Currency forecasts from Raiffeisen RESEARCH
RAIFFEISEN BANK S.A. - 11 August 2009
The trade balance data for June 2009 that were released on Monday showed that the sharp adjustment in the external balance continued, driven mainly by a drop in imports that was much higher than the drop in exports. This should be positive for the RON, as the unsustainable trade balance deficit recorded in recent years was the main driver of the currency's depreciation after the international financial crisis started.
EUR/RON: 4.207--> 4.20 (September)
The IMF mission that has spent the last two weeks in Bucharest conducting the first review of the Stand-By Arrangement presented the conclusions of its assessment on Monday. They said that Romania fulfilled the conditionality for the first half of 2009. The budget deficit target was increased from 4.6% of GDP to 7.3% of GDP in 2009 mainly due to the country's deteriorating economic performance (the IMF's GDP growth forecast was changed from -4.1% to between -8% and -8.5% in 2009). The news that Romania has reached an agreement with the IMF mission should also be supportive for the RON.
The exchange rate traded in a narrow range last week, with low volumes and bids especially from commercial customers. The RON partially failed to benefit from the rapid appreciation seen in the case of its regional peers, but it was much more stable than the PLN and the HUF, which in our view is more important. We believe that there is still a chance that we will see the RON strengthen slightly in the coming period, especially if the sentiment on the regional markets remains positive. The RON will most likely continue to trade in a range from 4.19 to 4.23 in the next period.
EUR/USD: 1.417--> 1.45 (September)
The economic stabilisation/recovery continued unabated last week as well: Both the manufacturing ISM index (v-shaped recovery, some components such as new orders already at 2007 levels) and the labour market report were much better than the market had been anticipating. And these are not false signals: As was to be expected, the first part of the recovery is now progressing just as rapidly as the abrupt downturn that preceded it, even if the next slump could come in 2010. Therefore, we can also expect to see better data from the US in the coming months (e.g. this week: US retail sales on Thursday, industrial production on Friday, above consensus).
The US data have now become so positive that US interest rate speculation is increasing: Following the publication of the better-than-expected labour market report on Friday, EUR/USD did not continue its rally despite the positive trends on the equity markets, but instead saw a sharp correction, while EUR/CHF and EUR/JPY increased in line with the equity markets as expected. Although we are still upholding our quarterly forecasts, the short-term reaction of EUR/USD is alarming enough so that we are only issuing a neutral recommendation for the time being following the withdrawal of our short-term buy recommendation.
The risk is simply too high that EUR/USD will continue to come under pressure temporarily as investors price in additional rate hikes (even though these will certainly not materialise in the next few quarters). We do not expect the Fed's meeting on Wednesday evening to produce any new information in this regard (besides somewhat more positive statements on economic conditions).
EUR/GBP: 0.861--> 0.80 (September)
The Bank of England gave market participants a surprise last week. Although it left the Bank Rate unchanged at 0.5%, the bank's Quantitative Easing measures were boosted by an additional GBP 50 bn, bringing the total for the programme to GBP 175 bn (12% of nominal GDP). The Bank intends to implement the additional measures over the next three months. Thus, the BoE reacted to the disappointing GDP figures for Q2 and the relatively meagre growth of the M4 money supply.
Following this announcement, the GBP slid especially against the USD after previously reaching GBP/USD 1.70. In our opinion, the publication of the inflation report scheduled for Wednesday will likely indicate a more subdued path for economic growth (further increases in overcapacity and slow growth rates for M4) and the inflation rate (despite the slower-than-expected decline over the last few months). In the short term, the GBP will likely continue to lose ground vs. USD. However, we expect the GBP to continue its gradual appreciation against the EUR as a result of improved monthly economic indicators.
For the complete exchange rate forecasts on EUR/PLN, EUR/CHF, EUR/JPY, USD/JPY, EUR/HUF, EUR/CZK, EUR/HRK, EUR/RUB, USD/RUB, EUR/UAH and USD/UAH please access:
http://mcir.doingbusiness.ro/en/banking-finance/banking/1/19-raiffeisen-bank-sa.html
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Ernst & Young: Impozitarea indirecta folosita ca sursa de acoperire a deficitelor, dar si de crestere economica 
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