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Chart 23: AUD fell post US elections... Chart 24: ...GBP has held up so far but article 50 looms in Q1 0.8 1.55 078 18 == AUD/USD 1.45 0.76 1.4 0.74 1.35 0.72 1.3 07 1.25 19 ——GBP/USD 0.68 oOo mM mM © © © © © © © © © © oO 4.15 ; Sea SPS eA aEeS SSR aR R283 958 3 Source: Bloomberg Source: Bloomberg Today we add a CNH put (expressed as a USD/CNH call at 7.6 strike) partly because it fits with our positive USD call but also because it is a potential hedge against the trade rhetoric of the new administration descending into something more meaningful. Given the stated intent to declare the Chinese as currency manipulators and the concern that our currency strategists already have about the amount of reserves the Chinese hold, it is not impossible to imagine a much weaker CNY/CNH should the Chinese authorities allow a free float. We see this as a sensible hedge against our long EM equity position. Chart 25: CNH continues to weaken, risk of more on trade tensions? Chart 26: RUB/ZAR choppy on oil and SA politics 6.9 0.25 —— CNH/USD 68 0.24 ay 0.23 6.6 0.22 6.5 0.21 64 0.2 a8 ——RUB/ZAR 6.2 0.19 Ke) Ww Ke) io} ico} ico} io} ico} io} ico} io) oO oO LO LO LO ico} ico} io} io} ico} ico} oO oO oO io) io) Source: Bloomberg Source: Bloomberg We have two other standalone currency trades, short EUR/SEK and long RUB/ZAR. The former has dropped as the EUR has weakened against the USD. We continue to think that the Swedish economy is more robust than the Eurozone and that the Riksbank will sooner or later have to adjust monetary policy accordingly. We see a lot more room for this pair to move in 2017, particularly if there are political concerns ahead of the French presidential elections as these will likely weigh on the EUR. RUB/ZAR has been quite erratic since we re-established the trade, reflecting both volatility in the oil price and developments in South African politics. The latest no confidence vote against President Zuma underlines how tricky South African politics are at the moment. Concerns will remain on the economic progress of the country until the political situation becomes clearer. In the meantime we expect a higher risk premium to be associated with the currency. 14 Global Cross Asset Strategy - Year Ahead | 30 November 2016 Bankof America # Merrill Lynch HOUSE_OVERSIGHT_014445