX Forecasts: We are maintaining our 3-, 6- and 12-month forecasts for $/PHP at 42.4, 42.1 and 41.7. This implies€/PHP at 56.4, 58.1 and 60.5 in 3, 6 and 12 months. The current $/PHP GSDEER is 55.08 and €/PHP GSDEER is65.98.Motivation for Our FX View: A number of factors remain supportive of Peso strength over the next 12 months, but inparticular stable remittances and growing IT service exports. In addition to the above, a sizable current account surplus,partly due to strong remittances, is also likely to be supportive of the PHP. In the near term, however, increasing risksrelating to the external environment would likely imply less appreciation.Monetary Policy and FX Framework: The Bangko Sentral ng Pilipinas (BSP) has an inflation targeting framework(3%-5% in 2012) and aims to promote price stability to facilitate balanced and sustainable growth. The BSP uses theovernight reverse repo rate (lending rate) and repo rate (borrowing rate) as its key policy instruments. The PHPoperates in a freely-floating exchange rate environment, where the BSP intervenes to manage excess volatility throughopen-market operations.Growth/Inflation Outlook: Real GDP grew 3.7%yoy in 4Q2011, after 3.6%yoy in 3Q2011. On a quarter-on-quarter;seasonally-adjusted annualised basis, this implies a sequential expansion of 3.8%, after an increase of 3.0% previously.Annual 2011 GDP growth averaged 3.7%, compared with 7.6% in 2010 and the estimated trend growth of 5%. Wecurrently forecast 2012 GDP growth at 3.8%. For 2013, we maintain our growth forecast of 5.0%. On the inflationfront, we believe inflation has peaked and will continue to moderate going forward. Our forecast is for inflation to slowto 3.7% in 2012 from 4.8% in 2011.Monetary Policy Forecast: We maintain our view that the BSP will keep the policy repo and reserve repo rate on holdat 6.00% and 4.00% respectively. In our view, the improved outlook for the US and especially for the Europeansovereign debt issue has lowered the urgency for further rate cuts. Upside risks to inflation have also increased giventhe sharp increase in oil prices recently.Fiscal Policy Outlook: The overall fiscal stance of President Aquinos first budget will likely be a net contraction, aftertwo years with an expansionary stance in 2008 and 2009. We expect the 2011 budget deficit to be further reduced to2.8% of GDP, compared with the governments target of 3.2%. Historically, the government has been bold inintroducing fiscal packages during growth downturns, and we would expect it to introduce some fiscal measures in2012 as well, should the external environment deteriorate in line with our forecasts.Balance of Payments Situation: Strong remittances and a growing service export sector are likely to support thecurrent account. We expect the current account surplus to come in at 2.4% of GDP in 2011.Things to Watch: The new Presidents commitment to lower the fiscal deficit and the pace of remittances. Wecontinue to expect overseas remittances to grow at a solid pace and forecast growth of 8% this year (versus thegovernments forecast of 7%). Shirla Sum % GDP Philippines: BBoP vs Current Account US$/Philippine Peso 4-qtr ma 65 12% CA Spot 10% BBoP 55 GSDEER 8% 45 6% 4% 35 2% 25 0% -2% 15 -4% 5 -6% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 00 01 02 03 04 05 06 07 08 09 10 11 12 34 March 2012
  • 44. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystSingapore DollarFX Forecasts: Our 3-, 6- and 12-month forecasts for $/SGD forecasts are 1.24, 1.22 and 1.20 respectively. Thisimplies €/SGD at 1.65, 1.68 and 1.74 in 3, 6 and 12 months. The current $/SGD GSDEER is 1.15.Motivation for Our FX View: We continue to forecast SGD appreciation over the medium term on the back of broadUSD weakness. At its last bi-annual meeting, the Central Bank announced that it would reduce the slope of its currencybands to that of a modest and gradual appreciation stance, with no change to the centre of the bands. We estimate thatthe Central Bank has shifted the slope from an appreciation of 3% to one of 2% per annum, with the width of the bandsunchanged. We are expecting the MAS to keep this modest appreciation stance unchanged at the April meeting, whichshould underpin further appreciation bias for SGD.Monetary Policy and FX Framework: The MAS conducts monetary policy by targeting an undisclosed appreciationpath of the SGD NEER within a policy band, with the goal of maintaining stable inflation and growth. The MAS lastreduced the slope of its currency bands to one of modest and gradual SGD NEER appreciation, with no change to thewidth or centre of the bands.Growth/Inflation Outlook: The 4Q2011 GDP print showed growth moderating to 3.6%yoy from a revised 6.0%yoyin 3Q2011. On a quarter-on-quarter seasonally-adjusted annualised (qoq sa ann) basis, 4Q2011 GDP contracted 2.5%versus a revised +2.0% in 3Q2011. We expect GDP growth to slow to 2.5% in 2012, below the trend rate of 3%-5%(the governments forecast range was between 1% and 3%). The slowing stems mainly from the deterioration inexternal demand. January CPI inflation moderated to 4.8%yoy, from 5.5%yoy in December.Monetary Policy Forecast: We are expecting the MAS to keep the SGD policy stance unchanged at its April meetingat the current setting of a "moderate and gradual appreciation". While uncertainty still abounds in the externalenvironment, the degree of deterioration that we have seen so far in global growth is unlikely to cause the Singaporeauthorities sufficient concern to ease the policy slope to zero. At the same time, inflationary pressures remain elevated.Fiscal Policy Outlook: The FY2012 budget projects a primary surplus of 0.8% of GDP. Fiscal policy in Singapore hasbeen actively anti-cyclical over the years. We estimate the fiscal impulse (which measures how expansionary orcontractionary the fiscal stance is compared with the previous years) for 2012 to be slightly more expansionary than in2011, consistent with the backdrop of a slowing economy. The 2012 budget implies a fiscal impulse of 0.3% of GDPfor 2012, versus -1.2% for 2011.Balance of Payments Situation: The current account surplus is expected to come in at around 15% of GDP this yearfrom around 18% previously, on the back of slowing exports.Things to Watch: The governments continued efforts to restructure the economy by boosting domestic productivityand reducing reliance on foreign labour. This may have inflationary consequences over the medium term. Mark Tan % GDP US$/Singapore Dollar 4-qtr ma Singapore: BBoP vs Current Account2.40 35% Spot CA2.20 GSDEER 25% BBoP2.00 15%1.80 5%1.60 -5%1.401.20 -15%1.00 -25% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 90 92 94 96 98 00 02 04 06 08 10 12 35 March 2012
  • 45. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystTaiwan DollarFX Forecasts: We are maintaining our 3-, 6- and 12-month forecast for $/TWD at 29.4, 29.0 and 28.8. This implies€/TWD at 39.1, 40.0 and 41.8 in 3, 6 and 12 months, respectively. The current $/TWD GSDEER is 25.36 and €/TWDGSDEER is 30.38.Motivation for Our FX View: A strong balance of payments position should continue to support the TWD in themedium and long term, although increased risks relating to the external outlook and less imported price pressureswould imply less appreciation in the near term.Monetary Policy and FX Framework: The CBC manages inflation and growth expectations simultaneously; it adoptsan intermediate monetary policy target for M2 growth (between 2%yoy and 6%yoy). The IMF defines the TWDexchange rate regime as a managed float, and we believe the weightings for the KRW, JPY and CNY are the highest inthe trade-weighted basket of currencies that it monitors.Growth/Inflation Outlook: The advance 4Q2011 GDP growth print came in at 1.9%yoy, compared with 3.4%yoy in3Q2011. On a seasonally-adjusted quarter-on-quarter annualised (qoq ann) basis, this implies a sequential decline of1.0%, after a contraction of 0.8% in 3Q2011. Domestic demand (more specifically gross investment) was the main areaof weakness, with a negative 3.7ppt drag on headline yoy GDP growth. The external sector saw a bounce back ingrowth after the poor performance in 2Q2011 and 3Q2011, but remained weak. Annual 2011 GDP growth averaged4%yoy, down from 10.7%yoy in 2010. The government lowered its 2012 annual GDP growth forecast to 3.9%yoyfrom 4.2%yoy previously. Our current GDP growth forecasts for 2012 and 2013 stand at 3.0% and 4.5%, respectively.On the inflation front, the government has raised its inflation forecast for 2012 slightly to 1.3%, from 1.1% previously.Monetary Policy Forecast: We expect the Central Bank to keep the policy rate on hold. We believe the improvedexternal outlook will likely translate into firmer exports and investment growth than previously expected; furthermore,stickier-than-expected inflation in the near term has reduced the room for rate cuts.Fiscal Policy Outlook: We expect the budget deficit to continue to decrease, to 2.6% of GDP in 2011 and 2.4% ofGDP in 2012, due to the governments fiscal consolidation efforts. The consolidated budget deficit reachedNT$426.3bn (3.1% of GDP) in 2010, lower than the NT$432.7bn (3.5% of GDP) deficit in 2009.Balance of Payments Situation: The broad balance of payments (BBoP) in 4Q2011 registered a larger deficit ofUS$8.6bn (7.3% of GDP) than the US$6.3bn deficit recorded in 3Q2011 (5.4% of GDP). The current account surplusremained strong at US$12.1bn (10.4% of GDP) in 4Q2011. In comparison, the 3Q2011 current account surplus wasUS$10.2bn (8.8% of GDP).Things to Watch: We would continue to pay close attention to ongoing cross-straits developments, including theIndividual Visitors Scheme between China and Taiwan. Shirla Sum % GDP Taiwan: BBoP vs Current Account US$/Taiwan Dollar 4-qtr ma 36 12% CA Spot 10% BBoP 34 GSDEER 8% 32 6% 30 4% 28 2% 0% 26 -2% 24 90 92 94 96 98 00 02 04 06 08 10 12 -4% 90 92 94 96 98 00 02 04 06 08 10 12 36 March 2012
  • 46. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystThai BahtFX Forecasts: Our 3-, 6- and 12-month forecasts for $/THB are 30.75, 30.50 and 30.25 respectively. This implies€/THB at 40.90, 42.09 and 43.86 in 3, 6 and 12 months. The current $/THB GSDEER is 36.31.Motivation for Our FX View: One of the main underlying drivers of the currency is the broad Dollar direction (weexpect continued USD weakness) and as such our THB forecasts continue to reflect spot appreciation over the mediumterm, bearing in mind possible swings in the near term on risk aversion. In the short term, the impact of the post-floodreconstruction on inflation and the implications for monetary policy will also have to be monitored closely.Monetary Policy and FX Framework: The Bank of Thailand (BoT) sets the direction of monetary policy with pricestability as the overriding objective, and also refines the inflation targeting framework (core CPI at 0.5% to 3.0%) tosuit the Thai economy. The Baht operates on a managed float regime, in which the BoT intervenes to prevent excessvolatility.Growth/Inflation Outlook: Real GDP for 4Q2011 fell by 9.0%yoy, after expanding a revised 3.7%yoy in 3Q2011.This was lower than our forecast of a 4.4%yoy decline and the Bloomberg consensus expectation of a 5.0%yoy fall. Ona sequential basis, real GDP declined by 10.7%qoq seasonally adjusted in 4Q2011 from a revised 0.8%qoq growth in3Q2011. For 2011, real GDP growth came in at 0.1%yoy, versus our forecast of 1.2%yoy and the Bloombergconsensus expectation of 1.0%yoy. We have adjusted upwards our 2012 GDP growth forecast to 5.7% from 4.6%,largely as a result of the lowered base in 2011; this does not reflect a change in view. Thailands February headline CPIinflation came in at 3.35%yoy, similar to Januarys reading of 3.38%yoy.Monetary Policy Forecast: The Bank of Thailand (BoT) cut rates by 25bp to 3.00% at its January meeting to aid theflood recovery process. We expect rates to remain on hold for now and expect Bank of Thailand to hike rates by 50bptowards the end of the year, as the post-flood recovery gains momentum, which could also underpin rising inflationarypressures.Fiscal Policy Outlook: The cabinet has approved the increase in the budget deficit for FY2012 to Bt400bn fromBt350bn to cope with the increase in flood relief expenditure. The increased spending plans look tenable in the nearterm given Thailands low public debt to GDP ratio, at around 40%. However, the trajectories do cast doubt on thecountrys medium-term target of achieving a primary surplus by FY2016.Balance of Payments Situation: The current account balance should narrow this year, led by waning exportmomentum, although it is still likely to remain in positive territory.Things to Watch: The speed and efficiency surrounding the execution of the post-flood reconstruction plans will beclosely watched. Continued political stability is key to providing the stable backdrop needed for longer-terminfrastructure investment projects. Mark Tan % GDP Thailand: BBoP vs Current Account US$/Thai Baht 4-qtr ma 50 20% Spot 15% 45 GSDEER 10% 40 5% 35 0% 30 -5% 25 CA -10% BBoP 20 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 -15% 94 96 98 00 02 04 06 08 10 12 37 March 2012
  • 47. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystInterest Rate ForecastsEurope % 3-Month Horizon 6-Month Horizon 12-Month Horizon Current* Forward Forecast Forward Forecast Forward Forecast Euroland 3M 0.9 0.6 1.2 0.7 1.2 0.7 1.2 10Y 1.8 1.9 2.5 2.0 2.8 2.1 2.8 UK 3M 1.0 1.7 1.0 1.2 0.9 1.2 0.8 10Y 2.2 2.3 2.3 2.4 2.5 2.5 3.0 Sweden 3M 2.3 1.9 1.8 1.7 1.8 1.7 1.7 10Y 1.8 1.8 2.0 1.8 2.3 1.9 2.3 Norway 3M 2.6 2.6 2.7 2.5 2.6 2.6 2.4 10Y 2.4 2.2 2.8 2.3 2.8 2.3 3.0 Switzerland 3M 0.1 0.2 0.0 0.2 0.0 0.2 0.0 10Y 0.7 0.7 1.1 0.7 1.2 0.8 1.3 Poland 3M 4.9 4.9 5.0 4.8 5.1 4.7 5.1 5Y 4.9 4.9 5.2 5.0 5.3 5.1 5.3 Czech Republic 3M 1.2 1.1 1.1 1.1 1.1 1.1 1.2 5Y 2.0 2.1 2.1 2.3 2.3 2.7 2.5 Hungary 3M 7.3 7.4 7.8 7.2 7.8 7.0 7.3 5Y 8.6 8.6 8.7 8.7 8.7 8.8 8.9 Russia 3M 4.7 4.8 5.5 5.4 5.5 5.5 5.5 Turkey 3M 9.9 10.0 12.3 9.4 10.5 8.9 9.4 South Africa 3M 5.6 5.6 5.5 5.7 5.6 6.1 6.2 5Y 6.9 7.1 7.5 7.3 7.6 7.6 8.3Americas % 3-Month Horizon 6-Month Horizon 12-Month Horizon Current* Forward Forecast Forward Forecast Forward Forecast US 3M 0.5 0.4 0.4 0.5 0.3 0.6 0.3 10Y 2.0 2.1 2.5 2.1 2.5 2.3 2.8 Canada 3M 1.4 1.2 1.3 1.3 1.3 1.3 1.3 10Y 2.0 2.1 2.5 2.2 2.8 2.3 3.0 Argentina 3M 14.7 na 11.0 na 11.0 na 10.0 Brazil 3M 9.8 na 9.0 na 9.0 na 9.5 Chile 3M 5.0 na 4.3 na 4.0 na 4.3 Mexico 3M 4.5 na 4.0 na 4.0 na 4.0Asia % 3-Month Horizon 6-Month Horizon 12-Month Horizon Current* Forward Forecast Forward Forecast Forward Forecast Japan 3M 0.2 0.5 0.4 0.3 0.4 0.3 0.4 10Y 1.0 1.0 1.1 1.1 1.2 1.2 1.4 Australia 3M 4.5 4.5 3.9 4.1 4.0 4.1 4.5 10Y 3.9 4.0 4.0 4.0 4.3 4.1 4.5 New Zealand 3M 2.9 2.8 2.7 2.8 2.9 3.1 3.4 10Y 4.1 na 4.3 na 4.5 na 4.6 Hong Kong 3M 0.4 0.4 0.1 0.4 0.1 0.5 0.0 Indonesia 3M 4.2 3.9 5.0 4.0 5.0 4.6 5.0 India 3M 9.1 8.5 8.2 8.1 7.7 8.2 7.2 Taiwan 3M 0.9 0.9 0.7 0.9 0.7 0.9 0.8 Korea 3M 3.5 3.5 3.6 3.5 3.6 3.5 3.8 Philippines 3M 3.0 3.4 1.1 2.6 1.1 2.3 1.3 Singapore 3M 0.4 0.8 0.4 0.9 0.4 0.4 0.4 Thailand 3M 3.1 3.2 3.0 3.3 3.0 3.2 3.5 Close 07 March 12, mid-rates for major markets. We are currently using June 2012, September 2012 and March 2013 contracts for 3-month forw ard rates. Source:GS Global ECS Research 38 March 2012
  • 48. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGS Sentiment Index Risk Reversals Bull/Bear Comments IMM Positioning Average Current Last Week* Current Last Week* Current Last Week* Current Last Week*EUR/$ 7.8 9.2 3.9 5.6 -9.5 -9.8 0.7 1.7$/Yen 6.0 6.2 5.9 3.1 4.9 0.8 5.6 3.4The possible range is +/-10. A value of +10 suggests bullish sentiment for the first currency of the pair (i.e., bullishEUR in EUR/$ and bullish $ in $/Yen). We would generally regard the index as a reverse indicator, i.e., high numbersare indicative of excessive positive sentiment and vice versa. Index EUR/US$ vs GS Sentiment Index EUR/US$ 10 1.60 8 1.50 6 1.40 4 1.30 2 0 1.20 -2 1.10 -4 1.00 -6 Sentiment Index (lhs) 0.90 -8 EUR/US$ (rhs)-10 0.80 01 02 03 04 05 06 07 08 09 10 11 12 Index US$/YEN vs GS Sentiment Index US$/YEN10 140 Sentiment Index (lhs) 8 US$/YEN (rhs) 130 6 4 120 2 110 0 100 -2 -4 90 -6 80 -8-10 70 01 02 03 04 05 06 07 08 09 10 11 12Source: Goldman Sachs Global ECS Research 39 March 2012
  • 49. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGS Sentiment Index (IMM) Score EUR % Score JPY % 10.00 60% 10.00 50% Positioning Score [-10,+10] Positioning Score [-10,+10] 8.00 Net Position (% of Open Interest) [RHS] 8.00 Net Position (% of Open Interest) [RHS] 40% 6.00 40% 6.00 30% 4.00 4.00 20% 20% 2.00 2.00 10% 0.00 0.00 0% 0% -2.00 -2.00 -10% -4.00 -4.00 -20% -20% -6.00 -6.00 -8.00 -8.00 -30% -40%-10.00 -10.00 -40%-12.00 -60% -12.00 -50% Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 GBP Score CHF % Score % 12.00 60% 10.00 60% Positioning Score [-10,+10] 10.00 8.00 50% Net Position (% of Open Interest) [RHS] 40% 8.00 6.00 40% 6.00 4.00 30% 20% 4.00 2.00 20% 2.00 0% 0.00 10% 0.00 -2.00 0% -2.00 -20% -4.00 -10% -4.00 -40% -6.00 -20% -6.00 -8.00 -8.00 -30% -60%-10.00 -10.00 Positioning Score [-10,+10] -40% Net Position (% of Open Interest) [RHS]-12.00 -80% -12.00 -50% Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Score CAD % Score AUD % 10.00 60% 10.00 80% Positioning Score [-10,+10] 8.00 Net Position (% of Open Interest) [RHS] 8.00 40% 60% 6.00 6.00 4.00 4.00 40% 20% 2.00 2.00 20% 0.00 0% 0.00 0% -2.00 -2.00 -20% -4.00 -4.00 -20% -6.00 -6.00 -40% -40% -8.00 -8.00 Positioning Score [-10,+10] Net Position (% of Open Interest) [RHS]-10.00 -60% -10.00 -60% Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12Score MXN % Score NZD %10.00 100% 10.00 100% 8.00 8.00 80% 80% 6.00 6.00 60% 60% 4.00 4.00 40% 40% 2.00 2.00 0.00 20% 0.00 20% -2.00 0% -2.00 0% -4.00 -20% -4.00 -20% -6.00 -6.00 -40% -8.00 Positioning Score [-10,+10] -40% Positioning Score [-10,+10] -60% -8.00 -10.00 Net Position (% of Open Interest) [RHS] Net Position (% of Open Interest) [RHS]-10.00 -60% -12.00 -80% Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12Source: Bloomberg, Goldman Sachs Global ECS Research 40 March 2012
  • 50. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystFX CurrentsIndex, Relative Performance of High The Carry FX Current (Bloomberg: GSIMCAR1 Index) is1/1/04=100 Yielding Currencies built to capture the performance of carry-based trading155 strategies in FX. In the long run, the return on holding high FX G10 & Emerging Markets Carry Current carry currencies tends to outperform low carry currencies.145 However, at times of high risk aversion, carry trades tend to post heavy losses. The Carry Current performed poorly in135 2011, falling 2.3% over the course of the year, but has risen by nearly 4% since the beginning of 2012.125 Composition of the Carry Current115 Short Long CHF HUF105 JPY IDR CNY RUB 95 CZK ZAR 2004 2005 2006 2007 2008 2009 2010 2011 2012 TWD BRL EUR INR SGD TRYIndex, Relative Performance of Currencies in The Current Account FX Current (Bloomberg:1/1/04=100 Current Account Surplus FX GSCUCACC Index) aims to capture the performance of103 current account geared trading strategies in FX. In an FX Current Account Current101 environment of slower global capital flows, one would 99 expect current account surplus currencies to outperform current account deficit currencies. Owing to a deterioration 97 in global risk sentiment, the Current Account Current rose 95 2% in 2011. However, it reversed course towards the end of 93 last year and fell over 2% through early February, and has since moved sideways.. 91 89 Composition of Current Account Current Short Long 87 TRY SEK 85 NZD TWD 2004 2005 2006 2007 2008 2009 2010 2011 2012 INR MYR PLN NOK GBP CHF ZAR SGDIndex, Relative Performance of Undervalued FX The Valuation Current (Bloomberg: GSCUVALU Index)1/1/04=100 Based on GSDEER Valuation is our FX Current built to capture the performance of114 FX Valuation Current undervalued currencies relative to overvalued currencies,112 using our GSDEER model as a valuation anchor. After110 experiencing significant volatility in August and September108 of last year, it has risen steadily over the past few months106 and is up 1.3% year-to-date.104102 Composition of Valuation Current Short Long100 BRL SGD 98 JPY MYR 96 NZD TWD INR CLP 94 2004 2005 2006 2007 2008 2009 2010 2011 2012 CHF ZAR PHP NOKSource: Goldman Sachs Global ECS ResearchMethodology: Our FX Currents, formerly ‘FX Slices’, are portfolios of currencies adjusted for carry and are designed to captureand identify themes that the market is trading. For some, the composition is adjusted once a month or on a rolling 3-month basisaccording to the evolution of the ranking in the macro variables. A ranking schedule is applied to the currencies, placing a 20%weight on the four top/bottom-ranked currencies, 15% for the fifth rank and 5% for the sixth-ranked currency. The BRICs/N-11FX Current has a static, equally-weighted composition. See our Global Viewpoint from July 20, 2009, and our 2005 and 2006issues of The Foreign Exchange Market for details. 41 March 2012
  • 51. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystFX CurrentsIndex, Relative Performance of High Growth FX The GDP FX Current (Bloomberg: GSCUGROW Index) is1/1/04=100 built to capture the performance of currencies from high 125 cyclical growth economies relative to currencies from low FX Growth Current cyclical growth economies. In theory, strong cyclical growth 120 should lead to FX outperformance. Growth was one of the best-performing themes from the beginning of the turmoil in 115 July 2007 through May 2010, during which the GDP Current was up by over 14.2%. It reversed direction in mid-2010 and 110 fell nearly 5% in 2011, but has risen 1.6% in 2012 thus far. 105 Composition of GDP Current Short Long 100 SGD ILS TWD IDR CZK SEK 95 JPY NOK 2004 2005 2006 2007 2008 2009 2010 2011 2012 KRW MXN GBP TRY Relative Performance of Selected Energy- This Energy FX Current (Bloomberg: GSIMENE1 Index)Index,1/1/04=100 Exporting to Importing Currencies is created to take advantage of terms-of-trade gains and116 losses from shifts in energy prices between commodity FX Energy Current114 producers and commodity consumers. Basically, this112 Current is long a list of currencies from energy-exporting110 countries and short a portfolio of currencies that are heavy108 importers of energy products. After experiencing significant volatility in 2011, the Energy Current is up 2.1% in 2012 to106 date. We expect this Current to continue appreciating over104 the medium term, given our Commodities Strategists’102 structurally bullish commodity outlook.100 98 Composition of the Energy Current Short Long 96 2004 2005 2006 2007 2008 2009 2010 2011 2012 INR AUD JPY CAD KRW MXN SGD NOK TWD RUBIndex, Relative Performance of BRIC/N11 The BRICs/N-11 FX Current (Bloomberg: GSIMBRI11/1/04=100 Currencies to G10 Currencies Index) measures the outperformance of the BRICs and N-11118 currencies against the G10 currencies. As the BRICs and N-116 FX BRIC/N11 Current 11 are the emerging markets with the most substantial long-114 term growth potential, we would generally be inclined to112 recommend trading this Current from the long side. However, we have observed that the BRICs and N-11 trade110 can come under pressure during times of slow global108 growth. The BRICs/N-11 Current fell 1.8% over the course106 of 2011, but has recovered over 1.9% since the start of 2012.104 Composition of the BRIC/N11 Current102 Short Long100 AUD BRL 98 CAD CNY 2004 2005 2006 2007 2008 2009 2010 2011 2012 CHF IDR EUR INR GBP KRW JPY MXN NOK PHP NZD RUB SEK TRYSource: Goldman Sachs Global ECS Research 42 March 2012
  • 52. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGS Trade-Weighted IndicesForecasts for Nominal GS TWIs Year Average Latest Forecasts Percentage Change GSDEER TWI Jan 1980=100 2009 2010 2011 07-Mar-12 3m 6m 12m 3m 6m 12m current Misal*US Dollar 215.6 209.4 200.6 204.8 205.1 201.6 196.2 0.2 -1.5 -4.2 227.8 -10.1Euro 300.7 280.2 282.5 273.0 280.3 284.3 287.9 2.7 4.2 5.5 268.4 1.7Japanese Yen 421.0 436.3 462.9 459.4 460.6 460.5 465.3 0.3 0.2 1.3 377.7 21.6British Pound 80.6 80.3 79.9 81.2 78.9 79.8 80.9 -2.9 -1.8 -0.4 84.3 -3.6Norw egian Kroner 88.5 92.6 95.1 97.2 97.6 98.0 99.8 0.5 0.9 2.7 130.9 -25.8Sw edish Krona 59.3 63.7 67.4 67.1 66.5 67.6 68.6 -0.8 0.8 2.3 70.1 -4.3Sw iss Franc 162.5 173.4 195.7 196.7 184.4 185.8 187.5 -6.2 -5.5 -4.7 169.9 15.8Czech Koruna 167.4 170.9 176.1 172.7 159.1 162.3 170.8 -7.9 -6.0 -1.1 183.9 -6.1Hungarian Forint 69.1 68.4 67.8 63.4 55.5 54.2 59.0 -12.4 -14.4 -6.9 61.8 2.5Polish Zloty 68.8 72.4 70.5 68.7 60.6 62.1 67.8 -11.7 -9.6 -1.2 75.4 -8.9Russian Ruble 2.559 2.683 2.667 2.737 2.857 2.866 2.819 4.4 4.7 3.0 2.610 4.9Turkish Lira 0.0111 0.0115 0.0100 0.0096 0.0096 0.0092 0.0086 0.5 -4.5 -9.9 0.0077 24.5Israeli Shekel 0.111 0.117 0.118 0.113 0.115 0.113 0.113 1.2 -0.7 -0.5 0.116 -2.1South African Rand 11.07 12.47 12.09 11.67 12.0 11.9 11.1 3.1 1.8 -5.2 14.88 -21.6Argentine Peso 0.0114 0.0104 0.0094 0.0092 0.0092 0.0086 0.0078 -0.9 -6.3 -15.9 0.0144 -36.0Brazilian Real 0.286 0.322 0.330 0.320 0.307 0.296 0.285 -3.9 -7.4 -10.8 0.217 47.4Canadian Dollar 111.8 122.8 125.7 125.2 126.2 127.9 129.1 0.8 2.2 3.1 113.7 10.2Mexican Peso 0.198 0.209 0.209 0.200 0.203 0.202 0.209 1.3 1.0 4.3 0.209 -4.0Chilean Peso 31.5 33.9 34.6 34.5 34.6 34.7 35.0 0.1 0.3 1.3 45.8 -24.5Peruvian New Sol 33.6 35.3 34.8 36.3 36.6 36.1 35.9 0.8 -0.6 -1.1 34.6 5.0Colombian Peso 7.393 8.651 8.702 9.168 9.110 9.045 9.186 -0.6 -1.3 0.2 8.904 3.0Venezuela Bolivar 0.370 0.185 0.178 0.179 0.180 0.179 0.177 0.5 0.0 -1.2 0.169 6.1Australian Dollar 71.8 80.7 86.5 89.4 90.0 88.4 86.4 0.6 -1.1 -3.4 83.4 7.3Chinese Yuan 25.0 24.3 24.3 25.4 25.6 25.3 25.3 0.8 -0.3 -0.4 25.3 0.4Hong Kong Dollar 93.8 91.5 87.1 87.3 86.9 85.8 84.1 -0.4 -1.7 -3.7 117.7 -25.9Indian Rupee 20.29 21.08 19.96 18.72 17.5 18.0 18.3 -6.6 -3.9 -2.4 15.60 20.0Korean Won 40.0 42.7 42.7 42.5 41.4 43.5 44.4 -2.6 2.5 4.4 37.6 13.1Malaysian Ringgit 63.0 66.6 67.0 68.5 68.9 68.4 67.5 0.6 -0.2 -1.4 86.8 -21.1New Zealand Dollar 67.6 73.1 75.7 78.1 77.8 77.7 79.1 -0.4 -0.5 1.2 68.4 14.2Singapore Dollar 187.5 193.4 201.3 202.4 204.3 204.5 204.1 1.0 1.0 0.8 238.5 -15.1Taiw an Dollar 112.8 114.5 117.1 117.4 118.1 118.1 116.6 0.6 0.6 -0.7 151.7 -22.6Thai Baht 62.0 64.7 64.0 63.8 64.0 63.6 63.0 0.2 -0.3 -1.3 59.0 8.2Indonesian Rupiah 5.117 5.594 5.529 5.353 5.430 5.408 5.368 1.4 1.0 0.3 5.014 6.8Philippine Peso 15.41 15.77 15.71 15.98 15.92 15.79 15.65 -0.4 -1.2 -2.0 13.24 20.7Source: GS Global ECS Research *Spot misalignment from GSDEER TWI in % 43 March 2012
  • 53. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGS Trade-Weighted IndicesIndex GS TWI: US Dollar Index GS TWI: Euro1980=100 1980=100280 350 TWI260 300 Appreciation TWI240 Appreciation220 250200 200180 150160140 100120 Nominal TWI Nominal TWI 50100 GSDEER TWI GSDEER TWI 80 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 IndexIndex GS TWI: Japanese Yen 1980=100 GS: TWI Sterling1980=100500 120450 Nominal TWI TWI GSDEER TWI400 Appreciation 110 TWI Appreciation350 100300250 90200 80150100 70 Nominal TWI 50 GSDEER TWI 0 60 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14Index Index GS TWI: Australian Dollar1980=100 GS TWI: Swiss Franc 1980=100240 120 Nominal TWI TWI220 Appreciation 110 GSDEER TWI200 100180 TWI 90 Appreciation160 80140 70120 Nominal TWI100 60 GSDEER TWI 80 50 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14Index GS TWI: Chinese Yuan Index GS TWI: Brazilian Real1980=100 1980=100110 0.6100 TWI TWI Appreciation Appreciation 0.5 90 Nominal TWI 80 GSDEER TWI 0.4 70 60 0.3 50 0.2 40 30 0.1 Nominal TWI 20 GSDEER TWI 10 0.0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 94 96 98 00 02 04 06 08 10 12 14Source: Goldman Sachs Global ECS Research 44 March 2012
  • 54. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGS Anecdotal FlowsM&A Pipelines US$ bn Cash M&A Pipeline: US$ bn Cash M&A Pipeline: Net bilateral: United States & REST OF WORLD* Net bilateral: Euro area & REST OF WORLD* 60 20 40 0 20 -20 0 -40 -20 -60 -40 -80 -60 -100 00 01 02 03 04 05 06 07 08 09 10 11 12 00 01 02 03 04 05 06 07 08 09 10 11 12 *Pending United States outflow=-ve; Latest: US$ -12.9bn *Pending Euro area outflow=-ve; Latest: US$ 10.8bn US$ bn Cash M&A Pipeline: US$ bn Cash M&A Pipeline: Net bilateral: Japan & REST OF WORLD* Net bilateral: Canada & REST OF WORLD* 20 25 20 10 15 0 10 -10 5 0 -20 -5 -30 -10 -40 -15 00 01 02 03 04 05 06 07 08 09 10 11 12 00 01 02 03 04 05 06 07 08 09 10 11 12 *Pending Japan outflow=-ve; Latest: US$ -18.8bn *Pending Canada outflow=-ve; Latest: US$ -6.1bn US$ bn Cash M&A Pipeline: US$ bn Cash M&A Pipeline: Net bilateral: Switzerland & REST OF WORLD* Net bilateral: United Kingdom & REST OF WORLD* 10 40 0 30 20 -10 10 -20 0 -30 -10 -20 -40 -30 -50 -40 -60 -50 00 01 02 03 04 05 06 07 08 09 10 11 12 00 01 02 03 04 05 06 07 08 09 10 11 12 *Pending Switzerland outflow=-ve; Latest: US$ -9.4bn *Pending United Kingdom outflow=-ve; Latest: US$ -14.2bnSource: Thomson Financial SDC, Goldman Sachs Global ECS Research.M&A Cash Pipelines show the value of the cash parts in all pending cross-border acquisitions. They represent potential flows, not actualflows. If a deal is withdrawn, it will be removed from the pipeline. The pipeline provides no information on the timing of foreign exchange flows. 45 March 2012
  • 55. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGS Anecdotal FlowsM&A Pipelines Cash M&A Pipeline: US$ bn Cash M&A Pipeline: US$ bn Net bilateral: Australia & REST OF WORLD* Net bilateral: New Zealand & REST OF WORLD* 25 4 20 3 15 2 10 1 5 0 0 -1 -5 -2 -10 -3 00 01 02 03 04 05 06 07 08 09 10 11 12 00 01 02 03 04 05 06 07 08 09 10 11 12 *Pending Australia outflow=-ve; Latest: US$ 4.5bn *Pending New Zealand outflow=-ve; Latest: US$ 1bn US$ bn Cash M&A Pipeline: US$ bn Cash M&A Pipeline: Net bilateral: Sweden & REST OF WORLD* Net bilateral: Norway & REST OF WORLD* 15 6 5 10 4 3 5 2 0 1 0 -5 -1 -2 -10 -3 -15 -4 00 01 02 03 04 05 06 07 08 09 10 11 12 00 01 02 03 04 05 06 07 08 09 10 11 12 *Pending Sweden outflow=-ve; Latest: US$ -7.2bn *Pending Norway outflow=-ve; Latest: US$ 3.4bn US$ bn Cash M&A Pipeline: US$ bn Cash M&A Pipeline: Net bilateral: China & REST OF WORLD* Net bilateral: India & REST OF WORLD* 30 25 25 20 20 15 15 10 10 5 5 0 0 -5 -5 00 01 02 03 04 05 06 07 08 09 10 11 12 00 01 02 03 04 05 06 07 08 09 10 11 12 *Pending China outflow=-ve; Latest: US$ 7bn *Pending India outflow=-ve; Latest: US$ 8.7bnSource: Thomson Financial SDC, Goldman Sachs Global ECS Research.M&A Cash Pipelines show the value of the cash parts in all pending cross-border acquisitions. They represent potential flows, notactual flows. If a deal is withdrawn it will be removed from the pipeline. The pipeline provides no information on the timing of foreignexchange flows. 46 March 2012
  • 56. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGSDEERGSDEER Values and Misalignment for USD Crosses Spot GSDEER Misalignment Current Trade- 07-Mar-12 4Q11* 2Q12 4Q13 Bilateral1 (1Q12)* Weighted1 G3 EUR/$ 1.31 1.20 1.20 1.20 1.20 9.8% $/JPY 81.2 106.6 105.7 105.3 105.3 30.1% 22.3% EMEA £/$ 1.57 1.50 1.51 1.50 1.51 4.3% -3.0% $/NOK 5.65 4.81 4.72 4.60 4.55 -16.5% -23.0% $/SEK 6.78 6.76 6.78 6.83 6.87 -0.1% -5.2% $/CHF 0.92 1.18 1.17 1.17 1.14 27.9% 17.3% $/CZK 18.89 19.18 19.28 19.33 19.26 2.0% -6.1% $/HUF 224.7 235.9 241.2 242.5 258.0 7.3% -1.3% $/PLN 3.16 3.08 3.09 3.11 3.14 -2.3% -10.4% $/RUB 29.69 34.01 33.88 33.82 35.01 14.1% 4.4% $/TRY 1.78 2.23 2.29 2.31 2.47 28.3% 17.6% $/ILS 3.80 4.08 4.09 4.12 4.10 7.7% -0.9% $/ZAR 7.61 6.33 6.35 6.41 6.74 -16.6% -24.3% Americas $/ARS 4.34 3.02 3.06 3.09 3.51 -29.4% -39.7% $/BRL 1.77 2.57 2.58 2.58 2.80 46.0% 41.9% $/CAD 1.00 1.15 1.15 1.14 1.14 14.9% 10.4% $/MXN 12.89 12.72 12.69 12.74 13.14 -1.5% -6.2% $/CLP 489.3 422.0 415.9 413.2 412.0 -15.0% -21.8% $/PEN 2.67 3.15 3.11 3.14 3.09 16.3% 7.0% $/COP 1769 1961 1948 1949 1973 10.2% 4.2% $/VEF 4.30 3.98 4.19 4.35 5.87 -2.4% -7.8% Asia AUD/$ 1.06 0.87 0.87 0.87 0.88 20.9% 8.5% $/CNY 6.32 7.03 7.04 7.10 6.96 11.4% 1.4% $/HKD 7.76 6.24 6.18 6.25 6.51 -20.4% -27.4% $/INR 50.34 63.00 62.90 63.87 66.79 25.0% 16.4% $/KRW 1124 1348 1357 1396 1419 20.7% 10.5% $/MYR 3.03 2.63 2.64 2.63 2.67 -12.7% -20.5% NZD/$ 0.82 0.64 0.64 0.64 0.64 28.7% 14.6% $/SGD 1.26 1.13 1.15 1.15 1.19 -8.9% -16.4% $/TWD 29.55 25.32 25.36 25.55 25.52 -14.2% -23.1% $/THB 30.72 36.00 36.31 36.65 37.52 18.2% 6.9% $/IDR 9157 10454 10429 10514 10979 13.9% 5.0% $/PHP 42.87 54.84 55.08 55.13 56.64 28.5% 19.0% USD TWI 204.76 225.77 225.85 225.23 227.68 -9.3%1 Bilateral misalignments are reported for the second currency in the pair w ith the exception of EUR/$, GBP/$, AUD/$, andNZD/$. A negative misalignment indicates that a currency is undervalued relative to its anchor currency. A negative trade-w eighted misalignment indicates that a currency is undervalued on a broad basis. That is, the $/JPY biateral misalignmentshow s the misalignment of the JPY against the USD, w ith a negative figure indicating undervaluation of the JPY.* "Current" represents the current quarter, the column left of current represents the last quarter to be updated w ith over75% of actual data.Source: GS Global ECS Research 47 March 2012
  • 57. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGSDEERGSDEER Values and Misalignment for Euro Crosses Spot GSDEER Misalignment Current Trade- 07-Mar-12 4Q11* 2Q12 4Q13 Bilateral1 (1Q12)* Weighted1 G3 EUR/$ 1.31 1.20 1.20 1.20 1.20 9.8% EUR/JPY 106.8 127.5 126.6 126.4 126.6 18.5% 22.3% EMEA EUR/GBP 0.84 0.80 0.79 0.80 0.80 -5.0% -3.0% EUR/NOK 7.43 5.75 5.65 5.53 5.47 -23.9% -23.0% EUR/SEK 8.92 8.09 8.12 8.19 8.26 -9.0% -5.2% EUR/CHF 1.21 1.41 1.40 1.40 1.37 16.6% 17.3% EUR/CZK 24.84 22.95 23.09 23.20 23.14 -7.0% -6.1% EUR/HUF 295.5 282.2 288.9 291.0 310.0 -2.2% -1.3% EUR/PLN 4.16 3.68 3.70 3.73 3.77 -11.0% -10.4% EUR/RUB 39.03 40.68 40.58 40.60 42.06 4.0% 4.4% EUR/TRY 2.34 2.67 2.74 2.78 2.97 16.9% 17.6% EUR/ILS 5.00 4.88 4.90 4.95 4.92 -1.9% -0.9% EUR/ZAR 10.01 7.57 7.61 7.69 8.10 -24.0% -24.3% Americas EUR/ARS 5.70 3.62 3.67 3.70 4.22 -35.7% -39.7% EUR/BRL 2.33 3.07 3.09 3.10 3.36 33.0% 41.9% EUR/CAD 1.31 1.38 1.37 1.37 1.38 4.7% 10.4% EUR/MXN 16.95 15.21 15.20 15.29 15.78 -10.3% -6.2% EUR/CLP 643.3 504.7 498.2 495.9 495.0 -22.5% -21.8% EUR/PEN 3.51 3.77 3.72 3.76 3.71 5.9% 7.0% EUR/COP 2325 2345 2334 2339 2370 0.4% 4.2% EUR/VEF 5.65 4.76 5.02 5.22 7.05 -11.1% -7.8% Asia EUR/AUD 1.24 1.37 1.37 1.38 1.36 10.1% 8.5% EUR/CNY 8.31 8.41 8.43 8.52 8.36 1.5% 1.4% EUR/HKD 10.21 7.46 7.40 7.50 7.82 -27.5% -27.4% EUR/INR 66.18 75.35 75.35 76.65 80.25 13.9% 16.4% EUR/KRW 1478 1612 1626 1676 1705 10.0% 10.5% EUR/MYR 3.98 3.14 3.16 3.16 3.21 -20.5% -20.5% EUR/NZD 1.60 1.87 1.88 1.88 1.88 17.3% 14.6% EUR/SGD 1.65 1.35 1.37 1.38 1.43 -17.0% -16.4% EUR/TWD 38.86 30.29 30.38 30.66 30.66 -21.8% -23.1% EUR/THB 40.39 43.06 43.49 43.99 45.08 7.7% 6.9% EUR/IDR 12040 12504 12493 12619 13191 3.8% 5.0% EUR/PHP 56.36 65.59 65.98 66.17 68.05 17.1% 19.0% EUR TWI 272.96 266.59 267.20 268.20 270.03 2.2%1 Bilateral misalignments are reported for the second currency in the pair w ith the exception of EUR/$, GBP/$, AUD/$, andNZD/$. A negative misalignment indicates that a currency is undervalued relative to its anchor currency. A negative trade-w eighted misalignment indicates that a currency is undervalued on a broad basis. That is, the $/JPY biateral misalignmentshow s the misalignment of the JPY against the USD, w ith a negative figure indicating undervaluation of the JPY.* "Current" represents the current quarter, the column left of current represents the last quarter to be updated w ith over75% of actual data.Source: GS Global ECS Research 48 March 2012
  • 58. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystKey Economic DataGDP Growth (% ch yoy)% ch yoy 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 (f) 12 (f) 13 (f)G3USA 3.74 4.46 4.36 4.83 4.14 1.08 1.81 2.54 3.47 3.07 2.66 1.91 -0.34 -3.49 3.03 1.72 2.09 2.16Euro area 1.48 2.61 2.67 2.80 3.91 1.98 0.92 0.73 1.99 1.79 3.35 2.98 0.27 -4.20 1.81 1.55 -0.41 0.68Japan 2.61 1.60 -2.00 -0.20 2.26 0.36 0.29 1.69 2.36 1.30 1.69 2.19 -1.04 -5.53 4.44 -0.79 2.03 1.52EMEACzech Republic 4.03 -0.89 -0.22 1.51 4.56 3.08 2.05 3.77 4.59 6.83 7.23 5.72 2.89 -4.54 2.58 1.67 0.28 2.47France 1.05 2.17 3.41 3.18 3.87 1.79 0.95 0.89 2.35 1.87 2.66 2.23 -0.20 -2.63 1.38 1.57 -0.13 0.98Germany 0.85 1.82 1.67 1.77 3.33 1.67 0.03 -0.38 0.70 0.83 3.89 3.39 0.81 -5.08 3.56 3.02 0.92 1.48Hungary 1.31 4.60 4.90 4.20 5.20 3.80 3.50 3.98 4.52 3.17 3.63 0.77 0.83 -6.81 1.36 1.44 -0.45 1.78Israel 5.63 2.87 0.00 3.39 9.27 -0.25 -0.58 1.51 4.84 4.94 5.59 5.50 4.03 0.84 4.85 4.80 2.30 4.00Italy 1.00 1.91 1.32 1.42 3.89 1.76 0.45 0.03 1.56 1.09 2.27 1.55 -1.16 -5.06 1.42 0.37 -1.33 0.02Norway 6.41 5.38 2.70 2.01 3.50 1.74 1.50 0.96 3.95 2.60 2.44 2.70 0.02 -1.65 0.66 1.50 1.69 1.84Poland 6.02 6.81 4.87 4.10 4.04 1.02 1.37 3.80 5.45 3.60 6.17 6.83 4.99 1.64 3.87 4.21 2.02 3.33Russia -3.60 1.40 -5.30 6.40 10.00 5.10 4.70 7.30 7.20 6.40 8.20 8.50 5.20 -7.80 4.03 4.17 3.94 4.52South Africa 4.31 2.65 0.52 2.36 4.15 2.74 3.67 2.95 4.55 5.28 5.60 5.55 3.62 -1.54 2.89 3.05 2.24 3.46Spain 2.41 3.87 4.47 4.75 5.09 3.67 2.71 3.09 3.26 3.58 4.08 3.48 0.89 -3.72 -0.07 0.68 -1.18 -0.15Sweden 1.63 2.92 4.11 4.39 4.60 1.42 2.50 2.48 3.70 3.15 4.56 3.43 -0.77 -5.13 5.32 4.63 2.15 2.39Switzerland … … 2.64 1.31 3.58 1.15 0.44 -0.20 2.53 2.64 3.63 3.64 2.10 -1.88 2.71 1.61 -1.06 1.28Turkey 7.38 7.58 2.31 -3.40 6.80 -5.70 6.20 5.30 9.40 8.40 6.90 4.70 0.70 -4.80 9.00 7.80 0.80 6.80UK 2.89 3.42 3.84 3.66 4.46 3.15 2.66 3.52 2.96 2.09 2.61 3.47 -1.10 -4.37 2.09 0.89 1.09 2.32AMERICASArgentina 5.53 8.11 3.85 -3.39 -0.79 -4.41 -10.89 8.84 9.03 9.18 8.47 8.65 6.76 0.85 9.16 8.69 3.67 4.69Brazil 2.15 3.37 0.04 0.25 4.31 1.31 2.66 1.15 5.71 3.16 3.96 6.10 5.17 -0.33 7.53 3.01 2.81 4.12Canada 1.62 4.23 4.10 5.53 5.23 1.78 2.92 1.88 3.12 3.02 2.82 2.20 0.69 -2.77 3.21 2.36 2.17 2.49Chile 7.20 7.60 3.40 -1.10 4.46 3.35 2.17 3.96 6.04 5.56 4.59 4.60 3.66 -1.68 5.20 6.38 4.15 5.15Colombia 2.06 3.43 0.57 -4.20 3.12 1.68 2.50 3.92 5.33 4.71 6.70 6.90 3.55 1.45 4.29 5.70 4.04 5.11Ecuador 1.98 3.38 0.41 -7.27 5.06 4.76 3.43 3.27 8.82 5.74 4.75 2.04 7.24 0.36 3.58 7.75 3.33 3.48Mexico 5.14 6.78 4.91 3.87 6.60 -0.16 0.83 1.35 4.05 3.21 5.15 3.26 1.19 -6.12 5.39 3.78 2.78 3.93Peru 2.49 6.84 -0.68 0.89 2.95 0.21 5.16 3.90 5.22 6.45 7.87 8.91 9.80 0.86 8.79 6.50 4.88 5.48Venezuela -0.20 6.37 0.17 -6.09 3.69 3.39 -8.86 -7.76 18.29 10.32 9.87 8.75 5.28 -3.20 -1.49 3.97 3.99 2.92ASIAAustralia 4.21 4.05 5.07 4.06 3.15 2.61 3.94 3.14 4.08 3.11 2.68 4.68 2.50 1.39 2.57 2.01 2.50 3.65China 10.01 9.28 7.83 7.63 8.42 8.30 9.09 10.02 10.10 11.30 12.70 14.20 9.60 9.20 10.40 9.20 8.60 8.70Hong Kong 4.20 5.10 -6.00 2.60 7.90 0.50 1.80 3.00 8.50 7.10 7.00 6.40 2.30 -2.70 7.00 5.00 3.60 4.90India … … 6.70 6.40 4.40 5.80 3.80 8.50 7.50 9.50 9.60 9.30 6.80 8.00 8.50 6.90 7.20 7.80Indonesia 7.82 4.70 -13.10 0.80 4.10 3.60 4.50 4.80 5.00 5.70 5.50 6.30 6.00 4.60 6.10 6.40 5.40 6.30South Korea 6.75 5.01 -6.69 10.89 9.30 3.10 7.00 3.10 4.70 4.20 5.10 5.10 2.30 0.30 6.20 3.70 3.50 4.10Malaysia 10.00 7.32 -7.36 6.10 8.30 0.30 4.40 5.30 7.23 5.00 5.80 6.20 4.70 -1.60 7.20 4.60 3.80 5.20New Zealand 4.14 2.22 0.03 4.46 3.91 2.66 4.91 4.19 4.48 3.27 1.00 2.84 -0.07 -2.07 1.26 1.60 2.08 3.39Philippines 5.80 5.20 -0.60 3.40 6.00 1.80 4.40 4.90 6.40 5.00 5.30 7.10 3.80 1.10 7.30 3.80 3.80 5.00Singapore 7.80 8.30 -1.40 7.20 10.00 -2.30 4.00 2.90 8.70 6.60 8.20 7.80 1.80 -0.80 14.50 4.60 2.50 4.30Taiwan 6.10 6.68 4.57 5.42 5.90 -2.20 3.60 3.30 6.07 4.10 4.90 5.70 0.70 -1.90 10.70 4.40 3.00 4.50Thailand 5.93 -1.12 -10.77 4.20 4.60 1.90 5.40 6.90 6.17 4.50 5.10 4.90 2.50 -2.30 7.80 1.20 4.60 4.80Source: Goldman Sachs Global ECS Research 49 March 2012
  • 59. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst Consumer Prices (% ch yoy)% ch yoy 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 (f) 12 (f) 13 (f)G3USA 2.94 2.34 1.55 2.19 3.37 2.82 1.60 2.30 2.67 3.37 3.22 2.87 3.82 -0.33 1.65 3.14 2.07 1.66Euro area 2.19 1.57 1.09 1.12 2.10 2.34 2.25 2.08 2.14 2.19 2.18 2.14 3.28 0.29 1.62 2.72 1.82 1.52Japan 0.13 1.76 0.67 -0.33 -0.65 -0.80 -0.90 -0.25 -0.01 -0.27 0.24 0.06 1.37 -1.34 -0.72 -0.23 -0.13 0.08EMEACzech Republic 8.80 8.46 10.65 2.13 3.90 4.69 1.81 0.10 2.82 1.87 2.53 2.83 6.37 1.04 1.47 1.88 2.93 2.21France 2.62 1.28 0.67 0.56 1.83 1.78 1.94 2.17 2.34 1.90 1.91 1.61 3.15 0.11 1.74 2.30 2.01 1.68Germany 1.19 1.53 0.60 0.64 1.40 1.90 1.35 1.03 1.79 1.92 1.78 2.28 2.75 0.23 1.15 2.48 1.48 1.73Hungary 23.49 18.28 14.21 10.02 9.77 9.15 5.24 4.67 6.75 3.58 3.92 7.98 6.06 4.20 4.89 3.90 5.30 4.98Israel 11.30 9.01 5.44 5.25 1.14 1.11 5.69 0.75 -0.38 1.34 2.09 0.53 4.57 3.34 2.70 3.50 2.30 2.20Italy 3.95 1.63 1.98 1.66 2.58 2.32 2.61 2.81 2.27 2.21 2.22 2.04 3.50 0.76 1.64 2.90 2.33 1.32Norway 1.25 2.58 2.27 2.33 3.09 3.02 1.29 2.48 0.47 1.52 2.33 0.73 3.77 2.17 2.40 1.30 1.14 1.62Poland 19.85 15.00 11.87 7.23 10.10 5.50 1.99 0.90 3.49 2.13 1.03 2.49 4.22 3.45 2.58 4.19 3.51 2.23Russia 47.75 14.74 27.66 85.72 20.80 21.50 15.90 14.80 10.90 12.50 9.70 9.00 14.10 11.70 6.79 8.46 5.81 6.10South Africa 3.84 4.61 6.69 5.16 5.16 5.49 9.32 5.76 -0.86 2.11 3.18 6.08 9.92 7.15 4.29 4.99 6.00 6.17Spain 3.57 1.89 1.76 2.23 3.48 2.83 3.59 3.10 3.05 3.38 3.56 2.84 4.13 -0.24 2.04 3.05 1.69 1.12Sweden 0.00 0.52 -0.14 0.45 0.00 2.44 2.16 1.93 0.38 0.45 1.36 2.21 3.48 -0.32 1.27 2.64 1.96 2.23Switzerland … 0.52 0.02 0.81 1.56 0.99 0.64 0.64 0.80 1.17 1.06 0.73 2.43 -0.48 0.69 0.46 0.21 0.43Turkey 80.20 84.50 86.60 64.80 56.40 53.50 47.20 25.50 8.60 8.20 9.60 8.80 10.40 6.30 8.60 6.50 9.80 6.20UK 2.48 1.78 1.59 1.34 0.79 1.24 1.26 1.36 1.34 2.05 2.33 2.32 3.61 2.17 3.29 4.48 2.52 1.85AMERICASArgentina 0.05 0.33 0.66 -1.81 -0.94 -1.07 25.87 13.44 4.42 9.64 10.90 8.83 8.58 6.27 10.46 9.78 9.32 9.57Brazil 15.76 6.93 3.20 4.86 7.04 6.84 8.45 14.71 6.60 6.87 4.18 3.64 5.68 4.89 5.04 6.64 5.64 5.15Canada 1.57 1.62 1.00 1.73 2.72 2.53 2.26 2.76 1.86 2.21 2.00 2.14 2.37 0.30 1.78 3.00 2.16 2.00Chile 7.39 6.30 5.35 3.30 3.84 3.57 2.49 2.81 1.05 3.05 3.39 4.41 8.72 1.48 1.41 3.34 3.85 3.09Colombia 20.80 18.53 18.69 9.21 9.23 7.97 6.35 7.13 5.90 5.05 4.29 5.54 7.00 4.20 2.27 3.42 3.48 2.94Ecuador 24.38 30.64 36.16 52.41 96.09 37.68 12.48 7.93 2.74 2.17 3.30 2.28 8.40 5.16 3.55 4.48 4.47 5.06Mexico 34.38 20.63 15.93 16.59 9.49 6.37 5.03 4.55 4.69 3.99 3.63 3.97 5.12 5.30 4.16 3.41 4.30 3.21Peru 11.55 8.52 7.28 3.47 3.74 1.98 0.19 2.26 3.66 1.62 2.00 1.78 5.79 2.94 1.53 3.37 3.41 2.52Venezuela 99.90 50.00 35.78 23.50 16.21 12.53 22.43 31.09 21.75 15.95 13.65 18.70 31.45 28.59 29.06 27.15 25.75 33.51ASIAAustralia 2.61 0.25 0.85 1.47 4.48 4.38 3.00 2.77 2.34 2.67 3.54 2.33 4.35 1.82 2.85 3.42 2.69 2.95China 8.30 2.80 -0.80 -1.40 0.40 0.70 -0.80 1.20 3.90 1.80 1.50 4.80 5.90 -0.70 3.30 5.40 3.10 2.10Hong Kong 6.30 5.80 2.79 -3.99 -3.68 -1.61 -3.00 -2.50 -0.40 0.90 2.00 2.10 4.30 0.60 2.40 5.30 3.80 4.40India 4.60 4.40 5.90 3.30 7.10 3.70 3.40 5.50 6.50 4.40 6.60 4.70 8.10 3.80 9.60 8.70 5.00 5.00Indonesia 7.97 6.73 57.64 20.70 3.80 11.50 11.80 6.80 6.10 10.50 13.10 6.70 9.80 4.80 5.10 5.40 5.00 5.20South Korea 4.90 4.48 7.48 0.85 2.30 4.10 2.70 3.60 3.60 2.70 2.20 2.50 4.70 2.80 3.00 4.30 3.10 3.00Malaysia 3.48 2.71 5.28 2.80 1.50 1.40 1.80 1.20 1.44 3.00 3.60 2.00 5.40 0.60 1.70 3.20 2.80 3.20New Zealand 2.29 1.19 1.27 -0.11 2.62 2.63 2.68 1.75 2.29 3.04 3.37 2.38 3.96 2.12 2.30 4.03 1.66 2.23Philippines 7.50 5.60 9.20 5.90 4.00 6.80 2.90 3.50 6.00 7.70 6.30 2.80 9.30 3.20 3.80 4.50 3.70 4.00Singapore 1.40 2.00 -0.30 0.50 1.30 1.00 -0.40 0.50 1.70 0.50 1.00 2.10 6.60 0.60 2.80 5.20 3.20 3.60Taiwan 3.07 0.90 1.68 0.18 1.30 0.00 -0.20 -0.30 1.61 2.30 0.60 1.80 3.50 -0.90 1.00 1.50 1.20 1.70Thailand 5.83 5.61 8.08 0.30 1.60 1.70 0.60 1.80 2.78 4.50 4.60 2.20 5.50 -0.90 3.30 3.80 3.60 3.90 Source: Goldman Sachs Global ECS Research 50 March 2012
  • 60. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystCurrent Account Balance (% of GDP) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 (f) 12 (f) 13 (f)G3USA -1.59 -1.69 -2.45 -3.23 -4.18 -3.86 -4.30 -4.66 -5.30 -5.91 -5.98 -5.06 -4.74 -2.70 -3.24 -3.12 -3.09 -3.48Euro area … … 0.34 -0.56 -1.54 -0.37 0.66 0.31 0.74 0.11 -0.14 0.08 -1.57 -0.31 -0.50 -0.56 -1.21 -1.42Japan 1.40 2.24 3.03 2.59 2.53 2.11 2.83 3.16 3.70 3.62 3.92 4.83 3.27 2.82 3.56 2.04 1.66 1.81EMEACzech Republic -6.71 -5.48 -2.20 -2.57 -4.64 -5.08 -5.31 -5.97 -5.04 -0.99 -2.00 -4.14 -2.03 -2.32 -3.00 -2.21 -2.75 -2.48France … … … 3.16 1.43 1.76 1.19 0.79 0.51 -0.50 -0.57 -0.99 -1.75 -1.50 -1.75 -2.13 -1.23 -1.38Germany -0.56 -0.44 -0.79 -1.32 -1.82 0.01 2.00 1.93 4.60 5.01 6.21 7.51 6.26 5.68 5.63 4.75 4.08 3.90Hungary … … … … -8.65 -6.08 -6.99 -8.03 -8.66 -7.47 -7.40 -7.26 -7.34 -0.20 1.09 1.67 2.09 2.89Israel -4.91 -3.02 -0.90 -1.72 -1.65 -1.65 -1.14 0.53 1.70 3.06 4.83 2.73 0.91 3.58 2.91 0.60 -0.60 1.70Italy 3.11 2.83 1.84 1.02 -0.20 0.27 -0.43 -0.78 -0.33 -0.88 -1.49 -1.28 -2.87 -1.97 -3.48 -3.38 -2.41 -2.04Norway … … … 5.42 14.88 16.07 12.56 12.31 12.64 16.10 17.04 13.84 17.60 12.41 13.57 15.85 20.18 20.35Poland -6.28 -7.65 -9.40 -9.00 -6.04 -3.15 -2.83 -2.54 -5.26 -2.40 -3.83 -6.20 -6.56 -3.94 -4.66 -4.72 -4.28 -3.16Russia 2.80 -0.02 0.16 12.64 18.01 11.08 8.44 8.21 10.07 11.09 9.54 5.96 6.10 4.02 4.75 5.51 4.62 3.34South Africa -0.77 -1.12 -1.62 -0.51 -0.14 0.29 0.79 -1.04 -3.07 -3.45 -5.26 -6.98 -7.23 -3.96 -2.78 -3.54 -3.84 -3.01Spain -0.23 -0.09 -1.18 -2.93 -3.96 -3.94 -3.26 -3.51 -5.25 -7.35 -8.96 -10.00 -9.62 -5.20 -4.60 -3.69 -2.93 -2.39Sweden 3.48 4.08 3.80 4.11 4.15 5.02 4.69 6.97 6.56 6.76 8.42 9.25 8.78 7.07 7.01 7.94 8.27 8.10Switzerland 7.01 9.32 9.23 10.85 12.05 8.20 8.81 13.29 13.38 14.09 14.87 8.95 2.33 11.41 15.60 15.85 14.99 14.84Turkey … … 0.79 -0.16 -4.00 2.20 -0.35 -2.62 -3.56 -4.70 -6.10 -5.36 -6.75 -2.12 -6.45 -10.52 -5.14 -4.97UK -0.81 -0.10 -0.37 -2.34 -2.65 -2.06 -1.71 -1.61 -2.07 -2.60 -3.24 -2.48 -1.38 -1.46 -3.32 -2.39 -1.73 -1.10AMERICASArgentina -4.31 -2.00 -2.50 -4.17 -4.85 -4.21 -3.15 -1.41 8.30 6.36 2.11 2.91 3.65 2.83 3.62 0.09 0.45 -1.14Brazil -0.33 -2.61 -3.03 -3.77 -4.24 -4.73 -3.77 -4.23 -1.55 0.75 1.75 1.58 1.25 0.11 -1.47 -2.15 -2.58 -2.37Canada -2.30 -0.75 0.55 -1.29 -1.24 0.26 2.72 2.27 1.72 1.21 2.31 1.89 1.41 0.83 -2.96 -2.86 -1.89 -1.79Chile -3.11 -2.14 -5.46 -4.92 -5.68 -0.10 -1.19 -1.60 -0.86 -1.05 2.17 1.23 4.87 4.54 1.59 -1.79 -2.13 -3.13Colombia -4.43 -5.15 -4.89 -5.59 -5.33 0.37 0.80 -1.10 -1.32 -1.03 -0.78 -1.29 -1.83 -2.87 -2.11 -3.08 -2.90 -3.02Ecuador -4.03 -5.60 -0.19 -2.32 -10.56 6.35 5.65 -3.13 -5.14 -1.49 -1.66 0.94 4.17 3.71 -0.16 -1.97 -2.89 -2.39Mexico -7.03 -0.55 -0.75 -1.91 -3.80 -2.89 -2.79 -2.49 -2.01 -1.02 -0.69 -0.69 -0.47 -0.90 -0.72 -1.05 -1.44 -1.69Peru -6.02 -8.61 -6.52 -5.70 -5.86 -2.85 -2.90 -2.23 -1.96 -1.55 0.03 1.45 3.11 1.36 0.17 -2.31 -1.87 -1.63Venezuela 12.87 3.93 -3.40 3.40 10.11 1.61 8.17 14.12 13.74 17.63 14.42 7.53 10.86 1.83 5.05 8.90 4.64 5.52ASIAAustralia -4.42 -4.89 -3.36 -2.81 -4.63 -5.24 -3.83 -2.01 -3.65 -5.27 -6.06 -5.73 -5.33 -6.18 -4.24 -2.33 -4.96 -5.38China 1.40 0.20 0.80 3.10 2.90 1.90 1.70 1.30 2.40 2.80 3.55 5.90 8.60 11.00 5.20 4.30 3.80 3.70Hong Kong 1.20 -4.40 -1.40 -4.40 1.50 6.30 4.10 5.90 7.60 10.40 9.50 11.40 12.10 12.30 8.60 2.50 1.90 1.50India -1.00 -1.70 -1.20 -1.30 -1.00 -1.00 -0.60 0.70 1.20 2.30 -0.40 -1.20 -1.10 -1.40 -2.80 -3.40 -3.70 -3.70Indonesia -1.67 -3.34 -3.41 -2.30 4.40 4.10 4.90 4.30 4.00 3.40 0.60 0.30 3.00 2.40 2.00 0.20 1.40 1.90South Korea -0.96 -1.74 -4.44 -1.73 12.50 6.15 2.70 1.90 1.00 2.00 4.10 2.10 0.60 0.60 3.90 2.00 1.70 1.00Malaysia -7.56 -9.73 -4.42 -5.93 13.20 15.90 9.40 8.30 8.50 12.90 12.57 15.20 16.30 15.70 16.50 11.30 10.50 11.40New Zealand -4.02 -5.01 -5.86 -6.20 -3.66 -6.03 -4.50 -2.18 -3.56 -3.84 -5.66 -7.85 -8.24 -8.10 -2.48 -4.26 -6.28 -6.17Philippines -4.59 -4.46 -4.77 -5.39 2.37 -3.79 -2.97 -2.45 -0.36 0.36 1.88 2.00 4.55 4.92 5.80 2.40 2.90 3.20Singapore 15.40 17.00 14.90 17.40 22.00 17.10 11.60 14.20 12.70 23.30 17.00 19.00 21.80 23.40 19.10 18.60 14.80 10.40Taiwan 2.66 2.07 3.91 2.43 1.29 2.91 2.90 6.40 9.10 10.20 5.74 4.60 7.20 8.60 11.40 8.40 7.90 8.40Thailand -7.90 -2.04 12.74 10.20 7.50 5.40 5.50 5.60 4.25 -2.10 1.10 5.70 0.40 8.30 4.60 4.90 3.70 2.60Source: Goldman Sachs Global ECS Research 51 March 2012
  • 61. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystForeign Exchange Reserves (US$bn)Pd end; US$bn 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 LatestG3US 30.8 36.0 32.2 31.2 29.0 33.8 39.7 42.7 37.8 40.9 45.8 49.6 50.5 52.1 51.9 52.3 Jan-12Euro area - - 228.0 218.6 207.8 215.8 188.2 181.2 167.2 184.0 203.2 202.0 194.4 207.1 208.2 210.5 Jan-12Japan 207.9 203.2 277.7 347.2 387.7 451.5 652.8 824.3 828.8 874.9 948.4 1003.7 997.0 1036.3 1221.3 1254.4 Jan-12EMEACzech Republic 9.7 12.5 12.8 13.0 14.2 23.3 26.3 27.8 29.1 31.1 34.4 36.5 39.7 40.3 37.9 38.0 Jan-12Euroland - - 228.0 218.6 207.8 215.8 188.2 181.2 167.2 184.0 203.2 202.0 194.4 207.1 208.2 210.5 Jan-12Hungary 8.3 9.2 10.7 10.9 10.3 9.7 12.0 15.3 18.3 21.3 23.8 33.6 42.5 43.6 47.7 48.0 Jan-12Israel 20.3 22.7 22.5 23.2 23.2 23.7 25.8 26.6 27.8 29.0 28.4 42.3 59.1 69.3 73.1 75.3 Jan-12Norway 22.1 17.4 22.5 26.7 22.2 30.7 35.9 43.1 46.4 56.2 60.3 50.2 45.7 49.7 45.5 45.5 Dec-11Poland 20.3 27.2 26.1 26.3 25.2 28.0 31.7 34.6 40.5 46.1 62.7 58.9 73.4 86.3 89.7 91.6 Jan-12Russia 12.8 7.8 8.5 24.3 32.5 44.1 73.2 120.8 175.7 295.3 466.4 410.7 405.8 432.9 441.2 443.6 Jan-12South Africa 4.8 4.2 6.1 5.8 5.8 5.6 6.2 12.8 18.3 22.7 29.2 30.2 32.4 35.4 39.8 39.8 Dec-11Sweden 9.7 12.4 13.5 13.8 12.7 15.5 18.0 20.6 21.4 24.1 26.4 25.1 38.5 37.9 38.9 38.5 Jan-12Switzerland 36.9 38.3 34.2 30.9 30.1 38.2 45.6 53.6 35.4 37.4 43.9 44.2 91.6 217.3 271.1 271.1 Dec-11Turkey 18.6 19.4 23.2 22.3 18.7 26.9 33.8 35.5 50.4 60.7 73.2 70.2 69.2 79.0 76.7 74.7 Jan-12UK 28.9 27.4 27.5 34.2 28.8 31.0 28.6 34.1 35.9 38.9 47.5 41.6 38.0 49.3 56.2 57.8 Jan-12AMERICASArgentina 22.2 24.5 26.1 24.4 14.5 10.4 13.1 18.0 22.7 30.4 44.2 44.4 42.9 46.6 40.1 40.0 Jan-12Brazil 50.8 42.6 35.3 32.4 35.6 37.2 48.8 52.5 53.2 85.1 179.4 192.8 231.9 280.6 343.4 346.1 Jan-12Canada 15.1 19.9 24.4 29.0 30.5 32.7 31.5 30.2 30.7 33.2 39.3 41.5 42.6 44.9 52.8 53.2 Jan-12Chile 17.3 15.3 14.2 14.7 14.0 14.8 15.2 15.5 16.7 19.2 16.7 22.8 23.8 26.3 40.1 40.1 Dec-11Colombia 9.3 7.9 7.5 8.4 9.7 10.2 10.2 12.8 14.2 14.7 20.1 22.8 23.2 26.3 29.0 30.0 Jan-12Ecuador 2.1 1.6 1.6 0.9 0.8 0.7 0.8 1.0 1.7 1.5 2.8 3.7 2.8 1.4 1.6 1.8 Jan-12Mexico 28.1 31.5 31.0 35.1 44.4 49.9 57.7 62.8 73.0 75.4 86.3 94.0 94.1 114.9 137.5 141.8 Jan-12Peru 11.0 9.6 8.7 8.4 8.7 9.3 9.8 12.2 13.6 16.7 26.9 30.3 31.0 41.7 46.1 46.1 Dec-11US 30.8 36.0 32.2 31.2 29.0 33.8 39.7 42.7 37.8 40.9 45.8 49.6 50.5 52.1 51.9 52.3 Jan-12Venezuela 14.0 11.6 11.7 12.6 8.8 8.0 15.5 17.9 23.5 28.9 23.7 32.6 17.7 9.2 - 3.0 Nov-11ASIAAustralia 16.1 13.4 19.5 16.8 16.4 18.6 30.0 33.9 41.0 52.8 24.2 29.9 33.0 32.8 36.0 38.5 Jan-12China 139.9 145.0 154.7 165.6 212.2 286.4 403.3 609.9 818.9 1066.3 1528.3 1946.0 2399.2 2847.3 3181.2 3181.1 Dec-11Hong Kong 92.8 89.6 96.2 107.5 111.2 111.9 118.4 123.5 124.2 133.2 152.6 182.5 255.8 268.6 285.3 285.3 Dec-11India 24.3 27.0 32.0 37.3 45.3 67.0 97.6 125.2 131.0 170.2 266.6 246.6 258.6 267.8 262.9 258.8 Jan-12Indonesia 16.1 22.4 26.2 28.3 27.0 30.8 34.7 34.7 32.9 40.9 54.7 49.3 60.6 90.0 103.6 103.6 Dec-11Japan 207.9 203.2 277.7 347.2 387.7 451.5 652.8 824.3 828.8 874.9 948.4 1003.7 997.0 1036.3 1221.3 1254.4 Jan-12South Korea 19.7 52.0 73.7 95.9 102.5 120.8 154.5 198.2 210.0 238.4 261.8 200.5 265.2 286.9 298.2 298.2 Dec-11Malaysia 20.0 24.7 29.7 27.4 28.6 32.4 42.8 64.9 69.4 81.7 100.6 90.6 92.9 102.3 129.0 129.4 Jan-12New Zealand 4.3 3.8 4.0 3.6 3.2 4.5 5.4 6.4 8.7 13.9 17.1 10.9 14.0 15.1 15.2 15.2 Dec-11Philippines 7.2 9.2 13.1 13.0 13.4 13.2 13.5 13.0 15.8 19.9 30.1 33.0 37.5 54.0 65.7 65.7 Dec-11Singapore 71.0 74.6 76.5 79.7 75.2 81.6 95.5 111.8 115.7 135.8 162.5 173.6 186.0 223.9 235.7 235.7 Dec-11Taiwan 83.5 90.3 106.2 106.7 122.2 161.7 206.6 241.7 253.3 266.1 270.3 291.7 348.2 382.0 385.5 394.4 Feb-12Thailand 25.7 28.4 33.8 31.9 32.4 38.0 41.0 48.5 50.5 65.1 85.1 108.3 133.6 165.7 165.2 167.7 Jan-12Source: Haver Analytics 52 March 2012
  • 62. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystGovernment Debt as % of GDP 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 (f) 12 (f) 13 (f)G3USA 69.9 67.4 64.2 60.5 54.5 54.4 56.8 60.2 61.3 61.5 60.9 62.1 71.4 85.0 94.2 98.9 104.0 88.9Euro area 74.1 73.6 72.5 71.8 69.2 68.1 67.9 69.1 69.6 70.2 68.5 66.3 70.1 79.7 85.3 87.7 87.5 86.9Japan 99.5 107.5 120.5 133.3 141.7 152.9 161.4 166.0 178.0 191.1 190.0 187.6 199.9 214.9 223.4 236.5 244.0 250.8EMEACzech Republic 12.4 12.2 12.2 13.7 15.4 24.9 28.2 29.8 30.1 30.4 28.2 27.0 27.6 33.4 36.5 39.2 41.1 42.4Germany 58.7 59.1 60.5 61.4 60.2 59.1 60.7 64.3 66.4 68.6 67.9 65.1 66.7 74.5 83.4 82.0 81.0 79.5Hungary 72.4 62.9 60.9 60.8 56.1 52.7 55.9 58.6 59.5 61.7 65.9 67.0 72.9 78.4 80.7 80.9 80.6 78.1Italy 122.4 117.7 115.0 113.8 109.1 108.8 105.7 104.4 104.0 105.9 106.5 103.6 106.3 116.1 119.1 120.3 122.1 123.0Poland - 42.9 38.9 39.6 36.8 37.6 42.2 47.1 45.7 47.1 47.8 45.0 47.1 50.9 55.0 57.6 57.3 57.3Russia 56.8 56.1 145.5 98.9 62.4 50.1 41.9 32.3 24.6 15.8 8.3 6.4 5.3 7.0 7.7 8.3 9.6 10.6South Africa 48.5 48.0 48.0 45.5 42.0 41.2 35.4 34.9 34.6 32.8 30.1 27.6 27.4 34.0 36.9 39.7 43.7 46.8Spain 68.4 65.7 64.1 62.3 59.3 55.5 52.5 48.7 46.2 43.0 39.6 36.2 40.1 53.5 60.1 67.0 73.1 77.2Sweden 73.3 71.2 69.9 64.3 53.9 54.7 52.5 51.7 50.3 50.4 45.0 40.2 38.8 42.7 39.7 36.4 34.9 32.6Switzerland 23.5 25.3 27.7 25.4 25.6 24.8 27.4 27.3 27.7 28.1 25.2 23.2 22.3 20.7 20.1 20.0 20.3 20.3Turkey - 55.6 52.3 69.2 58.0 104.4 93.0 85.1 59.2 52.3 46.1 39.4 39.5 45.4 42.8 39.0 39.0 40.2UK 51.0 48.0 45.3 41.9 38.9 37.0 36.7 38.9 40.1 42.1 42.9 43.6 55.8 71.1 78.7 84.2 90.1 93.1AmericasBrazil 33.3 34.3 41.7 49.4 48.8 52.6 55.5 57.2 51.7 46.5 44.0 42.8 38.5 42.1 39.2 37.0 37.8 39.5Chile 38.3 38.3 34.5 35.1 13.8 15.1 15.7 13.0 10.7 7.3 5.3 4.1 5.2 6.2 9.2 11.1 11.6 10.7Colombia 23.4 23.2 28.9 40.9 45.1 49.5 55.7 53.4 48.2 46.4 43.0 40.0 39.5 41.9 42.9 41.3 41.6 40.1Mexico 38.1 31.1 33.5 30.1 10.6 11.5 22.1 22.1 20.7 20.2 20.5 20.8 24.4 28.1 27.5 28.6 27.7 27.4Peru - - 36.7 47.3 45.5 45.9 46.7 47.1 44.3 37.7 33.0 29.7 24.2 27.2 23.4 19.9 19.2 18.4Venezuela 55.9 38.9 36.0 35.7 31.1 32.8 42.2 52.6 38.7 32.0 23.7 24.0 20.6 27.8 43.6 44.9 46.0 47.8AsiaAustralia 52.7 48.0 46.4 41.8 35.2 32.0 30.3 28.4 27.1 22.6 19.5 11.2 11.7 21.4 27.7 27.7 30.6 29.7Indonesia - 24.7 44.6 75.8 91.8 78.2 69.4 60.3 55.4 46.3 46.0 42.5 38.2 34.0 29.8 28.0 27.0 26.0Malaysia - - 55.2 56.1 54.0 63.7 63.4 63.0 62.0 57.6 51.2 48.2 49.9 63.9 49.0 49.0 49.0 50.0New Zealand 44.2 36.6 37.9 35.6 32.9 31.4 29.1 27.6 25.2 23.3 21.4 18.2 17.4 23.4 28.4 36.1 41.0 40.3Philippines 61.3 67.0 70.2 71.5 81.5 79.9 84.7 94.5 96.3 82.2 73.3 63.1 70.0 65.3 61.9 70.0 70.0 71.0South Korea 7.5 9.6 16.6 18.6 19.3 19.6 19.5 22.9 26.1 30.6 32.2 29.7 29.0 32.5 31.9 33.7 32.4 31.6Taiwan 32.1 33.1 32.5 36.2 39.6 46.4 47.1 48.7 49.7 48.7 46.2 43.7 46.3 51.5 50.6 51.7 52.1 51.5Thailand 14.5 36.3 45.2 43.2 45.3 41.1 56.0 50.5 48.0 46.4 40.4 37.5 38.2 43.9 42.4 43.0 42.8 42.7Source: Goldman Sachs Global ECS Research 53 March 2012
  • 63. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystPolicy Rate Forecasts Policy Rates (%, eop) Change From 1-yr Carry 1-yr Carry Spot 2012 2013 Spot to Q4 to USD (%) to EUR (%) 2013 (%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4G3USA 0.13 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 -0.03 0.28Euro area 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.00 -0.28Japan 0.05 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.05 -0.58 -0.30EMEACzech Republic 0.75 0.75 0.75 0.75 0.75 1.00 1.00 1.00 1.25 0.50 0.00 0.28Euro area 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.00 -0.28Hungary 7.00 7.00 8.00 8.00 7.00 7.00 5.50 5.50 5.50 -1.50 4.25 4.54Israel 2.50 2.50 2.50 2.50 3.00 3.25 3.75 4.00 4.50 2.00 1.26 1.55Norway 1.75 1.75 1.75 1.75 1.75 1.75 2.00 2.25 2.50 0.75 1.55 1.84Poland 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 0.00 3.39 3.68Russia 5.25 5.25 5.25 5.50 5.75 6.00 6.25 6.25 6.25 1.00 4.95 5.25South Africa 5.50 5.50 5.50 5.50 6.00 6.50 7.00 7.00 7.50 2.00 5.54 5.84Sweden 1.50 1.50 1.50 1.50 1.50 1.50 1.75 2.00 2.25 0.75 1.16 1.44Switzerland 0.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.09 -0.64 -0.36Turkey 7.58 10.90 11.40 9.40 8.40 8.25 8.10 7.95 7.90 0.32 7.33 7.63UK 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.00 0.29 0.58AMERICASBrazil 10.50 10.00 9.00 9.00 9.00 9.50 10.50 11.50 11.50 1.00 6.25 6.55Canada 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.50 0.50 0.88 1.16Chile 5.00 4.50 4.00 4.00 4.00 4.00 4.50 5.25 5.25 0.25 3.78 4.07Colombia 5.25 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 -0.25 3.03 3.32Mexico 4.50 4.50 4.00 4.00 4.00 4.00 4.75 4.75 4.75 0.25 3.18 3.47Peru 4.25 4.25 4.25 4.25 4.25 4.25 4.50 4.50 4.50 0.25 0.97 1.26USA 0.13 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 -0.03 0.28ASIAAustralia 4.25 4.25 3.75 3.75 3.75 4.25 4.25 4.50 4.50 0.25 3.86 4.31China 6.56 6.56 6.31 6.06 6.06 6.06 6.06 6.06 6.06 -0.50 -0.24 0.04India* 8.50 8.00 7.50 7.00 7.00 6.75 6.50 6.50 6.50 -2.00 5.83 6.13Indonesia 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 0.00 4.84 5.13Japan 0.05 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.05 -0.58 -0.30South Korea 3.25 3.25 3.25 3.25 3.25 3.50 3.75 4.00 4.00 0.75 1.72 2.01Malaysia 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 0.00 1.61 1.90New Zealand 2.50 2.50 2.50 2.50 3.00 3.00 3.50 4.00 4.00 1.50 2.49 2.84Philippines 4.00 4.25 4.00 4.00 4.00 4.25 4.50 4.50 4.50 0.50 1.15 1.44Taiwan 1.88 1.75 1.63 1.63 1.63 1.75 1.88 1.88 1.88 0.00 -1.12 -0.84Thailand 3.00 3.00 3.00 3.00 3.50 3.50 3.50 3.50 3.50 0.50 1.68 1.97Source: GS Global ECS Research ;*Fiscal Year 54 March 2012
  • 64. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystExchange Rate ForecastsEuro Crosses 3-Month Horizon 6-Month Horizon 12-Month Horizon Current* Forward Forecast Forward Forecast Forward Forecast 5-Yr Forecast**G3EUR/$ 1.31 1.32 1.33 1.32 1.38 1.32 1.45 1.18EUR/JPY 106.8 106.74 102.41 106.68 104.88 106.47 107.30 128EMEAEUR/£ 0.84 0.84 0.87 0.84 0.87 0.84 0.87 0.78EUR/NOK 7.43 7.47 7.30 7.50 7.20 7.57 7.20 7.50EUR/SEK 8.92 8.95 8.80 8.98 8.70 9.05 8.60 8.38EUR/CHF 1.21 1.20 1.30 1.20 1.30 1.20 1.30 1.42EUR/CZK 24.84 24.86 25.00 24.87 25.50 24.91 24.25 22.9EUR/HUF 295.5 299.25 315.00 302.94 315.00 308.90 325.00 285EUR/PLN 4.16 4.20 4.25 4.24 4.10 4.31 4.10 3.56EUR/RUB 39.03 39.53 38.44 40.04 38.92 41.08 39.73 35.5EUR/TRY 2.34 2.39 2.33 2.44 2.48 2.53 2.68 2.67EUR/ILS 5.00 5.02 4.92 5.04 5.11 5.07 5.22 5.04EUR/ZAR 10.01 10.15 9.84 10.29 10.14 10.60 11.17 7.69AmericasEUR/ARS 5.70 5.91 5.99 6.19 6.62 6.82 7.54 7.09EUR/BRL 2.33 2.37 2.26 2.41 2.35 2.48 2.54 3.19EUR/C$ 1.31 1.32 1.32 1.32 1.34 1.33 1.38 1.33EUR/MXN 16.95 17.09 16.69 17.24 17.25 17.54 17.40 14.8EUR/CLP 643.28 650.14 638.40 657.71 655.50 669.49 674.25 484EUR/PEN 3.51 3.52 3.58 3.53 3.73 3.56 3.87 3.50EUR/COP 2325.3 2348.24 2394 2364.25 2484 2402.40 2538 2522EUR/VEF 5.65 na 5.72 na 5.93 na 6.24 8.27AsiaEUR/A$ 1.24 1.26 1.23 1.27 1.28 1.30 1.34 1.39EUR/CNY 8.31 8.30 8.34 8.30 8.58 8.31 8.85 6.50EUR/HKD 10.21 10.21 10.37 10.22 10.76 10.23 11.31 9.22EUR/INR 66.18 67.58 70.49 68.58 69.97 70.24 71.05 66.2EUR/KRW 1478.4 1488.70 1530 1496.42 1490 1508.09 1508 1152EUR/MYR 3.98 4.00 3.99 4.02 4.11 4.05 4.29 3.18EUR/NZD 1.60 1.61 1.60 1.63 1.64 1.65 1.67 1.88EUR/SGD 1.65 1.66 1.65 1.66 1.68 1.66 1.74 1.36EUR/TWD 38.86 38.78 39.10 38.70 40.02 38.51 41.76 31.0EUR/THB 40.39 40.59 40.90 40.79 42.09 41.18 43.86 42.4EUR/IDR 12040 12162.16 11837 12334.67 12144 12658.08 12615 12694EUR/PHP 56.36 56.59 56.39 56.84 58.10 57.17 60.47 59.1* Close 07 March 12**5Yr Forecasts have been discussed in Global View point 11/08 "FX Trends During the Soft Patch".Source: Goldman Sachs Global ECS Research 55 March 2012
  • 65. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystDollar Crosses 3-Month Horizon 6-Month Horizon 12-Month Horizon Current* Forward Forecast Forward Forecast Forward Forecast 5-Yr Forecast**G3EUR/$ 1.31 1.32 1.33 1.32 1.38 1.32 1.45 1.18$/JPY 81.22 81.14 77.00 81.04 76.00 80.75 74.00 108EMEA£/$ 1.57 1.57 1.53 1.57 1.59 1.57 1.67 1.51$/NOK 5.65 5.67 5.49 5.70 5.22 5.74 4.97 6.34$/SEK 6.78 6.81 6.62 6.82 6.30 6.86 5.93 7.09$/CHF 0.92 0.92 0.98 0.91 0.94 0.91 0.90 1.20$/CZK 18.89 18.90 18.80 18.89 18.48 18.89 16.72 19.4$/HUF 224.73 227.48 236.84 230.13 228.26 234.28 224.14 241$/PLN 3.16 3.19 3.20 3.22 2.97 3.27 2.83 3.01$/RUB 29.69 30.05 28.90 30.41 28.20 31.16 27.40 30.0$/TRY 1.78 1.82 1.75 1.85 1.80 1.92 1.85 2.25$/ILS 3.80 3.82 3.70 3.83 3.70 3.85 3.60 4.26$/ZAR 7.61 7.72 7.40 7.82 7.35 8.04 7.70 6.50Americas$/ARS 4.34 4.49 4.50 4.70 4.80 5.18 5.20 6.00$/BRL 1.77 1.80 1.70 1.83 1.70 1.88 1.75 2.70$/C$ 1.00 1.00 0.99 1.00 0.97 1.01 0.95 1.13$/MXN 12.89 12.99 12.55 13.09 12.50 13.30 12.00 12.5$/CLP 489 494 480 500 475 508 465 409$/PEN 2.67 2.68 2.69 2.68 2.70 2.70 2.67 2.96$/COP 1769 1785 1800 1796 1800 1822 1750 2134$/VEF 4.30 na 4.30 na 4.30 na 4.30 7.00AsiaA$/$ 1.06 1.05 1.08 1.04 1.08 1.02 1.08 0.85$/CNY 6.32 6.31 6.27 6.31 6.22 6.30 6.10 5.50$/HKD 7.76 7.76 7.80 7.76 7.80 7.76 7.80 7.80$/INR 50.34 51.37 53.00 52.10 50.70 53.27 49.00 56.0$/KRW 1124 1132 1150 1137 1080 1144 1040 975$/MYR 3.03 3.04 3.00 3.05 2.98 3.07 2.96 2.69NZ$/$ 0.82 0.81 0.83 0.81 0.84 0.80 0.87 0.63$/SGD 1.26 1.26 1.24 1.26 1.22 1.26 1.20 1.15$/TWD 29.55 29.48 29.40 29.40 29.00 29.21 28.80 26.2$/THB 30.72 30.86 30.75 30.99 30.50 31.23 30.25 35.8$/IDR 9157 9245 8900 9370 8800 9600 8700 10739$/PHP 42.87 43.02 42.40 43.18 42.10 43.36 41.70 50.0* Close 07 March 12**5Yr Forecasts have been discussed in Global View point 11/08 "FX Trends During the Soft Patch".Source: Goldman Sachs Global ECS Research 56 March 2012
  • 66. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst Goldman Sachs Global Economics, Commodities and Strategy ResearchAmericas Asia (contd) Global Markets ResearchJan Hatzius~ 1(212)902-0394 Japan Portfolio Strategy Research Dominic Wilson~ 1(212)902-5924Dominic Wilson~ 1(212)902-5924 Hiromi Suzuki* 81(3)6437-9955 Francesco Garzarelli~ 44(20)7774-5078 Tsumugi Akiba* 81(3)6437-9966US Economics Research Kazunori Tatebe# 81(3)6437-9898 Global Macro ResearchAndrew Tilton~ 1(212)357-2619 Kamakshya Trivedi* 44(20)7051-4005Zach Pandl* 1(212)902-3393 Pan-Asia Strategy Derivatives Research Jose Ursua# 1(212)855-9705Alec Phillips* 1(202)637-3746 Sunil Koul# 852-2978-0924 Stacy Carlson^ 1(212)855-0684Jari Stehn* 1(212)357-6224Shuyan Wu^ 1(212)902-3053 Growth Markets Strategy Research Global Credit Strategy Research Christopher Eoyang~ 65()6889-1199 Charles Himmelberg~ 1(917)343-3218Latin America Economics Research Jason Lui* 852-2978-6613 Kenneth Ho* 852-2978-7468Paulo Leme~ 1(305)755-1038 Lotfi Karoui* 1(917)343-1548Alberto Ramos~ 1(212)357-5768 Europe, Middle East and Africa Annie Chu# 1(212)357-5522Eduardo Cavallo* 1(212)357-5772 Peter Oppenheimer~ 44(20)7552-5782 Anthony Ip# 852()2978-2676Petya Kehayova^ 1(212)934-0199 Mortgages European Economics Research Hui Shan# 1(212)902-4447US Portfolio Strategy Research Francesco Garzarelli~ 44(20)7774-5078David Kostin~ 1(212)902-6781 Huw Pill~ 44(20)7774-8736 FX ResearchStuart Kaiser* 1(212)357-6308 Ahmet Akarli~ 44(20)7051-1875 Robin Brooks~ 1(212)357-8763Amanda Sneider* 1(212)357-9860 Kevin Daly~ 44(20)7774-5908 Thomas Stolper~ 44(20)7774-5183Peter Lewis^ 1(212)902-9693 Clemens Grafe~ 7(495)645-4198 Themistoklis Fiotakis* 44(20)7552-2901Ben Snider^ 1(212)357-1744 Dirk Schumacher~ 49(69)7532-1210 Fiona Lake* 852-2978-6088 Andrew Benito* 44(20)7051-4004Asia Lasse Holboell Nielsen* 44(20)7774-5205 Fixed Income ResearchKathy Matsui~ 81(3)6437-9950 Magdalena Polan* 44(20)7552-5244 Silvia Ardagna* 44(20)7051-0584Timothy Moe~ 852-2978-1328 (Warsaw office) 48-22-449-2922 Constantin Burgi^ 44(20)7051-4009 Natacha Valla* 33(1)4212-1343 George Cole^ 44(20)7552-3779Asia-Pacific Economics Research Antoine Demongeot^ 44(20)7774-1169Michael Buchanan~ 852-2978-1802 Michael Hinds^ 44(20)7774-1137 Macro Equity ResearchGoohoon Kwon~ 82(2)3788-1775 Adrian Paul^ 44(20)7552-5748 Noah Weisberger~ 1(212)357-6261Tushar Poddar~ 91(22)6616-9042 Alexander Kazan* 1(917)343-4543Yu Song* 86(10)6627-3111 European Portfolio Strategy Research Aleksandar Timcenko* 1(212)357-7628Mark Tan* 65()6889-2472 Sharon Bell* 44(20)7552-1341 Camila Torrente^ 1(212)357-7621Sungsoo Chung# 82(2)3788-1726 Gerald Moser* 44(20)7774-5725Prakriti Shukla# 91(22)6616-9376 Christian Mueller-Glissmann* 44(20)7774-1714 AdministrationShirla Sum# 852-2978-6634 Anders Nielsen* 44(20)7552-3000 Linda Britten* 44(20)7774-1165Professor Song Guoqing 86(10)6627-3021 Matthieu Walterspiler# 44(20)7552-3403Yin Zhang^ 86(10)6627-3112 Editorial/Production Commodities Research Loretta Sunnucks* 44(20)7774-3223Japan Economics Research Jeffrey Currie~ 1(212)357-6801 Julie Leavy 44(20)7552-5749Naohiko Baba~ 81(3)6437-9960 Ling Luong 44(20)7774-5676Chiwoong Lee* 81(3)6437-9984 Energy Michael Pan 852()2978-1411Yuriko Tanaka* 81(3)6437-9964 Samantha Dart* 44(20)7552-9350 Stefan Wieler* 1(212)357-7486 ECS SupportAustralia & New Zealand Johan Spetz^ 1(212)357-9225 BangaloreEconomics Research Mani D* 1(212)934-9678Tim Toohey~ 613-9679-1079 Non-Energy Ketaki Garg 1(212)934-6319Andrew Boak* 612-9321-8576 Damien Courvalin* 1(212)902-3307 Vishal Vaibhaw 1(212)934-6319Philip Borkin* 649-362-7306 Max Layton* 44(20)7774-1105David Colosimo* 613-9679-1085 Roger Yuan# 852()2978-6128 Singapore Hui Ying Chan 65()6654-5459Asia-Pacific Portfolio Strategy Research Commodity Strategy Charles Fang 65()6654-5395Helen Zhu~ 852-2978-0048 Allison Nathan~ 1(212)357-7504 Jack Yu 65()6654-5446Kinger Lau* 852-2978-1224 David Greely~ 1(212)902-2850Caesar Maasry* 852-2978-7213 Salt Lake CityHanfeng Wang* 86(10)6627-3318 Eric Griego 1(801)884-1539Ben Bei# 852-2978-1220 Chris Henson 1(801)741-5755Richard Tang# 852-2978-0722Chenjie Liu^ 86(10)6627-3324 ~MD *VP/ED #Associate ^Research Analyst Email: firstname.surname@gs.com 57 March 2012
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