Ready willing and cable (pg 3)
We have been arguing that GBP should be near fair value against the USD, which is around 1.60, through
this year and next. To argue for GBP-USD outperformance above fair value near 1.60, we needed to
believe that a significant macro event will occur. We find the idea that the UK will raise rates next year
but the US will stand pat a very powerful one. This should be just the event that sees GBP-USD rise. We
now see GBP-USD at 1.75 by the end of next year.
USD breaks the shackles of history (pg 8)
History during the downturn actually proved to be a very useful guide. Currencies to a large part played their
historical role with some acting only slightly out of character. However, when looking at how currencies
normally respond to an upturn, we find history has been relegated. This substantiates our idea that this is not a
normal cyclical recovery. As recovery continues we still expect the dollar to slowly under-perform. However,
we need to keep in mind that at some stage a stronger US economy might mean a stronger USD.
NOK...patience is a virtue (pg 13)
One reason the NOK may have not performed as well as we had proposed is because of its poorer
liquidity profile. When using BIS currency turnover data as a proxy for liquidity, the NOK comes ninth in
G10. However, when we consider this liquidity factor alongside the other macro variables, the NOK’s
positive outlook is still intact. It is worth saying that although the NOK has performed slightly worse than
we thought, we are certainly not ready to put our hands up and admit we were wrong. NOK is a long-term
play and one we believe in persevering with.
AUD – the Orient Express (pg 17)
The AUD has become the high beta play not just on equities but on the whole China growth story. In fact
we have shown that the influence of the US economy on Australia is waning as the influence of China
grows. We have recently raised our Chinese GDP growth forecasts and as a result we think the AUD will
be stronger than previously thought.
Precious Metals – Between a rock and a hard place (pg 23)
Gold continues to benefit from inflation-hedge purchases. Silver mine supply is set to increase c16moz
this year based on producer statements. More than half of annual platinum supply is consumed by the
auto industry for the production of autocatalysts and the slump in world auto demand has had a noticeable
impact on physical demand. Palladium prices have rallied from near-record lows.