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Currencies Economics – Markets – Strategy Currency forecasts 11-Jun 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 EUR/usd 1.5553 1.52 1.49 1.46 1.43 1.45 1.46 Fwd 1.54 1.53 1.53 1.52 1.52 1.51 Poll 1.54 1.50 1.46 1.50 1.46 1.41 usd/JPY 106.83 107 108 109 110 108 106 Fwd 107 106 106 105 105 104 Poll 104 105 104 100 103 106 usd/CNY 6.9184 6.80 6.75 6.70 6.65 6.55 6.45 Fwd 6.87 6.77 6.65 6.60 6.52 6.44 Poll 6.79 6.65 6.55 6.45 6.38 6.30 usd/HKD 7.8089 7.83 7.85 7.85 7.85 7.83 7.80 Fwd 7.79 7.78 7.77 7.76 7.75 7.74 Poll 7.80 7.80 7.80 7.78 7.78 7.77 usd/TWD 30.360 30.5 31.0 31.5 32.0 31.5 31.0 Fwd 30.2 30.0 29.8 29.6 29.3 28.9 Poll 30.0 30.0 29.7 29.9 29.6 29.2 usd/KRW 1030 1075 1100 1075 1075 1050 1050 Fwd 1033 1034 1034 1033 1031 1029 Poll 1000 980 975 975 961 947 usd/SGD 1.3707 1.38 1.40 1.42 1.44 1.42 1.40 Fwd 1.37 1.36 1.36 1.35 1.35 1.35 Poll 1.35 1.34 1.33 1.33 1.32 1.30 usd/MYR 3.2700 3.30 3.35 3.40 3.45 3.40 3.35 Fwd 3.28 3.27 3.27 -- -- -- Poll 3.15 3.10 3.08 3.15 3.10 3.05 usd/THB 33.080 33.5 34.0 34.5 34.9 34.1 33.4 Fwd 33.5 33.7 33.8 -- -- -- Poll 31.9 31.2 30.9 32.8 31.9 30.9 usd/IDR 9300 9500 9600 9700 9800 9500 9300 Fwd 9539 9746 9952 -- -- -- Poll 9200 9150 9100 9050 9025 9000 usd/PHP 44.200 45.0 47.0 45.0 45.0 43.0 43.0 Fwd 45.9 46.3 46.1 -- -- -- Poll 42.5 42.1 41.3 42.0 41.4 40.8 usd/INR 42.700 43.0 43.5 42.5 42.5 42.0 42.0 Fwd 43.2 43.4 43.6 44.0 44.1 44.2 Poll 41.2 40.6 40.8 41.9 41.3 40.8 usd/VND 16621 16740 16860 16990 17120 17250 17380 Fwd 18651 19733 20772 -- -- -- Poll 16300 16200 16100 17300 16875 16450 GBP/usd 1.9633 1.94 1.92 1.90 1.88 1.86 1.88 Fwd 1.94 1.92 1.91 1.90 1.90 1.89 Poll 1.96 1.92 1.88 1.87 1.86 1.85 AUD/usd 0.9467 0.94 0.92 0.90 0.88 0.86 0.88 Fwd 0.93 0.92 0.91 0.90 0.89 0.88 Poll 0.94 0.92 0.89 0.88 0.87 0.85 NZD/usd 0.7557 0.75 0.73 0.71 0.69 0.67 0.69 Fwd 0.74 0.73 0.73 0.72 0.72 0.71 Poll 0.75 0.73 0.71 0.67 0.68 0.68 usd/CAD 1.0199 1.03 1.05 1.07 1.09 1.11 1.09 Fwd 1.02 1.02 1.02 1.02 1.02 1.02 Poll 1.03 1.05 1.08 1.07 1.08 1.09 DBS forecasts in bold red. Poll are median forecasts from analysts collated by Bloomberg as at 11 Jun 2008 42
Economics – Markets – Strategy Yield Yield: Bearish • US: We believe Treasury yields will rise more than 100bps in the remaining months of this year. With improving economic growth, inflationary pressures that may not be temporary, and increasing bond supply, we are bearish on the US bond market, which we think will have to discount substantial Fed tightening for 2009 • SG: With the Fed rate cut cycle having come to an end, upward pressures are building on SGD rates. A rise in US Treasury yields in 2H08 on the back of more aggressive Fed rate hike expectations is expected to put SGS yields under upward pressure • HK: As the HKD remains credibly pegged against the USD, HKD rates continue to track USD rates. Moreover, as USD/HKD forwards continue to reflect a HKD appreciation bias, Hibor-Libor spreads continue to be steady • KR: Stagflation dynamics are keeping the Bank of Korea on hold and the market guessing whether the next move from the central bank will be up or down. The market will likely struggle for direction in 3Q08 • TW: Chances are that the CBC’s rate hike cycle is not yet over and that the central bank will lift the benchmark rediscount rate to 3.875% from 3.5% over the next three meetings. We expect bond yields to be under upward pressure in 2H08 • TH: While the Bank of Thailand has kept its policy rate unchanged in 2Q08, a rate hike scenario has been gaining momentum. Given that the sell-off in 2Q08 has taken yields to levels that reflect a good chance of significantly tighter monetary policy conditions, the sell-off in front-end yields should come to an end soon • ID: Long-end Indonesian Government bonds are a buy. We expect yields to fall in 2H08 and the curve to steepen, as policy rates are unlikely to rise to 13% again • PH: Bangko Sentral ng Pilipinas on June 5 lifted its policy rates by 25bps to rein in inflationary expectations. This is bad news for the bond market and means yields will remain under upward pressure. A sharp rise from current levels is however unlikely, given that the bulk of the sell-off in the bond market has already occurred • MY: With rate hikes having been discounted at the front end of the yield curve and investors being better compensated for inflation risks, we believe yields are unlikely to rise much from current levels • IN: The direction of gilt yields remains a tough call, but we remain comfortable with our rate hike forecast. Inflation risks are even more prominent now after the hike in diesel and petrol prices earlier this month and the growth outlook is not weak enough to keep the RBI on hold • CH: Against our expectation, government bond yields continue to trade sideways as the market refuses to discount the rate hikes we expect. We think that the market is too complacent about inflation and rate hike risks YIELD Jens Lauschke • (65) 6224 2574 • jensjoerg@dbs.com 43
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