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Economic Outlook for the G10 Currencies.

USD: For Friday the key economic data is US Non-farm payrolls which is expected to come in at 200K, a number near or above the expected outcome will revive USD strength ahead of FOMC policy meeting on 16 December. The USD has had a setback following the ECB meeting on Thursday given that Mario Draghi & Co under delivered on market expectations. However, a more important factor is that ECB did ease and the Fed is likely to tighten the monetary conditions this year, hence the policy of many European central banks is likely to diverge from the policy of the fed over coming months. 

EUR: The ECB under delivered on market expectations and EUR rose sharply post the release of a 10bp cut to the deposit rates which suggested that market was expecting a rate cut of more than 10bp. Also Mario Draghi under delivered on market expectations by not expanding the size of QE, however there was some respite for those expecting the extension of the current APP which was extended to March 2017 from an earlier September 2016. Going forward the US Non-farm payrolls on Friday remains the key data, with a payroll figure of above 200K being enough to cause weakness in EURUSD ahead of FOMC meeting on 16 December. Over the medium-term the policy between ECB and the FED is likely to diverge further if Fed lifts off this December and given it seems a very likely possibility EURUSD upside will be limited.

GBP: In his testimony to the parliament last week, Mark Carney said interest rate in UK will stay low for sometime to come, and the Chief economist Haldane even suggested possibility of cutting rates rather than raising rates in the near future. The UK Autumn statement also revealed plans for more reduction in borrowing than expected. This fiscal tightening suggests that the monetary policy can stay accommodative for longer. This should soften GBP over the short-term, over the medium-term the market expectation of a BoE rate hike in 2017 seem too far fetched and we see significant downside in GBP unlikely.

CHF: The Swiss franc has risen sharply following a below expected easing measures by ECB on Thursday. However, the economic data out of Switzerland continue to remain weak and SNB is keen to intervene if CHF appreciate significantly vs EUR. Also the inflation remains a grave worry with the latest figure suggesting further deflation, hence we remain bearish CHF.  

AUD: The RBA left rates unchanged at 2% and the accompanying RBA statement threw no surprises and maintained a neutral message. Also China manufacturing PMI also came in line with expectations which have provided AUD with some further boost. AUD remains the strongest in the G10 currencies over the past month and is likely to rise further versus the other G10 currencies (exception being USD), after GDP data on Wednesday come in above expectations. AUDUSD is likely to be dictated by US non-farm payrolls on Friday this week.

CAD: The Bank of Canada left its rates unchanged on Wednesday and the accompanying rate statement was neutral in its outlook. Over the short-term we see further upside in USDCAD to be dependent on employment data from both Canada & US on Friday, with US data being more important. However we see CAD to remain strong against the rest of the G10 currencies if the US non-farm payrolls improve as a robust US economy should bode well for Canada and will reduce negative impact of weak oil prices.

NZD: NZDUSD has risen since the release of the FOMC minutes on 18 November & some positive economic data since. However, we see NZDUSD to come under pressure if key economic data from US improves, especially US non-farm payroll on Friday. We see further NZD strength versus the other G10 currencies given that China Manufacturing PMI came in line and fortnightly GDT price index rose 3.6% compared to the previous fall of 7.9% on Tuesday. Risk remains from an unlikely surprise rates cut at RBNZ meeting on 09 December.

NOK: The Norwegian Krone found some support following the release of the GDP rate on 17th November. However, the krone remains weak over the medium term, and the latest economic data such as the Manufacturing PMI & current account balance have come in below expectations. For now we remain bearish NOK versus USD & SEK.

SEK: The Swedish Krone remains strong vs the EUR over the past few weeks as the key economic data continue to improve, latest are being the Q3 GDP release which came in well above expected. This further reduces the probability of further easing from Riksbank at the next policy meeting. Also we expect the ECB QE to outpace any further stimulus provided by the Riksbank over the coming months hence we remain bearish EUR/SEK over the medium-term.