FINANCIAL MARKETS RESEARCH FX talkING March 2012

FX
8 March 2012

FX talkING
ING’s view on the major bullish and bearish currency themes
The flood of liquidity from G3 central banks has re-kindled fears of a currency war. EM markets are bracing for an inflow of funds, prompting some into more aggressive rate cuts. We doubt the inter-play of G3 currencies will have much impact on broad investment trends, where high yield will still be favoured.

USD/Majors (1 Jan 08=100)
1 60 1 40 1 20 1 00 80 60 08 Stro nger USD 09 1 0 1 1 1 2 JP Y EUR GB P 1 60 1 40 1 20 1 00 80 60

ING FX forecasts
EUR/USD 1M 3M 6M 12M 1.27 1.22 1.22 1.30 EUR/NOK 1M 3M 6M 12M 7.40 7.30 7.60 7.90 USD/RUB 1M 3M 6M 12M
Source: ING

USD/JPY 82 83 85 88 AUD/USD 1.08 1.08 1.05 1.00 USD/BRL 1.78 1.84 1.80 1.75

EUR/GBP 0.82 0.80 0.77 0.75 EUR/CZK 25.3 25.5 25.3 24.9 USD/CNY 6.30 6.27 6.22 6.13

Source: Reuters, ING

EUR/CE4 (1 Jan 08=100)
180 160 140 120 100 80 08 09 10 11 12 $/TRY $/CNY Stronger EM FX $/BRL €/PLN 180 160 140 120 100 80

29.7 30.6 31.0 30.9

FX performance
EUR/USD %MoM %YoY 0.6 -4.6 EUR/HUF %MoM %YoY
Source: Reuters, ING

USD/JPY 6.1 -1.3 EUR/CZK -0.9 2.3

GBP/USD 0.0 -2.1 USD/RUB -2.2 3.5

EUR/NOK -3.0 -4.7 USD/BRL 2.8 7.2

NZD/USD -1.0 11.5 USD/KRW -0.3 -0.2

USD/CAD -0.5 2.2 USD/CNY 0.2 -3.9

Source: Reuters, ING

0.5 7.9

FX Strategy

Chris Turner
Head of Foreign Exchange Strategy London +44 20 7767 1610 chris.turner@uk.ing.com

Tom Levinson
Foreign Exchange Strategy London +44 20 7767 8057 Htom.levinson@uk.ing.comH View all our research on Bloomberg at ING5<GO>

research.ing.com

1 SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES & ANALYST CERTIFICATION

FX talkING

March 2012

Developed markets
EUR/USD
Buffeted by cross currents, but EUR should fall
1.60 1.50 1.40 1.30 1.20 Mkt Fwds 1.60 1.50 1.40 1.30 1.20

Current spot: 1.33

• The Fed’s promise of low interest rates and the improving global
growth story retain the dollar’s status as a funding currency – and has provided EUR/USD with a bid during the global equity rally. Not until the Fed is ready to start talking about withdrawing liquidity will the USD start to benefit from strong US data – and such a discussion looks unlikely to take place before November elections.

• In Europe, the Greek crisis continues to create tail-risks of banking
sector pressure, contagion and EMU break-up. Currently concerns focus on Collective Action Clauses and Greek CDS being triggered. In a few months, the concern will move to Greek adherence to the plan and a possible change in French leadership in April/May.

ING f'cast

1.10 1.10 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• The macro-political story dictates that the EUR should
underperform this year – sending EUR/USD to 1.20 this summer.
1M 1.27 (1.326) 3M 1.22 (1.327) 6M 1.22 (1.328) 12M 1.30 (1.330)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

USD/JPY
Major forecast change
110 100 90 80 70 ING f'cast 110 100 90 80 70

Current spot: 81.4

• We believe USD/JPY put in a major low at 75.35 last October and
an independent re-pricing of the JPY merits USD/JPY moving to at least 85 – even though Fed rates remain anchored near zero. An improvement in the external environment should see Japanese investors start to show renewed interest in foreign asset markets – having kept investments close to home in FY10 and FY11. This should show up in strong demand for foreign investment trusts – or so called Toshin – particularly in April.

Mkt Fwds

• At the same time the BoJ is proving a little more aggressive –
finally adopting a 1% CPI target and promising another JPY22tr (5% of GDP) in asset purchases this year.

60 60 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• Tight fiscal and loose monetary policy plus a current account
surplus slumping to mid-1990s levels are all JPY negative.
1M 82 (81.38) 3M 83 (81.33) 6M 85 (81.23) 12M 88 (80.94)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

GBP/USD
More QE from the BoE in May?
2.20 2.00 1.80 1.60 1.40 ING f'cast Mkt Fwds 2.20 2.00 1.80 1.60 1.40

Current spot: 1.58

• UK leading indicators have started to turn a little more
constructive, but oil prices are proving a problem. Part of the UK recovery story this year was based on lower inflation and higher disposable income – especially in the second half. Yet Iranian tensions look set to keep Brent and headline inflation higher than expected. And scope for the Chancellor to loosen fiscal policy in the 21 March budget seems very limited indeed.

• The BoE continues with QE. In February it decided to increase the
size of assets purchased to £325bn from £275bn. This may be raised again in May ahead of the next inflation report and serves as a reminder that the bank rate will be kept at 0.5% into 2013.

1.20 1.20 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• EUR weakness could drag GBP/USD to 1.53/55 over coming
months, but UK safe haven status means GBP is a buy on dips.
1M 1.55 (1.580) 3M 1.53 (1.580) 6M 1.58 (1.579) 12M 1.73 (1.576)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610 2

FX talkING

March 2012

EUR/JPY
EUR/JPY should ultimately trade higher
175 155 135 115 95 Mkt Fwds ING f'cast 175 155 135 115 95

Current spot: 107.97

• Neither the EUR nor the JPY look particularly attractive this year.
Both have policy rates on the floor and are undertaking exceptional measures to stabilise the banking system and promote lending. Despite recent strong gains in EUR/JPY, the Eurozone still has some major headwinds in the first half of the year. Peripheral Europe looks set to undergo a heavy contraction and Northern Europe seems reluctant to commit to any more bailouts, should peripheral budget deficits prove larger than planned.

• A potential positive for EUR/JPY is progress on the Eurozone
firewall ahead of the 20 April G20 summit. EU leaders are discussing merging the EFSF and ESM to create a EUR750bn firewall, which may subsequently trigger increased IMF resources.

75 75 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• By year-end, EUR/JPY should be heading well above 110.
1M 104.1 (108.0) 3M 101.3 (107.9) 6M 103.7 (107.9) 12M 114.4 (107.6)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

EUR/GBP
Frustrating stability
1.00 0.95 0.90 0.85 0.80 0.75 ING f'cast Mkt Fwds 1.00 0.95 0.90 0.85 0.80 0.75

Current spot: 0.84

• We had expected EUR/GBP to be a lot lower by now. Instead the
UK is struggling to differentiate itself from the Eurozone, in terms of activity at least any way. BoE Governor King, of course, will not mind that. The BoE feels the re-balancing away from domestic demand/non-tradable to the tradable sector requires a weak GBP.

• However, the credit crunch is a far larger headwind to the
Eurozone than it is to the UK and the UK economy should start to outperform later this year.

0.70 0.70 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING ING forecasts (mkt fwd) 1M 0.82 (0.839)

• At the same time the UK has started to outperform its fiscal
targets and the UK’s 5-year sovereign CDS trades comfortably 10bp inside that of Germany. GBP FX reserve weights should be increased this year and we retain sub 0.80 EUR/GBP forecasts.
3M 0.80 (0.840) 6M 0.77 (0.841) 12M 0.75 (0.844)

Chris Turner, London +44 20 7767 1610

EUR/CHF
SNB to re-assess monetary policy on 15 March
1.70 1.60 1.50 1.40 1.30 1.20 1.10 ING f'cast Mkt Fwds 1.70 1.60 1.50 1.40 1.30 1.20 1.10

Current spot: 1.21

• The SNB meets to discuss monetary policy on 15 March. Leading
the debate will be acting chairman, Thomas Jordan. He looks set to become the permanent replacement to Philip Hildebrand, after a KPMG audit cleared Jordan of any inappropriate FX trading. The SNB will re-assess its 2012 GDP and CPI forecasts of 0.5% and -0.3%, respectively.

• Any upward shift in the 1.20 EUR/CHF floor looks unlikely,
following better-than-expected 4Q growth and stubbornly high oil prices. However, the SNB had been expecting EUR/CHF to be rising by now. We think the flood of EUR liquidity from the LTRO may be weighing on EUR/CHF – creating the small risk that the SNB counter-acts this by substantially raising CHF sight deposits.

1.00 1.00 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• Our flat EUR/CHF profile is subject to upward revisions.
1M 1.20 (1.205) 3M 1.20 (1.204) 6M 1.20 (1.203) 12M 1.20 (1.200)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

3

FX talkING

March 2012

EUR/NOK
NOK – star quality
10.0 9.5 9.0 8.5 8.0 7.5 Mkt Fwds ING f'cast 10.0 9.5 9.0 8.5 8.0 7.5

Current spot: 7.40

• Arguably NOK is superior to all others in the G10 FX space with
respect to the three pillars of Safety, Liquidity & Return – delivering all three qualities. This has no doubt helped NOK to be a top performer vs USD year-to-date (6%), taking EUR/NOK to its lowest levels since the start of 2003.

• An additional and significant NOK boost comes courtesy of a high
Brent oil price, which at US$120/bbl+ threatens a break above its 1Q11 high. Although NOK positive, a supply-side oil price rally will benefit the krone less than were it demand-side generated.

7.0 7.0 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• EUR/NOK’s plunge to 7.40 means a test of the 2002 record low of
7.20 is not ruled out. Despite being very stretched on a historical basis, NOK’s AAA, oil exporting prowess cannot be beaten. A 14 March rate cut is not out of the question to combat NOK gains.
3M 7.30 (7.43) 6M 7.60 (7.47)) 12M 7.90 (7.53)

ING forecasts (mkt fwd)

1M 7.40 (7.41)

Tom Levinson, London +44 20 7767 8057

EUR/SEK
SEK - too good to be true
12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 ING f'cast 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5

Current spot: 8.89

• 4Q GDP confirms the Swedish economy slowed far more in 2H11
than thought, resulting in 2011 growth of 3.9% vs 4.5% forecast. A 0.7% Riksbank forecast for 2012 GDP looks high and our sense is that concern locally on the outlook for spending and the labour market is greater than priced by financial markets. The NIER together with Riksbank ‘doves’ look for rates to fall to 0.75%.

• At times it seems the SEK cannot lose – gaining when good EU17
data bodes well for Swedish exports and benefiting from a newly assumed safe-haven status when sovereign stress rises.

Mkt Fwds 8.0 8.0 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• EUR/SEK is historically low. We expect it to base near 8.70 but
end 2012 above 9.00. Perhaps the most negative SEK scenario involves a period of EU17 debt calm, but coming too late for the region to avoid recession, spelling trouble for Swedish exports.
3M 8.70 (8.92) 6M 9.10 (8.95) 12M 9.40 (9.01)

ING forecasts (mkt fwd)

1M 8.80 (8.89)

Tom Levinson, London +44 20 7767 8057

EUR/DKK
Can DKK stability absent intervention last?
7.48 7.47 7.46 7.45 7.44 7.43 7.42 7.41 ING f'cast Mkt Fwds 7.48 7.47 7.46 7.45 7.44 7.43 7.42 7.41

Current spot: 7.43

• Denmark’s central bank refrained from intervening in FX markets
for a second consecutive month in February, suggesting that upward pressure on DKK has relented somewhat. Recall that in December it bought DKK18bn of FX and cut interest rates 0.3% to combat a EUR/DKK decline to its lowest level since 2004.

• Data on the economy is mixed. 4Q GDP rose only 0.2% QoQ, but
was offset by a revision higher to 3Q11. Consumption rose a decent 1.3% QoQ. Against earlier expectations, Denmark has so far avoided recession while targeted stimulus, like a DKK30bn initiative to help small firm access to funding, should also help.

7.4 7.4 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• A good chance of renewed EU17 turmoil and a EUR fall means
DKK appreciation pressure may well return. The 2002-03 low of 7.42 is within easy reach; the 7.30 trading band floor is not.

ING forecasts (mkt fwd)

1M 7.43 (7.434)

3M 7.43 (7.432)

6M 7.42 (7.430)

12M 7.45 (7.424)

Tom Levinson, London +44 20 7767 8057

4

FX talkING

March 2012

USD/CAD
CAD lags … but for how long
1.30 1.20 1.10 ING f'cast 1.00 0.90 Mkt Fwds 1.00 0.90 1.30 1.20 1.10

Current spot: 0.99

• Despite the attraction of a deep debt market, triple AAA status
and a commodity focus the liquid CAD continues to underperform. For now investors are placing greater emphasis on yield, on which CAD lags commodity rivals like of AUD, NZD and NOK.

• At its 8 March meeting the BoC held rates at 1%, but indicated a
slightly more upbeat outlook for growth, including private demand, this year (in Jan it forecast 2012 GDP at 2%). This though was not sufficient to alter its neutral policy stance. ‘Persistent strength’ of CAD is again referenced, but Canada’s trade surplus is its best in three years, helped by auto and energy sectors contributing 15% and 25% of exports respectively.

0.80 0.80 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• Should US data momentum continue and oil prices maintain an
upward trajectory, USD/CAD to 0.95 cannot be excluded.
1M 0.99 (0.994) 3M 0.98 (0.995) 6M 1.00 (0.997) 12M 1.02 (1.002)

ING forecasts (mkt fwd)

Tom Levinson, London +44 20 7767 8057

AUD/USD
Volume surge underlines AUD popularity
1.20 1.10 1.00 0.90 0.80 0.70 0.60 ING f'cast Mkt Fwds 1.20 1.10 1.00 0.90 0.80 0.70 0.60

Current spot: 0.82

• The RBA held rates at 4.25% on 6 March, keeping an easing bias.
A cut by mid-year is highly contingent on the labour market, which has shed jobs in three of the last four months. Core CPI of 2.5% (the centre of a 1-3% target range) means RBA policy flexibility is the envy of the G10. China’s reduction in its 2012 growth target to 7.5% from 8% will be noted, but not cause undue concern.

• A lopsided economy (in favour of the resource sector) and a very
strong AUD are causes for concern. PM Gillard, who last month saw off a leadership challenge, has signalled concern over AUD appreciation. An A$8bn 4Q current a/c deficit, driven by a A$12bn income deficit, underlines AUD’s susceptibility to risk aversion.

0.50 0.50 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• Recent surveys show AUD volume surging to match GBP and
JPY. Despite AUD’s yield advantage, valuation is a big constraint.
1M 1.08 (1.08) 3M 1.08 (1.08) 6M 1.05 (1.05) 12M 1.00 (1.00)

ING forecasts (mkt fwd)

Tom Levinson, London +44 20 7767 8057

NZD/USD
NZD strength set to scupper rate hike in 2012
1.05 0.95 0.85 0.75 0.65 0.55 Mkt Fwds ING f'cast 1.05 0.95 0.85 0.75 0.65 0.55

Current spot: 0.82

• A year on from the Christchurch earthquake, reconstruction is still
to move into full swing. As it does, it will boost growth with upward wage/price pressures possible. For now, with 4Q11 CPI falling sharply to 1.8% YoY from 4.6% and two-year inflation expectations the lowest since 3Q09, the RBNZ is understandably relaxed.

• The RBNZ faces difficulty coping with an imbalanced economy.
Although rates of 2.50% remain appropriate, it has scaled back future rate hike projections by almost 75bp for the end of 2013 on the basis of a ‘marked appreciation’ of NZD and its ‘detrimental’ impact on the tradable sector.

0.45 0.45 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• NZD still offers a decent yield in G10 terms, but its illiquidity
makes it susceptible to any change in the broad risk environment. NZD/USD above 0.90 risks some sort of RBNZ counter measure.

ING forecasts (mkt fwd)

1M 0.83 (0.821)

3M 0.83 (0.818)

6M 0.81 (0.812)

12M 0.78 (0.802)

Tom Levinson, London +44 20 7767 8057

5

FX talkING

March 2012

Emerging markets
EUR/PLN
Consolidating while growth stays OK
5.0 4.5 4.0 3.5 5.0 ING f'cast 4.5 Mkt Fwds 4.0 3.5

Current spot: 4.11

• Weaker activity data that we expect from March onwards and a
gradual softening of the MPC’s current hawkish commentary are the main risks to the sustainability of the recent PLN appreciation trend. Also, after 1H12, the net FDI position could deteriorate, as we expect slower inflows while the expansion of domestic companies might generate outflows.

• Large foreign holdings of PLN-denominated bonds combined with
easier access to euro interbank funding makes the zloty’s fate more interlinked with the treasury performance. For the next oneto-two quarters growth will remain solid enough, helping with the process of debt issuance.

3.0 3.0 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• We anticipate a trendless zloty until mid-year, when a more visible
hit to activity may well push EUR/PLN back towards 4.30.
1M 4.15 (4.12) 3M 4.17 (4.15) 6M 4.30 (4.18) 12M 4.10 (4.25)

ING forecasts (mkt fwd)

Mateusz Szczurek, Rafal Benecki, Warsaw +48 22 820 4698

EUR/HUF
Some progress on NBH law keeps IMF deal hopes alive
340 320 300 280 260 240 ING f'cast Mkt Fwds 340 320 300 280 260 240

Current spot: 293.7

• Progress on pre-negotiations leading to a new EU/IMF
programme remains sluggish.

• Crucial disagreements regarding the NBH law have visibly
narrowed. Hungary has been backing off in most cases, with the exception of the salary cap, the number of MPC members and the oath that they need to take. For the other contentious items (data protection ombudsman and retirement age of judges), the infringement process has moved into to the next stage.

220 220 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• EUR/HUF started to gain after it could not cross key technical
levels at 286-288. We see high volatility remaining and EUR/HUF can continue its near term rise to the 300 level. But we expect a HUF-supportive IMF agreement to be reached by the end of 2Q. HUF is second only to PLN in its year-to-date gains vs EUR.
3M 290 (297.2) 6M 286 (300.6) 12M 280 (306.5)

ING forecasts (mkt fwd)

1M 300 (294.9)

David Nemeth, Budapest +36 1235 8800

EUR/CZK
CZK likely to return above 25/EUR in short term
30 29 28 27 26 25 24 23 Mkt Fwds ING f'cast 30 29 28 27 26 25 24 23

Current spot: 24.82

• Having temporarily rallied to 24.67/EUR, we have seen the CZK’s
recent correction extend over a 3-month horizon, fuelled by a worsening export performance.

• After several months of decline, economic sentiment has
stabilised and in February we saw a slight improvement in the Czech PMI from 48.8 to 50.5 – albeit consistent with stagnation of economic activity.

• However, over the near term we see downside risk to economic
activity. Domestic demand is set to remain weak over coming quarters hence the increasing dependency on exports for growth. This represents a factor of vulnerability (with the downside risk for EU17 economic growth in mind). Over a 3-month horizon we expect the softening of exports and trade balance deterioration.
3M 25.5 (24.8) 6M 25.3 (24.8) 12M 24.9 (24.9)

22 22 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

ING forecasts (mkt fwd)

1M 25.3 (24.8)

Vojtech Benda, Prague +420 257 474 432 6

FX talkING

March 2012

EUR/RON
Waiting for the next decision?
4.75 4.45 4.15 3.85 3.55 ING f'cast Mkt Fwds 4.75 4.45 4.15 3.85 3.55

Current spot: 4.36

• GDP expanded by 2.5% in 2011 but contracted 0.2% in QoQ SA
terms in 4Q11. The Eurozone contraction has not impacted 4Q11 yet and a couple of quarters of contractions remain likely.

• On balance, we see NBR rates on hold on 29 March but risks for
another 25bp cut are quite high given the likely decrease in headline and core inflation in February and recent comments from the NBR. With rates already low (rates to 1Y are below 3.5%) and analysts expecting a 25bp cut, such an outcome would probably be neutral for the RON interest and exchange rates.

3.25 3.25 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• The president asked the MPs to find the resources to return
wages to levels seen ahead of the 25% cut operated in mid-2010. Most analysts look for some mild fiscal slippages so the market may tolerate such moves.
3M 4.30 (4.39) 6M 4.25 (4.43) 12M 4.25 (4.46)

ING forecasts (mkt fwd)

1M 4.35 (4.37)

Vlad Muscalu, Bucharest +4021 209 1393

EUR/HRK
CNB liquidity management & bond issuance helps HRK
7.80 7.70 7.60 7.50 7.40 7.30 7.20 7.10 ING f'cast Mkt Fwds 7.80 7.70 7.60 7.50 7.40 7.30 7.20 7.10

Current spot: 7.56

• Fitch affirmed Croatia’s rating at BBB- with negative outlook. It
noted positively initial efforts to lower budget spending but stressed that further medium-term fiscal consolidation and structural reforms to boost growth are needed to avoid a downgrade.

• A foreign bond may be issued in April according to MinFin. • Modest HRK appreciation has been helped by tight CNB liquidity
management and FX-linked sovereign bond issuance (EUR funds partially converted to HRK). The attractiveness of FX-linked bonds increased with the widening spread over Euribor. Improving global risk appetite following the ECB liquidity injection also spurred stronger demand for HRK bonds. HRK appreciation potential is limited by continued corporate FC demand due to deleveraging.
3M 7.57 (7.619) 6M 7.56 (7.631) 12M 7.58 (7.778)

7.00 7.00 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

ING forecasts (NDF)

1M 7.57 (7.574)

Elena Ganeva, Sofia +3592 917 6720

EUR/RSD
RSD to remain vulnerable, FX reserves important
120 110 Mkt Fwds 100 90 80 100 90 80 ING f'ca st 120 110

Current spot: 110.6

• Despite the fanfare of Serbia winning EU candidate status in
February, the soft Dinar has found little reprieve. EU candidate status means that official EU entry talks may start later in the year. However, as Croatia found out, the difference between starting talks and entering the EU may be seven years.

• Instead, the Dinar remains very soft and EUR/RSD continues to
trade above 110. FX reserve data suggests the NBS may have sold as much as EUR500m of its EUR12bn FX reserves in January to stabilise the RSD. FX intervention has prompted criticism in the local press and warns that intervention may be less aggressive after parliamentary elections in May.

70 70 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• A 9% current account deficit and heavy dependence on funding
from peripheral countries suggests RSD suffers this year.
1M 111 (110.6) 3M 112 (110.7) 6M 115 (110.9) 12M 115

ING forecasts (NDF)

Chris Turner, London +44 20 7767 1610

7

FX talkING

March 2012

USD/RUB
Is it taking a breath after strong rally?
37.5 35.0 32.5 30.0 27.5 25.0 Mkt NDF ING f'cast 37.5 35.0 32.5 30.0 27.5 25.0

Current spot: 29.4

• The RUB rallied in February, successfully testing our 1Q12 target
of 33.30/basket, but now moving back to the 34 level due to some correction in oil prices and sentiment switching to a risk-off mode.

• A seasonally-strong C/A surplus, fuelled by rising oil prices, and
the possible moderation in capital outflows forced the CBR to step into the FX-market more actively in February. It bought US$2.8bn in planned interventions – the biggest volume since July 2011.

• We stick to our view that under current oil prices and gradual
easing in capital outflows the basket may easily test 32.40-32.80 levels in 1H12 barring a scenario of plunging global markets. With the election cycle being over now and no deterioration in stateopposition tensions, the new cabinet structure is the only unknown variable. Yet, we don’t think it will hit capital flows.
3M 30.6 (29.7) 6M 31.0 (30.1) 12M 30.9 (30.8)

22.5 22.5 Jan08 Jul08 Jan09Jul09 Jan10 Jul10 Jan11 Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

ING forecasts (NDF)

1M 29.7 (29.5)

Dmitry Polevoy, Moscow +7 495 771 7994

USD/UAH
UAH on stable track ahead of October elections
10 9 8 7 6 5 ING f'cast Mkt NDF 10 9 8 7 6 5

Current spot: 8.02

• The relatively small decline in FX reserves by 1.0% MoM in
February should not hamper the ability of the Central Bank to control UAH stability in the near term. Our base case assumes the Central Bank will defend the hryvnia until parliamentary elections in October.

• Seasonal factors and the high grain harvest last year will stabilise
the FX market in 1H12 thus reducing the probability of UAH weakness. The risks of UAH devaluation in 4Q12 remain high on the back of an expected negative current account balance and a barely positive capital account.

4 4 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING ING forecasts (mkt fwd) 1M 8.03 (8.08)

• Gradual and controlled UAH depreciation will be the most
preferable strategy for the Central Bank in late 2012 and 2013.
3M 8.03 (8.20) 6M 8.03 (8.49) 12M 8.51 (9.39)

Alexander Pecherytsyn, Kyiv +38 044 2303017

USD/KZT
Still a low-beta play
155 150 145 140 135 130 125 120 ING f'cast Mkt NDF 155 150 145 140 135 130 125 120

Current spot: 148.0

• The KZT has been relatively resilient over the last month or so. It
gained from 148.6/USD to 147.60/USD by the end of February before stabilizing at around 148/USD recently.

• The Tenge was surprisingly immune to the overall improvement in
risk appetite and rising energy prices, which could have supported the country’s C/A surplus and overall capital flows balance.

• Recent data on net FX-reserves is supportive. They grew
US$1.7bn in February to US$34.8bn with a further increase in the National Oil Fund assets from US$45.5bn to US$47.4bn.

115 115 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• The NBK said it will limit REER volatility due to competitiveness
issues, taking into account CIS integration. The latter seems to be the case. By keeping USD/KZT steady the NBK engineered a weaker KZT vs RUB. This should continue to be the case.
3M 146.5 (148.0) 6M 147.5 (148.2) 12M 147 (148.4)

ING forecasts (mkt fwd)

1M 147 (148.0)

Dmitry Polevoy, Russia +7 495 771 7994

8

FX talkING

March 2012

USD/TRY
CBT moves from “tight” to cautious stance
2.1 Mkt Fwds 1.9 1.7 ING f'cast 1.5 1.3 1.5 1.3 1.9 1.7 2.1

Current spot: 1.78

• In February the CBT lowered its O/N lending rate by 1ppt to
11.5% (while keeping 1-week repo-policy rate at 5.75% and O/N borrowing rate at 5%) given the improving international risk appetite and a firmer TRY. The CBT’s wording also became more dovish with “tight” stance replaced with a “cautious” one.

• It is obvious that CBT’s easing bias is conditional on TRY’s lasting
strength (ie, strong inflows). The pace of reserve accumulation so far doesn’t justify a fast easing soon (CBT FX reserves stood at c.US$79.2bn as of 6 March, only US$911m higher YTD). And along with rising oil prices sentiment towards TRY remains weak.

1.1 1.1 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• We still think that downside in EUR/USD along with high oil prices
might keep TRY relatively weaker in the near term. But the CBT is likely to remain on guard against excessive moves too.

ING forecasts (mkt fwd)

1M 1.80 (1.79)

3M 1.84 (1.81)

6M 1.82 (1.84)

12M 1.72 (1.90)

Sengül Dağdeviren, Istanbul +90 212 329 0752

USD/ZAR
SARB trapped by high inflation, soft growth
11 10 9 8 7 6 Mkt Fwds ING f'cast 11 10 9 8 7 6

Current spot: 7.52

• Unlike other EM nations that are easing policy in 2012, the SARB
is somewhat trapped. Cost-push inflation has driven CPI to 6.3% YoY in January and is expected to hold above the SARB’s 3-6% CPI target range all year. That means that rate cuts are unlikely and if activity actually surprises on the upside, the market might start to price rate hikes.

• Latest activity data tends to support this view. 4Q GDP was better
than expected, private sector credit growth is picking up, as is business confidence.

5 5 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• However, South Africa’s near 4% current account deficit and high
FX traded volatility prices serve as a reminder that ZAR is highly sensitive to the external environment. Any sharp deterioration in Eurozone sentiment could easily see USD/ZAR trade 8.50 again.
3M 8.00 (7.62) 6M 8.25 (7.72) 12M 8.50 (7.93)

ING forecasts (mkt fwd)

1M 7.50 (7.56)

Chris Turner, London +44 20 7767 1610

USD/ILS
Iran is the clear and present danger
4.5 4.2 ING f'cast 3.9 3.6 3.3 Mkt Fwds 3.9 3.6 3.3 4.5 4.2

Current spot: 3.78

• The issue of Israel undertaking a unilateral strike on Iran reared
its head following PM Netanyahu’s visit to Washington. Whether Netanyahu was looking to gain permission for a strike or merely spark more hawkish rhetoric in a US election year remains to be seen. Presumably if there were a strike it would be well in advance of November US Presidential elections.

• At present major powers are re-trying negotiations with Iran. EU
sanctions kick in starting in July and G6 powers start renewed talks with Iran in April. That may deter Israel from a unilateral response, but there should be a growing risk premium in ILS.

3.0 3.0 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• With inflation under control at 2%, we suspect that Israel, like
other EM will want a weaker currency in a year when world trade growth is slowing. BoI should cut another 25-50bp, hitting ILS.

ING forecasts (mkt fwd)

1M 3.80 (3.78)

3M 3.85 (3.79)

6M 3.90 (3.79)

12M 3.90 (3.81)

Chris Turner, London +44 20 7767 1610

9

FX talkING

March 2012

Latam
USD/BRL
Focus on fighting abundant liquidity abroad
2.6 2.4 2.2 2.0 1.8 1.6 ING f'cast NDFs 2.6 2.4 2.2 2.0 1.8 1.6

Current spot: 1.78

• A less supportive risk appetite environment has hurt the BRL but
the currency is also under pressure due to renewed government efforts to prevent FX strength. Acute IP weakness is seen as direct result of the competitiveness lost due to a strong Real.

• Intervention efforts often succeed at triggering a selloff but these
tend to be short-lived. A greater focus on reducing the policy rate, as indicated by the recent bigger-than-expected rate cut, could be more effective however, at reducing the carry’s appeal.

1.4 1.4 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13
Source: Reuters, ING

• FX inflows should remain supportive as Brazil remains dependent
on external financing for longer-term projects, but the risk of additional FX measures and, more importantly, the more dovish CB, heightened materially near-term FX risks, and suggest that the BRL could underperform.
3M 1.84 (1.81) 6M 1.80 (1.84) 12M 1.75 (1.89)

ING forecasts (NDF)

1M 1.78 (1.79)

Gustavo Rangel, New York + 1 646 424 6465

USD/MXN
Locally driven MXN weakness
16.5 15.5 14.5 13.5 12.5 11.5 10.5 Mkt Fwds ING f'cast 16.5 15.5 14.5 13.5 12.5 11.5 10.5

Current spot: 12.79

• The USD/MXN was not able to break below the 12.65 despite the
relative improvement in global sentiment, but rather remained stubbornly trading north around the 12.75-12.90. We have identified two local factors behind the MXN tendency towards weaker readings and expect them to prevail.

• One, policy incentives are well aligned in favour of a weaker MXN
to cushion headwinds from any external downturn and achieve a more balanced growth story for 2012. Secondly, the MXN tends to depreciate from around the end of 1Q in an election year as local investors diversify risk abroad. Our 2012 projections reflect MXN depreciation of 5%+ vs. USD to 13.7 towards 1 July election.

9.5 9.5 Jan08 Jul08 Jan09 Jul09 Jan10Jul10 Jan11Jul11 Jan12Jul12 Jan13
Source: Reuters, ING

• Risk of a disorderly depreciation is low as fundamentals
remained intact and face no major risk ahead.
1M 13.00 (12.82) 3M 13.45 (12.88) 6M 13.60 (12.98) 12M 13.67 (13.18)

ING forecasts (mkt fwd)

Gustavo Rangel, New York + 1 646 424 6465

USD/CLP
Balance of risks remains unfavourable for the CLP
700 650 600 550 500 450 ING f'cast NDFs 700 650 600 550 500 450

Current spot: 484.23

• The CLP selloff over the past week has reduced the risk of FX
intervention noise but we continue to see the balance of risks for the currency as less favourable.

• Chile is a major oil importer, and the recent spike in oil prices has
materially dented the country’s terms of trade in recent weeks, and the currency has yet to reflect that deterioration.

• Talk of FX intervention should die down now that the USDCLP
has moved further away from the 460-470 range, which is where the currency was trading in January 2011, when BCCh announced its last USD-purchasing programme. The bank is also likely to keep the policy rate unchanged in March, for a second consecutive month. Inflation risks are not negligible while better activity data justifies a relatively neutral towards future rate action.
3M 490 (490) 6M 500 (495) 12M 485 (503)

400 400 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Source: Reuters, ING

ING forecasts (NDF)

1M 490 (487)

Gustavo Rangel, New York + 1 646 424 6465 10

FX talkING

March 2012

USD/ARS
Changes to central bank charter calls for caution
6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 ING f'cast NDFs 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5

Current spot: 4.33

• The ARS is entering seasonally favourable territory now, while the
government’s insistence on draconian measures to prevent FX outflows shows no sign of easing. In fact, changes to the CB’s charter currently being promoted by the government in Congress points to further government control over FX flows, stricter regulation of banking credit and the elimination of lingering constraints preventing the Treasury from tapping CB reserves.

• At least for the near term, BCRA has enough tools to prevent a
disorderly FX move, as those measures should be successful at curbing FX volatility and at preventing a drop in FX reserves.

2.0 2.0 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

• But we expect FX pressures to resume eventually as, over time,
the imbalances created by financial repression will become more apparent, taking a toll on economic activity.

Source: Reuters, ING

ING forecasts (NDF)

1M 4.36 (4.38)

3M 4.46 (4.49)

6M 4.67 (4.69)

12M 4.95 (5.12)

Gustavo Rangel, New York + 1 646 424 6465

11

FX talkING

March 2012

Asia
USD/CNY
Real GDP growth forecast downgrade roils markets
7.00 6.80 6.60 NDFs 6.40 6.20 6.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 6.40 6.20 6.00 7.00 6.80 6.60

Current spot: 6.3639

• PM Wen’s downgrade of the 2012 real GDP growth forecast to
7.5% from 8%, the forecast for the previous eight years, raised global growth anxiety. We consider this misplaced. GDP growth averaged 10.4% during the period when the forecast was 8%.

• We think the authorities recognise that the rapid growth of the
previous decade was transitory. We expect the 12th Five-Year Plan (2011-15) to be associated with endogenous re-balancing, including slower average real growth, regression of the current account surplus to 2% of GDP (3.8% estimated for 2011) and the profit rate to 4% of GDP (11.8% in 2011).

ING f'cast

• Official rhetoric on the CNY is that its 4.8% appreciation in 2011
put it close to fair value. Markets are priced for virtually zero appreciation this year (INGF 3.0%).

Source: Bloomberg, ING

ING forecasts (mkt fwd)

1M 6.3500 (6.3498)

3M 6.3300 (6.3680)

6M 6.3000 (6.3755)

12M 6.1700 (6.3828)

Tim Condon, Singapore +65 6232 6020

USD/INR
Oil prices pose a serious risk
52 50 48 46 44 42 40 38 Jan08 Jul08 Jan 09 Jul 09 Jan10 Jul10 Jan11 Jul11 Jan12 ING f'cast NDFs 52 50 48 46 44 42 40 38

Current spot: 48.99

• Synchronised liquidity infusion across Euro zone, UK and Japan
coupled with concerted RBI presence in the foreign exchange market has provided substantial support to the INR over the last two months.

• However, the 10% surge in crude prices recently amidst
geopolitical uncertainties has become the key risk confronting the INR. Also, global uncertainties are far from over, thereby raising doubts over the sustainability of the strength in INR.

• Higher oil prices have further limited the scope for the RBI to
adopt easy monetary policy stance anytime soon. We expect RBI to maintain a pause in the forthcoming meeting. However, tight liquidity conditions may force the RBI to reduce the reserve requirement ratio by 50bp.
3M 51.00 (51.10) 6M 49.50 (51.81) 12M 48.50 (52.98)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 50.50 (50.46)

Upasna Bhardwaj, India, +91 22 3309 5718

USD/IDR
IDR – An Asian underperformer
13000 12000 11000 10000 9000 8000 ING f'cast NDFs 13000 12000 11000 10000 9000 8000 7000

Current spot: 9138

• Bank Indonesia surprised by cutting its policy rates by 25bp in
February. Despite the below-expected February CPI inflation BI remained on hold in March.

• We think BI anticipates an inflation spike from oil. The government
is contemplating raising administered fuel prices and BI officials estimate that a proposed 1,500/liter price hike would add as much as 2.4ppt to headline inflation, which could put it above BI’s 3.55.5% target.

7000 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

• We think BI operates a low-discretion exchange rate policy that
relies more on markets and less on its balance sheet to absorb pressure from hot money. This makes the IDR an underperformer among Asian FX. In risk-on we expect long-dated government bonds, not the IDR, to be the better trade.
3M 9100 (9210) 6M 9100 (9318) 12M 9100 (9547)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 9100 (9154)

Tim Condon, Singapore +65 6232 6020 12

FX talkING

March 2012

USD/KRW
KRW’s VIX currency status temporarily suspended
1600 1500 1400 1300 1200 1100 1000 ING f'cast NDFs 1600 1500 1400 1300 1200 1100 1000 900

Current spot: 1118.3

• The KRW has long been Asia’s VIX currency; it outperforms
among Asian FX in risk-on and vice versa. High short-term external debt conferred the VIX status on the KRW.

• De-leveraging after the GFC reduced banks’ short-term external
debt. Anemic domestic demand restrains banks’ need to finance asset growth by offshore borrowing. And when they borrow, macroprudential policies encourage it to be long term. These have temporarily suspended the KRW’s VIX status. We expect it will come back when the credit cycle heats up.

900 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

• The BOK’s heavy smoothing/sterilization policy coupled with the
KRW’s undervaluation make it, with MYR, SGD and THB, top picks in risk-on. We expect this group to underperform TWD and CNY in risk-off and outperform IDR, INR and PHP.
3M 1120.0 (1126.0) 6M 1120.0 (1131.3) 12M 1120.0 (1138.6)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 1120.0 (1121.6)

Tim Condon, Singapore +65 6232 6020

USD/MYR
BNM-BOJ parallels
3.90 3.70 3.50 3.30 3.10 2.90 ING f'cast NDFs 3.90 3.70 3.50 3.30 3.10 2.90 2.70

Current spot: 3.0155

• We see a parallel between the Bank of Japan and Bank Negara
Malaysia in that both central banks maintain tight monetary conditions to reduce the threat of macro instability from loose fiscal policy. Tight monetary conditions increase the likelihood that a nominal shock like the GFC turns into slower trend real GDP growth. Malaysia’s RGDP growth fell short of the 6.0% pre-GFC trend rate in seven of eight quarters since 2010.

• Because of the monetary policy parallel, the adage “never sell a
JGB” applies to Malaysian government bonds.

2.70 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

• BNM is a heavy smoother/sterilizer and manages USD/MYR with
an eye on SGD/MYR, which we think it likes in a 2.35-2.45 range (latest 2.40). MYR is in the group we think will outperform in riskon and in risk-off will outperform IDR, INR and PHP.
3M 3.0000 (3.0305) 6M 2.9880 (3.0428) 12M 2.9568 (3.0635)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 3.0120 (3.0210)

Tim Condon, Singapore +65 6232 6020

USD/PHP
The light is green for more BSP rate cuts
50.00 48.00 46.00 44.00 42.00 NDFs 50.00 48.00 46.00 44.00 42.00 40.00

Current spot: 42.65

• The BSP, as expected, cut by another 25bp in March. It now has
clawed back the 50bp of hikes of early 2011, which were in response to the rise in headline inflation from the Arab spring oil price increase.

• February CPI inflation was 2.7% YoY, the lowest since October
2009 and well below the 3.3% consensus forecast. The dark clouds in the silver lining were the large, oil-related sequential increases in the utilities and transport components.

ING f'cast

40.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

• The BSP might hike if oil causes inflation to accelerate. However,
we think it will cut further if oil prices don’t rise rapidly. We expect long-dated local fixed income rather than the PHP to be the top performing asset in risk-on. A lack of interest rate cover is behind our view that PHP will underperform in risk-off.
3M 42.40 (42.79) 6M 43.25 (42.94) 12M 42.00 (43.12)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 42.70 (42.71)

Tim Condon, Singapore +65 6232 6020

13

FX talkING

March 2012

USD/SGD
High inflation despite the strong Sing $
1.60 1.50 1.40 1.30 1.20 Fwds ING f'cast 1.60 1.50 1.40 1.30 1.20 1.10

Current spot: 1.2566

• January CPI inflation was 4.8% YoY and 0.9% MoM NSA. The
seasonal spike in food prices was expected. However, the large sequential increases in the accommodation, healthcare and education components will keep headline inflation elevated for some time. Core inflation accelerated to 3.5% from 2.6%.

• We think the data will worry the MAS. Despite appreciating the
Sing $ by over 8% in 2011 – the most in Asia – inflation was over 5%. The January CPI data indicated the man in the street thinks inflation is high.

1.10 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

• We think the MAS will consider the safest course would be to
maintain policy unchanged in April and we no longer forecast a move to a zero S$-NEER appreciation path. The SGD is among the currencies we expect will outperform in risk-on.
3M 1.2500 (1.2563) 6M 1.2450 (1.2555) 12M 1.2320 (1.2534)

Source: Bloomberg, ING Bank

ING forecasts (mkt fwd)

1M 1.2550 (1.2565)

Tim Condon, Singapore +65 6232 6020

USD/TWD
CBC looking to claw back TWD’s appreciation vs. JPY
37.00 35.00 33.00 31.00 29.00 ING f'cast 37.00 35.00 33.00 31.00 29.00 27.00

Current spot: 29.50

• We think the BOJ’s surprise easing in mid-February caught the
CBC by surprise. We view the CBC as targeting JPY/TWD by intervening in USD/TWD. It responds to sudden moves in USD/JPY by stabilizing USD/TWD. This resulted in TWD appreciating against JPY by the same 4% as USD.

• We believe the CBC increased accommodation during the 3Q11
panic associated with the US debt ceiling crisis by depreciating TWD vs JPY. We expect it will use USD/JPY stability to claw back TWD’s recent appreciation vs JPY (latest 0.3661).

NDFs

27.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13

• Core inflation is negative and headline inflation is near zero.
Taiwan poses a conundrum: the bond market is saying that GDP growth has slowed but real GDP growth looks, if anything, stronger since the GFC. We think deflation has intensified.
3M 29.80 (29.43) 6M 30.00 (29.35) 12M 30.00 (29.15)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 29.60 (29.49)

Tim Condon, Singapore +65 6232 6020

USD/THB
Activity snaps back from the flood damage
38.00 36.00 34.00 32.00 30.00 ING f'cast 28.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 28.00 Fwds 38.00 36.00 34.00 32.00 30.00

Current spot: 30.61

• Industrial production continued to snap back from the 4Q11 flood
damage. The contrast with the slow recovery from the GFC illustrates that real shocks are easier to recover from than demand shocks. Producers don’t need to worry about being able to sell their output after a supply shock so they quickly restore capacity.

• Tight money can turn transitory losses from a real or a demand
shock into permanent ones and slow potential RGDP growth. This may be happening. The fall in NGDP in 4Q11 was the steepest on record, despite the steeper fall in RGDP in the 97-98 Asian crisis.

• We think tight BOT monetary policy imparts downside risk to real
GDP growth forecasts and to government bond yield forecasts. We reiterate our 3.20% yearend forecast for the 10-year government bond yield (latest 3.43%).

Source: Bloomberg, ING Bank

ING forecasts (mkt fwd)

1M 30.70 (30.69)

3M 30.50 (30.80)

6M 30.00 (30.96)

12M 30.00 (31.24)

Tim Condon, Singapore +65 6232 6020

14

FX talkING

March 2012

ING foreign exchange forecasts
EUR cross rates Developed FX EUR/USD EUR/JPY EUR/GBP EUR/CHF EUR/NOK EUR/SEK EUR/DKK EUR/CAD EUR/AUD EUR/NZD EMEA EUR/PLN EUR/HUF EUR/CZK EUR/RON EUR/HRK EUR/RSD EUR/RUB EUR/UAH EUR/KZT EUR/TRY EUR/ZAR EUR/ILS Latam EUR/BRL EUR/MXN EUR/CLP EUR/ARS Asia EUR/CNY EUR/HKD EUR/IDR EUR/INR EUR/KRW EUR/MYR EUR/PHP EUR/SGD EUR/TWD EUR/THB
Source: Reuters, ING

Spot 1.33 108.0 0.84 1.21 7.40 8.89 7.435 1.32 1.25 1.61 4.11 294 24.8 4.36 7.56 111 39.0 10.55 194.5 2.36 9.97 5.01 2.36 16.95 643 5.75

1M 1.27 104 0.82 1.20 7.40 8.80 7.430 1.26 1.18 1.53 4.15 300 25.3 4.35 7.57 111 37.7 10.2 186.7 2.3 9.5 4.8 2.3 16.5 622.3 5.5

3M 1.22 101 0.80 1.20 7.30 8.70 7.425 1.20 1.13 1.47 4.17 290 25.5 4.30 7.57 112 37.3 9.8 178.7 2.2 9.8 4.7 2.2 16.4 597.8 5.4

6M 1.22 104 0.77 1.20 7.60 9.10 7.420 1.22 1.16 1.51 4.30 286 25.3 4.25 7.56 115 37.9 9.8 180.0 2.2 10.1 4.8 2.2 16.6 610.0 5.7

12M USD cross rates 1.30 114 0.75 1.20 7.90 9.40 7.445 1.33 1.30 1.67 4.10 280 24.9 4.25 7.58 115 40.1 11.1 191.1 2.2 11.1 5.1 2.3 17.8 630.5 6.4

Spot

1M

3M

6M

12M

USD/JPY GBP/USD USD/CHF USD/NOK USD/SEK USD/DKK USD/CAD AUD/USD NZD/USD USD/PLN USD/HUF USD/CZK USD/RON USD/HRK USD/RSD USD/RUB USD/UAH USD/KZT USD/TRY USD/ZAR USD/ILS USD/BRL USD/MXN USD/CLP USD/ARS

81.4 1.58 0.91 5.58 6.70 5.606 0.993 1.061 0.823 3.10 221.4 18.7 3.28 5.69 83.4 29.4 8.02 148 1.78 7.52 3.78 1.78 12.79 485 4.33 6.32 7.76 9130 50.17 1117 3.01 42.55 1.25 29.5 30.6

82 1.55 0.94 5.83 6.93 5.85 0.99 1.08 0.83 3.27 236 19.92 3.43 5.96 87.40 29.7 8.03 147 1.80 7.50 3.80 1.78 13.00 490 4.36 6.30 7.76 9100 50.50 1120 3.01 42.7 1.26 29.6 30.7

83 1.53 0.98 5.98 7.13 6.09 0.98 1.08 0.83 3.42 238 20.90 3.52 6.20 91.80 30.6 8.03 146.5 1.84 8.00 3.85 1.84 13.45 490 4.46 6.27 7.76 9100 51.00 1120 3.00 42.4 1.25 29.8 30.5

85 1.58 0.98 6.23 7.46 6.08 1.00 1.05 0.81 3.52 234 20.74 3.48 6.20 94.26 31.0 8.03 147.5 1.82 8.25 3.90 1.80 13.60 500 4.67 6.22 7.76 9100 49.50 1120 2.99 43.25 1.25 30.0 30.0

88 1.73 0.92 6.08 7.23 5.73 1.02 1.00 0.78 3.15 215 19.15 3.27 5.83 88.46 30.9 8.51 147 1.72 8.50 3.90 1.75 13.67 485 4.95 6.13 7.76 9100 48.50 1120 2.96 42.0 1.23 30.0 30.0

8.37 8.0 7.6 7.6 8.0 USD/CNY 10.29 9.9 9.5 9.5 10.1 USD/HKD 11927 11557.0 11102.0 11102.0 11830.0 USD/IDR 66.53 64.1 62.2 60.4 63.1 USD/INR 1481 1422.4 1366.4 1366.4 1456.0 USD/KRW 3.99 3.8 3.7 3.6 3.8 USD/MYR 56.4 54.2 51.7 52.8 54.6 USD/PHP 1.66 1.6 1.5 1.5 1.6 USD/SGD 39.1 37.6 36.4 36.6 39.0 USD/TWD 40.5 39.0 37.2 36.6 39.0 USD/THB

15

FX talkING

March 2012

FX derivatives idea
Using a Butterfly Plus Call Strategy to hedge EUR/RUB upside
Protecting against a RUB sell-off with a nine month options hedge
Spot ref: 38.95. Nine month forward ref: 40.50. Vladimir Putin has just won a third term as Russian President. So far opposition demonstrations have not been large enough to seriously threaten Putin’s grasp on power. While tensions look set to remain, our base case assumes that politics will not lead to large scale capital flight and that firm oil prices can see the RUB appreciating towards the 32.40/32.80 area against the EUR:RUB basket. Based on our EUR/USD forecasts, that would put EUR/RUB not too far away from current spot levels at the end of the year. But what would happen if opposition demonstrations grew in number and the Putin administration employed far more aggressive measures to crack down on the opposition? We propose an options hedging strategy that protects the corporate with RUB receivables against a sharp sell off in the RUB, but allows the corporate to partially benefit if the RUB continues to strengthen modestly. Strategy: Butterfly Plus Call: All legs in this option structure are nine month maturities and this structure is zero cost. Client buys EUR put/RUB call, strike 39.00 in EUR 10 million notional. Client sells EUR put/RUB call, strike 40.50 in EUR 10 million notional. Client sells EUR call/RUB put, strike 40.50 in EUR 10 million notional. Client buys EUR call/RUB put, strike 42.00 in EUR 20 million notional.

Rationale

• This strategy is effectively a butterfly position around a 40.50 EUR/RUB central pair of strikes, with the outer boundaries at 39.00 and 42.00.
Thus the potential maximum cost of this structure is 1.5 RUB big figures. This structure allows the corporate to participate if EUR/RUB spot grinds lower through the year, but limits the worst case rate to sell RUB should political unrest deliver massive capital flight – not our base case. The worst case rate to sell RUB would be 43.50 – ie, the top strike at 42.00 plus the 1.5 big figure maximum cost of the structure, given spot would be trading away from the 40.50 central strikes.

• As an alternative, a corporate could just buy a nine month EUR call/RUB put at 42.00, which would cost 1.07 RUB big figures. The worst
case effective hedge rate then becomes 43.07. Our graph below highlights the relative trade off of using: a) the Butterfly Plus Call strategy, b) purely a 42.00 EUR/RUB call or c) merely hedging at the prevailing forward of 40.50. Chris Turner, London +44 20 7767 1610
For more detailed discussions on corporate FX hedging strategies, prices and other trade specific requirements, please contact in the first instance your local FX Trading and Sales teams or the following; Alexander Schreuder Goedheijt, Fahd El Habti and Michel Hensen, Product Specialists/FX Derivatives FM Sales Amsterdam +31 20 563 8171

Using a Butterfly Plus Call Strategy to hedge EUR/RUB upside

45
Effective Hedge Rate

44 43 42 41 40 39 38 37 37.5 38 38.5 39 39.5 40 40.5 41 41.5 42 42.5 43 43.5 44 44.5 45 Spot at Expiry Butterfly Plus Call Call Forward

Source: ING

16

FX talkING

March 2012

Research analyst contacts
Developed Markets London Mark Cliffe Rob Carnell James Knightley Chris Turner Tom Levinson Amsterdam Maarten Leen Martin van Vliet Teunis Brosens Dimitry Fleming Padhraic Garvey Jeroen van den Broek Mark Harmer Maureen Schuller Alessandro Giansanti Max Castle Job Veenendaal Roelof-Jan van den Akker Brussels Peter Vanden Houte Carsten Brzeski Manuel Maleki Julien Manceaux Paolo Pizzoli Title Global Head of Financial Markets Research Chief International Economist Senior Economist, UK, US $ Bloc Head of Foreign Exchange Strategy Foreign Exchange Strategist Principal Economist Senior Economist, Eurozone Senior Economist, US Senior Economist, Netherlands Global Head of Developed Markets Debt Strategy Head of Developed Markets Credit Strategy Head of Developed Markets Credit Research Senior Credit Strategist Senior Rates Strategist Credit Analyst Quantitative Strategist Technical Analyst Chief Economist, Belgium, Eurozone Senior Economist, Germany, Eurozone Senior Economist, France Economist, Belgium, Switzerland Senior Economist, EMU, Italy, Greece Title Global Head of Emerging Markets Strategy Chief Economist, Brazil, Argentina, Chile, Peru Head of Research & Chief Economist, EMEA Economist, Bulgaria, Croatia Senior Economist, Czech Republic Senior Economist, Hungary Economist, India Economist, Mexico Economist, Mexico Economist, Philippines Chief Economist, CEE Senior Economist, Poland Economist, Poland Economist, Romania Junior Economist, Romania Economist, Russia & Kazakhstan Senior Credit Analyst Head of Research & Chief Economist, Asia Economist, Asia Senior Economist, Slovakia Head of Research & Chief Economist, Turkey Senior Economist, Turkey Economist, Turkey Head of Research, Ukraine Financial Markets Research Analyst Telephone Email +44 20 7767 6283 mark.cliffe@uk.ing.com +44 20 7767 6909 rob.carnell@uk.ing.com +44 20 7767 6614 james.knightley@uk.ing.com +44 20 7767 1610 christopher.turner@uk.ing.com +44 20 7767 8057 tom.levinson@uk.ing.com +31 20 563 4406 +31 20 563 9528 +31 20 563 6167 +31 20 563 9497 +31 20 563 8955 +31 20 563 8959 +31 20 563 8964 +31 20 563 8941 +31 20 563 8801 +31 20 563 8815 +31 20 563 8956 +31 20 563 8178 +32 2 547 8009 +32 2 547 8652 +32 2 547 3995 +32 2 547 3350 maarten.leen@ing.nl martin.van.vliet@ing.nl teunis.brosens@ing.nl dimitry.fleming@ing.nl padhraic.garvey@ingbank.com jeroen.van.den.broek@ingbank.com mark.harmer@ingbank.com maureen.schuller@ingbank.com alessandro.giansanti@ingbank.com max.castle@ingbank.com job.veenendaal@ingbank.com roelof-jan.van.den.akker@ingbank.com peter.vandenhoute@ing.be carsten.brzeski@ing.be manuel.maleki@ing.be julien.manceaux@ing.be

Milan

+39 02 89629 3630 paolo.pizzoli@ing.it Telephone +1 646 424 6464 +1 646 424 6465 Email david.spegel@americas.ing.com gustavo.rangel@americas.ing.com

Emerging Markets New York London Bulgaria H David Spegel Gustavo Rangel Simon Quijano-Evans Elena Ganeva

+44 20 7767 5310 simon.quijano@uk.ing.com +359 2 917 6720 elena.ganeva@ingbank.com

Czech Rep Vojtech Benda Hungary India Mexico David Nemeth Upasna Bhardwaj Debora Luna Ezequiel Garcia

+420 2 5747 4432 vojtech.benda@ing.cz +36 1 255 5581 nemeth.david@ing.hu

+91 22 3309 5718 upasna.bhardwaj@ingvysyabank.com +52 55 5258 2095 debora.luna@americas.ing.com +52 55 5258 2064 ezequiel.garcia@americas.ing.com +632 479 8855 +48 22 820 4698 +48 22 820 4696 +48 22 820 4608 +40 21 209 1393 +40 21 209 1290 +7 495 771 7994 +7 495 755 5480 +65 6232 6020 +65 6232 6181 joey.cuyegkeng@asia.ing.com mateusz.szczurek@ingbank.pl rafal.benecki@ingbank.pl grzegorz.ogonek@ingbank.pl vlad.muscalu@ing.ro ana.morarescu@ing.ro dmitry.polevoy@ingbank.com egor.fedorov@ingbank.com tim.condon@asia.ing.com prakash.sakpal@asia.ing.com

Philippines Joey Cuyegkeng Poland Mateusz Szczurek Rafal Benecki Grzegorz Ogonek Vlad Muscalu Ana-Maria Morărescu Dmitry Polevoy Egor Fedorov

Romania Russia

Singapore Tim Condon Prakash Sakpal Slovakia Turkey Eduard Hagara Sengül Dağdeviren Muhammet Mercan Ömer Zeybek Alexander Pecherytsyn Halyna Antonenko

+421 2 5934 6392 eduard.hagara@ing.sk +90 212 329 0752 sengul.dagdeviren@ingbank.com.tr +90 212 329 0751 muhammet.mercan@ingbank.com.tr +90 212 329 0753 omer.zeybek@ingbank.com.tr +38 044 230 3017 alexander.pecherytsyn@ingbank.com +38 044 590 3584 halyna.antonenko@ingbank.com

Ukraine

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March 2012

Disclosures Appendix
ANALYST CERTIFICATION The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. IMPORTANT DISCLOSURES Company disclosures are available from the disclosures page on our website at http://research.ing.com. The remuneration of research analysts is not tied to specific investment banking transactions performed by ING Group although it is based in part on overall revenues, to which investment banking contribute. Securities prices: Prices are taken as of the previous day’s close on the home market unless otherwise stated. Conflicts of interest policy. ING manages conflicts of interest arising as a result of the preparation and publication of research through its use of internal databases, notifications by the relevant employees and Chinese walls as monitored by ING Compliance. For further details see our research policies page at http://research.ing.com. FOREIGN AFFILIATES DISCLOSURES Each ING legal entity which produces research is a subsidiary, branch or affiliate of ING Bank N.V. See back page for the addresses and primary securities regulator for each of these entities.

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AMSTERDAM
Tel: 31 20 563 9111 Bratislava Tel: 421 2 5934 6111 Bucharest Tel: 40 21 222 1600 Budapest Tel: 36 1 235 8800 Buenos Aires Tel: 54 11 4310 4700 Dublin Tel: 353 1 638 4000
Amsterdam Bratislava Brussels Bucharest Budapest Istanbul Kiev London Manila Mexico City Milan Moscow Mumbai New York Prague Singapore Sofia Warsaw

BRUSSELS
Tel: 32 2 547 2111 Geneva Tel: 41 22 593 8050 Hong Kong Tel: 852 2848 8488 Istanbul Tel: 90 212 329 0752 Kiev Tel: 380 44 230 3030 Madrid Tel: 34 91 789 8880

LONDON
Tel: 44 20 7767 1000 Manila Tel: 63 2 479 8888 Mexico City Tel: 52 55 5258 2000 Milan Tel: 39 02 89629 3610 Moscow Tel: 7 495 755 5400 Paris Tel: 33 1 56 39 32 84

NEW YORK
Tel: 1 646 424 6000 Prague Tel: 420 2 5747 4111 Sao Paulo Tel: 55 11 4504 6000 Seoul Tel: 82 2 317 1800 Shanghai Tel: 86 21 6841 3355 Sofia Tel: 359 2 917 6400

SINGAPORE
Tel: 65 6535 3688 Taipei Tel: 886 2 2734 7600 Tokyo Tel: 81 3 5210 0100 Warsaw Tel: 48 22 820 5018

Research offices: legal entity/address/primary securities regulator
ING Bank N.V., Foppingadreef 7, Amsterdam, Netherlands, 1102BD. Netherlands Authority for the Financial Markets ING Bank N.V., pobocka zahranicnej banky, Jesenskeho 4/C, 811 02 Bratislava, Slovak Republic. National Bank of Slovakia ING Belgium S.A./N.V., Avenue Marnix 24, Brussels, Belgium, B-1000. Financial Services and Market Authority (FSMA) ING Bank N.V. Amsterdam - Bucharest Branch, 11-13 Kiseleff Avenue, 011342, Bucharest 1, Romania. Romanian National Securities and Exchange Commission, Romanian National Bank ING Bank N.V. Hungary Branch, Dozsa Gyorgy ut 84\B, H - 1068 Budapest, Hungary. Hungarian Financial Supervisory Authority ING Bank A.S., ING Bank Headquarters, Resitpasa Mahallesi Eski Buyukdere Cad. No: 8, 34467 Sariyer, Istanbul , Turkey. Capital Markets Board ING Bank Ukraine JSC, 30-a, Spaska Street, Kiev, Ukraine, 04070. Ukrainian Securities and Stock Commission ING Bank N.V. London Branch, 60 London Wall, London EC2M 5TQ, United Kingdom. Authorised by the Dutch Central Bank ING Bank N.V. Manila Branch, 20/F Tower One, Ayala Triangle, Ayala Avenue, 1226 Makati City, Philippines. Philippine Securities and Exchange Commission ING Grupo Financiero (México) SA de CV, Bosque de Alisos 45-B, Piso 4, Bosques de las Lomas, 05120, Mexico City, Mexico. Comision Nacional Bancaria y de Valores ING Bank N.V. Milano, Via Paleocapa, 5, Milano, Italy, 20121. Commissione Nazionale per le Società e la Borsa ING BANK (EURASIA) ZAO, 36, Krasnoproletarskaya ulitsa, 127473 Moscow, Russia. Federal Financial Markets Service ING Vysya Bank Limited, Plot C-12, Block-G, 7th Floor, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051, India. Securities and Exchange Board of India ING Financial Markets LLC, 1325 Avenue of the Americas, New York, United States,10019. Securities and Exchange Commission ING Bank N.V. Prague Branch, Nadrazni 25, 150 00 Prague 5, Czech Republic. Czech National Bank ING Bank N.V. Singapore Branch, 19/F Republic Plaza, 9 Raffles Place, #19-02, Singapore, 048619. Monetary Authority of Singapore ING Bank N.V. Sofia Branch, 49B Bulgaria Blvd, Sofia 1404 Bulgaria. Financial Supervision Commission ING Bank Slaski S.A, Plac Trzech Krzyzy, 10/14, Warsaw, Poland, 00-499. Polish Financial Supervision Authority

Disclaimer
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FM

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