EFTA01449359.pdf

28 February 2013 Exchange Rate Perspectives Deutsche Bank 0 The Dollar Is Back: How China Rebalancing, The Great Rotation To US and Abenomics Will Change The World Bottom Line Almost all currencies appeared to have peaked against the dollar, and the more recent rise in USD/JPY suggest the broad dollar is embarking on a multi-year uptrend. Superior US growth should support the rotation from bonds to equities that will help the dollar. Abenomics shows the scope central banks outside of the US have to weaken their currencies against the dollar. China rebalancing away from investment provides a downside risk to the China-linked currencies that have done so well since 2008. All these trends are intertwined and together point to sustained dollar strength. In terms of forecasts, by 2015, we expect EUR/USD to reach 1.10, USD/JPY 115 and AUD/USD 0.85. Most EM FX will weaken against the dollar. If anything, we risk underestimating the extent of dollar strength in corning years. Dating The Dollar The dollar tends to follow long-term cycles lasting between 6 to 10 years. A combination of valuations extremes, current account imbalances, and turns in rate cycles and capital flows tend to presage the switch from one multi-year trend to another. The latest clearly identifiable trend for the dollar has been a downtrend that began in 2002 and likely ended in 2011 thus la:-iting g years tsee Figure 1). This is one year sI-n-t the longest trend in the post-Bretton Figure 1: USD Uptrend Starting? III= Turning points Real Broad Dollar Nornina l Dollar vs Majors 150 140 130 I ()yrs, clown 46% 6yrs, 120 down 18% 7yrs, 9yrs, up 43% down 40% 110 (vs majors) 100 60 73 74 75 76 77 787960818263EO 85 86 87 86 89 90 91 92 93 94 95 96 97 96 99 00 0 i)1 03 04 05 06 07 06 09 10 11 12 13 :on onexere sant Ex4Vrt a S Deutsche Bank AG/London Page 5 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0104738 CONFIDENTIAL SDNY_GM_00250920 EFTA01449359