EFTA01449347.pdf

16 May 2013 FX Blueprint: Dashing Buck While both crosses have now fallen a long way relative IFigure 4: The good news in NZ is more than fully priced to our models, we would now expect these models to keep trending lower. Given the respective levels of the Dm 301% Ch (L113) two crosses (and our AUD view below), we prefer to go Is —Ate $unvy Employmont Istenbans1mth clung* (8/45) 20.0 short NZD/CAD. Indeed we are now more cautious on 20.0 NZD more widely, as most of the good news appears 10 150 priced in following its rally in recent months (see 10.0 S Figure 4). 5 0 00 In terms of AUD, our view remains that the global 4.0 monetary environment argues against looking for .10.0 anything more than short-term weakness. Reinforcing this were the Chinese monetary data for April, which .10 .150 showed a further pickup in M2 Money growth - this -200 has generally been bullish for AUD in recent years. -IS -250 04 05 05 07 05 09 ID 11 12 13 Moreover, our Chinese team remains more bullish on the Chinese growth outlook than the market consensus, Sant Deutta.• Bark Blesteter Ann LP looking for 8.2% growth in 2013 and 8.9% growth in 2014, against a market consensus of 8.0% growth in both years. It is notable then that other "China plays" IFigure 5: Many China plays are now getting a boost such as Hang Seng H-shares and copper prices have started to trend higher recently, indicating a greater -81n. M2 encroy rcpt' ircmill WV% (WV confidence in the outlook for Chinese demand (see 35 - 200 Figure 5). This should soon start to bolster AUD. 30 1I 150 One of the other key drivers of our resilient-AUD view 25 . fp/ has been the expectation of ongoing mining-related FDI 60 20 inflows (see for instance FX Daily: On-Hold RBA Lifts AUD, But FDI Inflows And 63 Policy Remain Key IS Supports, 5 March 2013). Despite recent negativity on 10 the mining investment outlook, the ABS's Q1 Capex 5 survey suggested an increase in mining investment 1999 2001 2003 2005 2007 2009 2011 2013 would be seen in 2013/14, with a lift in building and structures investment offsetting an expected decline in machinery and equipment investment. While this may Scant Anne/. ant amen Antos LI prove too optimistic, it suggests mining investment is hardly about to fall off a "cliff". In terms of what this 'Figure 6: Taking advantage of option market dynamics means for AUD, even if there is little growth in mining Ito buy a vanilla AUD/USD 1.01 3-month call on this dip investment, it is likely to remain at an extremely elevated level for some quarters to come. Additionally, ....AVMS° Pe/ as mining investment rotates from an import-heavy 1 15 —4408.480 26.41•Ita risk cranialMKS} machinery and equipment focus to a local-expenditure- -1 105 heavy building and structures focus, the AUD-intensity -2 of this spending may well increase. This argues that 095 -3 the need for resource firms to continue to generate 085 ..4 substantial FDI inflows will likely remain intact. -5 015 4 As to how we prefer to express this AUD view, one 065 relatively consistent dynamic in FX options markets is the tendency of AUD/USD options to skew towards 055 4 Jan 10 Jul 10 Jan 11 Ad 11 MI 12 Jul 12 Jan 13 puts on AUD/USD declines (see Figure 6). We would take advantage of this dynamic by buying a vanilla Sans Oats** art 844anteg Awe LP AUD/USD 1.02 call (around 70 pips at time of writing), expecting it to resume trading in the 1.02-1.06 range that had until very recently held for most of 2013. John Horner, Sydney +61 (2)8258 2130 Page 10 Doutscho Bank AG/London CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 104717 CONFIDENTIAL SDNY_GM_00250901 EFTA01449347