Revenue in 2014 from taxation of pension returns and early taxation of capital pension schemes looks set to beat the Danish government's estimates by a fair margin.
That will drain DKK liquidity temporarily towards the end of the year and early next year, roughly estimated by DKK25bn amounting to 10% of the current base, weighing further on the already low EUR/DKK.
If Danmarks Nationalbank (DN) has made FX intervention purchases in September, a unilateral rate cut has moved closer. September's FX reserve to be released on Thursday will provide important information on this. We expect DN to cap EUR/DKK downside with a 10bp rate cut before year-end.
We target EUR/DKK spot at 7.4475 on 1M and 3M and 7.4450 on 6M and 12M and EUR/DKK 3M and 12M forward outright at 7.4460 and 7.4415 on 3M and 7.4445 and 7.4400 on 12M, respectively, unchanged from our latest FX Forecast Update.
Danish pension funds with a hedging mandate should hedge their euro exposure in the longer dated EUR/DKK FX forwards, i.e. from 4Y and beyond.
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