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1、,November 9,2012The Global FX Monthly AnalystEconomics ResearchLow Volatility,Idiosyncratic FX Moves and the Fiscal CliffThomas Stolper,FX market volatility has declined further and now stands at levels lastseen during the peak of pre-crisis FX carry trading.A disruptive fiscal cliff scenario in the
2、 US is now the main risk thatcould push FX volatility higher.The US debt ceiling debate anddowngrade in mid-2011 contributed to a trade-weighted USD rally ofabout 7%.Should FX volatility remain at the current very low levels,idiosyncraticfactors will likely become more visible.The recent divergence
3、betweenthe INR and ZAR,historically two correlated currencies,is a goodexample.We review a number of currencies that have displayed interestingmoves recently to see if these can continue or if they are likely to revert.We distinguish between directional views,currencies where we see a,+44(20)7774-51
4、83 Goldman Sachs InternationalRobin Brooks(212)902-8763 Goldman,Sachs&Co.Themistoklis Fiotakis+44(20)7552-2901 Goldman,Sachs&Co.Fiona Lake+852-2978-6088 Goldman Sachs(Asia)L.L.C.,notable skew in risks and non-stories where the market may bedisappointed relative to expectations.George Cole+44(20)7552
5、-3779,Average FX volatility has declined further and is now at levels only seen,Goldman Sachs International,very briefly before the global financial crisis.The impact on individualcurrencies of swings in global risk sentiment is becoming smaller andinvestors tend to focus more on idiosyncratic moves
6、 as a strategy togenerate returns.In that context,we review some of the most interestingcountry-specific stories in FX,which we broadly classify into directionalviews:currencies where we see a notable skew in risks and non-storieswhere the market may be disappointed relative to expectations.Beyondth
7、e focus on idiosyncratic moves,it is also important to monitor risks thatcould potentially lead to a sudden rise in FX market volatility.We havediscussed these risks in the past and continue to focus on the US fiscalcliff as a potential source of temporary risk aversion.Investors should consider thi
8、s report as only a single factor in making their investment decision.For Reg AC certificationand other important disclosures,see the Disclosure Appendix,or go to,The Goldman Sachs Group,Inc.,Goldman Sachs,3,4,24,55,56,59,65,66,67,68,69,70,71,2,November 9,2012ContentsRecommended FX Trade IdeasRisk Sc
9、enarios and Idiosyncratic FX MovesG3US DollarEuroJapanese YenEurope,Middle East&AfricaBritish PoundCzech KorunaHungarian ForintIsraeli ShekelNorwegian KronerPolish ZlotyRussian RubleSouth African RandSwedish KronaSwiss FrancTurkish LiraAmericasArgentine PesoBrazilian RealCanadian DollarChilean PesoC
10、olombian PesoMexican PesoPeruvian New SolVenezuelan BolivarAsiaAustralian DollarChinese YuanHong Kong DollarIndian RupeeIndonesian RupiahKorean WonMalaysian RinggitNew Zealand DollarPhilippine PesoSingapore DollarTaiwan DollarThai BahtInterest Rate ForecastsGS Sentiment Index(IMM)FX CurrentsGS Trade
11、-Weighted IndicesGS Anecdotal FlowsM&A PipelinesGSDEERKey Economic DataGDP Growth(%ch yoy)Consumer Prices(%ch yoy)Current Account Balance(%of GDP)Foreign Exchange Reserves(US$bn)Government Debt as%of GDPPolicy Rate ForecastsExchange Rate ForecastsEuro CrossesDollar CrossesDisclosure AppendixGoldman
12、Sachs Global Economics,Commodities and Strategy Research,The Global FX Monthly Analyst181820222425262728293031323334353536373839404142434344454647484950515253545761616365717273,6,5,3,November 9,2012Recommended FX Trade IdeasOur Recommended Top Trades for 2012,The Global FX Monthly Analyst,Trade1.Clo
13、se protection on the iTraxx Europe Xover Index2.Close short 10-yr German Bunds3.Close long EUR/CHF4.Close long S&P TSX vs Nikkei,FX unhedged5.Long CNY,MYR vs GBP,USD6.Close long July 2012 ICE Brent Crude Oil Futures,Opened30-Nov-1130-Nov-1130-Nov-1130-Nov-1130-Nov-1130-Nov-11,At7592.281.226100100107
14、.80,Now Atn/an/an/an/a101.5n/a,Potential Gain-3.4%-3.5%-1.7%4.70%1.50%11.6%,Tactical FX Trade Performance 2012,Number,Cum Return,Avg Return,Avg Duration,All TradesProfitableLoss-Making,11,6.7%16.9%-10.2%,0.61%2.81%-2.04%,27 days33 days20 days,Recent Tactical FX Recommendations,Description,Day,Open,T
15、ime,Day,Close,Time,Open Quote,Close Quote,PotentialReturn,LongShortShortShortLongLong,EURUSDUSDMXNAUDBasket(NZD,RUB,SEK,KRW,MYR,CLP),USDMYR(expiry 29Mar12)PHP(expiry 04Apr12)CLPJPYUSD,18-Mar-1131-Mar-1107-Apr-1106-Jun-1129-Jun-1110-Aug-11,10:0601:5805:5712:2209:0314:20,23-Sep-1104-Aug-1104-Aug-1110-
16、Aug-1118-Jul-1114-Sep-11,17:0021:3621:3617:0917:0017:00,1.40853.066043.130039.970385.7802100.0000,1.35173.027042.730038.270083.574997.7400,-4.03%1.29%0.94%4.44%-2.57%-2.26%,Short USD,EURShort AUD,SGD,MYRJPY,18-Oct-1131-Oct-11,00:1116:02,01-Jan-1202-Nov-11,00:0016:34,100.000082.7092,99.000080.7573,1.
17、01%2.42%,LongShortShortShortLongShortShortShortShortLongLongLong,RUBUSD,EURUSDUSDEURGBPTRYUSDGBPNZDEUREUR,HUFSGD,MYRMXNCADUSDNOKBRLJPYNOKUSDUSDCAD,09-Nov-1101-Jan-1225-Jan-1225-Jan-1225-Jan-1222-Feb-1219-Mar-1222-Mar-1215-Jun-1218-Jun-1202-Aug-1222-Oct-12,11:1600:0020:1720:1719:4318:1512:2414:1912:5
18、201:2317:5522:02,06-Dec-1118-Jan-1215-Feb-1210-Feb-1215-Feb-1214-Mar-1217-Apr-1206-Jun-1216-Jul-1221-Jun-1219-Sep-1207-Nov-12,17:0012:3613:3517:0013:3515:2916:4214:0417:0019:5411:3017:00,7.420099.000013.03001.00561.30598.86961.000082.89009.33190.79061.21531.2959,7.155097.170212.73871.00161.30869.120
19、81.033678.98009.52150.78771.30211.2722,-3.57%1.88%2.29%0.40%0.21%-2.75%-3.25%4.95%-1.99%-0.37%7.14%-1.83%,Source:Goldman Sachs Global ECS ResearchPlease see our Global Markets Daily and Trade Updates for changes in these live trading strategies,as they changein line with market developments and our
20、views.Goldman Sachs Global Economics,Commodities and Strategy Research,4,November 9,2012,The Global FX Monthly Analyst,Risk Scenarios and Idiosyncratic FX MovesAverage FX volatility has declined further and is now at levels only seen very briefly beforethe global financial crisis.The impact on indiv
21、idual currencies of swings in global risksentiment is becoming smaller and investors tend to focus more on idiosyncratic moves asa strategy to generate returns.In that context,we review some of the most interestingcountry-specific stories in FX,which we broadly classify into directional views:curren
22、cieswhere we see a notable skew in risks and non-stories where the market may bedisappointed relative to expectations.Beyond the focus on idiosyncratic moves,it is alsoimportant to monitor risks that could potentially lead to a sudden rise in FX marketvolatility.We have discussed these risks in the
23、past and continue to focus on the US fiscalcliff as a potential source of temporary risk aversion.1.Volatility at New Post-Crisis LowsVolatility continues to decline in FX markets and has now reached levels that have not beenseen since the heyday of FX carry(and vol selling)in the years preceding th
24、e globalfinancial crisis(GFC).Our transaction-volume-weighted GX FX Volatility Index over a three-month window currently stands at 6.6%realised and 7.4%implied.Lower average levels ofvolatility have only been seen from mid-2006 to mid-2007.Exhibit 1:Real and Implied FX Volatility*Remain Low,30252015
25、1050,Realized VolatilityImplied Volatility,2000,2001,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011,2012,*Transaction volume weighted average 3-month volatility across the most liquid G10 and EM exchange rates.Source:GS Global ECS Research,Bank for International Settlements(BIS)To some extent the
26、se low levels of volatility are a reflection of the fact that the globalmacro picture is uninspiring.Emerging evidence of improving cyclical dynamics,asreflected in our Global Leading Indicator(GLI),is offset by expectations of slower trendgrowth in China and prolonged fiscal contraction in Europe.R
27、eflecting these offsettinginfluences,cyclical assets and risk sentiment have stabilised after decent rallies since themiddle of the year,and this stabilisation in risky asset performance has likely translatedinto reduced FX volatility.Another influence has been increased FX policy activism;somehisto
28、rically volatile currencies,such as the BRL or TRY,stand out as particularly heavilymanaged at the moment.Beyond direct FX intervention,increased activism bypolicymakers to reduce volatility in other asset classes also affects exchange rates:Fed QE3purchases of MBS on an open-ended basis,the ECB sta
29、nding ready to buy short-datedgovernment bonds,bans on naked CDS,to name but a few.Goldman Sachs Global Economics,Commodities and Strategy Research,5,November 9,2012,The Global FX Monthly AnalystFrom an FX investors point of view,the question is how to position in this low volatilityenvironment.We t
30、hink two strategies are fundamental.First,risk scenarios need to betracked,as a sudden adverse shock to risk sentiment could lead to a similarly sudden risein FX volatility.In recent FX Monthlies we have highlighted some key risks into year-end.Of these,the fiscal cliff is now the main concern.The s
31、econd strategy is to focus onidiosyncratic developments,i.e.,currency-specific drivers that have been less important forinvestors in recent years.A large part of finding FX strategies in the years since the globalfinancial crisis has been the ability to catch the latest swing in risk sentiment becau
32、se alarge number of currencies mechanically responded to risk-on/risk-off.In this context,wehave repeatedly illustrated the high correlation across currencies.However,if volatilityremains low more permanently,the importance of changes in risk aversion will likelydecline relative to the country-speci
33、fic forces.Put differently,the signal-to-noise ratioimproves in a low volatility environment and country factors suddenly matter more thanglobal risk sentiment.A good example is the recent divergence between the INR and theZAR,two relatively high beta currencies,which diverged sharply in performance
34、 on thebasis of country-specific factors.We will discuss a selection of country-specific dynamics ina separate section below.Exhibit 2:Our GLI Points to an Improvement in the Global Cycle20151050-5,-10,GLI Headline,-151998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source:I
35、MF,National Sources,GS Global ECS ResearchHigh volatility has historically been the enemy of carry strategies,as these haveunderperformed pretty systematically during periods of risk aversion.And low volatility hashistorically been associated with relatively high FX carry returns and even higher Sha
36、rperatios.But,interestingly,this no longer holds.Despite near-record-low volatility in FXmarkets,diversified carry strategies continue to perform badly,as can be seen in Exhibit 3.Our FX carry basket has essentially been flat-lining since 2009.The fact that low volatilityhas been accompanied by very
37、 low interest rates across the board has reduced a keysource of carry returns.To some extent,this is a tautology but much of the academicresearch on carry returns focuses on volatility and risk aversion,and much less on interestrate differentials.While average interest rate differentials remain as l
38、ow as they arecurrently,it will remain challenging to see the performance of FX carry strategies improvenotably,in our opinion.Goldman Sachs Global Economics,Commodities and Strategy Research,95,6,November 9,2012,The Global FX Monthly Analyst,Exhibit 3:FX Carry Returns Remain Low25523521519517515513
39、5115Goldman Sachs FX G10&Emerging Markets Carry Index751999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source:Goldman Sachs Global ECS Research.2.The Dollar and the Fiscal CliffIn the last couple of FX Monthlies,we have highlighted a couple of key risks into year-endand into ear
40、ly 2013.In particular,we highlighted an escalation of the Euro area crisis,anescalation of geopolitical tensions in the Middle East and the fiscal cliff in the US.The latter in particular has the potential to lead to broader USD strength initially,potentially followed by a similarly sharp sell-off i
41、n the Dollar.The logic of this price actionclosely follows the pattern of markets temporarily losing confidence in the ability ofpolarised policymakers to compromise.During this period it may look as if the fiscal cliffis becoming reality and that the economy could face a negative fiscal shock of up
42、 to 5%ofGDP.The temporary negative response in cyclical assets would likely also trigger a broaderUSD rally.After that,when policymakers do find a compromise,possibly helped by the marketconcerns reflected in cyclical asset weakness,risk sentiment could improve rapidly and theUSD would weaken again.
43、The election outcome in the US keeps the current split in place between a DemocratPresident and Senate versus a Republican House.With both parties having clashedrepeatedly on fiscal policy in the past,it is possible that substantial obstacles remain beforea compromise on the fiscal cliff can be reac
44、hed.In other words,the likelihood of adisruptive fiscal cliff scenario materialising has increased after the election,at leasttemporarily.And,in any case,the fiscal drag is likely to become greater after the electionoutcome,as highlighted by our US economists.In order to quantify the potential FX im
45、pact of the fiscal cliff,it is difficult to run formalregressions,partly because there have been too few episodes with sufficiently comparablecharacteristics.In fact,there has possibly been only one:the debt ceiling debate and ratingdowngrade in mid-2011.During that period,the SPX fell by about 14%,
46、while the trade-weighted USD rallied by about 7%.Interestingly,the moves were not perfectlysynchronised and the majority of the Dollar rally occurred about a month after the sharpstock market sell-off.Goldman Sachs Global Economics,Commodities and Strategy Research,7,November 9,2012,The Global FX Mo
47、nthly Analyst,3.Idiosyncratic FX DevelopmentsDespite the decline in overall FX volatility,there have been a number of interestingcountry-specific developments.Each of these has already triggered,or could potentiallytrigger,some localised trends independent of broader risk sentiment.The easiest way t
48、o categorise these trends is in three groups:Actual directional views(CZK,RUB,ZAR)Skew in risks(CLP,INR)Non-stories where the market may be disappointed(TRY,BRL,CNY,JPY)Among the directional views,the RUB looks to be one of the most attractive currencies,due to strong FX fundamentals and likely furt
49、her tightening in financial conditions.TheCzech National Bank has just shifted to a stance that explicitly recognises the desire forweaker FX and will likely intervene.And in ZAR,we think a full reversal of the recent priceaction is likely once the industrial dispute is settled.Among the skew-in-ris
50、ks cases,the CLP stands out because it has outperformed copperprices by a notable margin and the central banks are unlikely to tolerate more CLP strengthin addition.That said,there may not be an immediate catalyst for weakness.In India,thestrong INR rally after a bunch of reform announcements has tr
