Westpac: The ‘quantamental’ forecaster

Robert Rennie at Westpac

During one of the most challenging years in which to predict the direction of major currencies, Westpac's head of currency strategy, Robert Rennie, puts the bank's success down to an approach he describes as ‘quantamental' – the process of bringing together strong fundamental macroeconomic research and quantitative techniques to highlight market direction and trading opportunities.

How would you characterise Westpac's business strategy in foreign exchange?
Robert Rennie (RR): We are the leading Australian bank in FX and aspire to be a global leader in the provision of Australian and New Zealand dollar FX services. Outside of Australia and New Zealand, Asia is seen as a deeply important area and we have invested in the people, infrastructure and balance sheet to enable us to compete in Asian markets. We offer a range of deliverable and non-deliverable currencies from our Asian offices, and we are attracting new clients in the region, particularly among those that are led by trade. A unique selling point as an Australian bank is that we have been able to watch developments in Europe from the outside and, for a long time, we have had a very strong sense that European banks would need to undergo a serious deleveraging process. Given they are such large owners of Asian assets, and key providers of liquidity into Asia, we see deleveraging as an opportunity for us to step up to the mark.

Accurate currency forecasting has become increasingly challenging over the past year as a result of volatile markets and the growing role of politics in driving currencies. How have you navigated this period?
RR: The first half of 2011 was all about the weakness of the US dollar, partly as a result of quantitative easing (QE), which was widely expected to debase the dollar to the benefit of all other major currencies, including the euro and the Swiss franc. Our approach was to cut through the hype and optimism around QE and look in much closer detail at the potential implications of the European sovereign crisis. During the third quarter, we took the view that a real confidence shock was coming for the eurozone and we became much more downbeat on the outlook for European growth. It was that concentration on the longer-term implications of the eurozone crisis that resulted in our accurate forecasts on EUR/USD.

Westpac also scored well for its three-month forecasts on the Swiss franc. What do you think was your winning edge in those forecasts?
RR: The intervention by the Swiss National Bank in September was one of the most dramatic events in FX in 2011, and it really changed the picture of risk. In the lead-up to that event, we were very quick to recommend to our clients in mid-July that they should go long USD/CHF. At that time, we saw that some of the world's core safe havens – the Swiss franc and the yen – were being removed through aggressive intervention, which would make markets inherently more risky and volatile, adding to the pressure for deleveraging. It was that realisation early on that benefited our Swiss franc forecasts.

Have you seen much change to the way in which clients use your research in these challenging markets?
RR: We are seeing increasing client interest in our observations on trade activity and trade finance. Clients see us as having a deep understanding of what drives trade, both in Asia and globally.

Where do you see the euro heading in 2012?
RR: Westpac maintains a negative outlook for European growth in 2012. We have a central forecast of –1%, with risk to the downside increasing the longer the European Central Bank delays on a move towards formal QE. While the euro will be prone to periods of positioning-based strength, we stick with our long-held view of a low of 1.20 for EUR/USD.

You need to sign in to use this feature. If you don’t have a FX Markets account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: