Foreign Exchange Outlook pdf

Global Economic Research

Index

Market Tone & Fundamental Focus ......................................................................................... 3

US/Canada ................................................................................................................................. 5

Europe ........................................................................................................................................ 6

Asia/Oceania .............................................................................................................................. 8

Developing Asia ...................................................................................................................... 10

Developing Americas .............................................................................................................. 11

Global Currency Forecast ...................................................................................................... 13

Foreign Exchange Outlook is available on: www.scotiabank.com and Bloomberg at SCOE

ForeignExchange

Outlook

December 20, 2012

Diverging central bank policy, uneven progress towards sovereign debt

sustainability, political change, progress in Europe, growth in Asia,

investors’ global search for yield and a low volatility market environment are

the themes that are likely to drive the currency landscape in 2013.

The North American outlook is complicated by uncertain fiscal drag, which

has proven to be a significant business and market disturbance; however, for

FX markets, aggressive Fed policy combined with building growth momentum

and favourable risk appetite supports the outlook for the CAD.

In Europe, diminished tail risk and shifting market confidence helped to

support EUR in the final few months of the year; however, bouts of

uncertainty will likely continue to weigh on the currency in 2013; GBP’s

outlook is more positive, but it is the Scandies whose outlook shines, as

they benefit from relative central bank policy and sentiment.

In Asia, the outlook for JPY has deteriorated materially as political

uncertainty and rising concerns that the BoJ is in the midst of losing its

independence weigh on what was already a difficult currency outlook. CNY

continues to appreciate; however, with a narrowed current account surplus

and slower pace of FX reserve accumulation we expect only moderate

strength in 2013.

Happy Holidays!

Best wishes for the holiday season from all of us.

The next issue of Foreign Exchange Outlook will be on Thursday, January 31, 2013.