FX Watch Asian FX recovery to last?
Group Economics Macro & Financial Markets Research Roy Teo +65 6597 8616 Arjen van Dijkhuizen, +31 20 628 8052
9 October 2015 • • • • • •
Less bearish on Asian currencies as cautious Fed supports Asian currencies temporarily Asian central banks likely to ease monetary policy to support and re-inflate economy… …reducing Asian currencies’ carry attractiveness Our new year-end forecast for USD/CNY are 6.40 (2015) and 6.55 (2016), respectively Weaker euro, Chinese yuan and Japanese yen will weigh on Asian economies’ exports price competitiveness Indonesian rupiah to underperform other Asian currencies
Cautious Fed to support sentiment in Asian currencies
THB forecasts downgraded
Asian currencies have recovered after the US jobs report on 2
We now expect the Thai baht (THB) to depreciate further to
October, which revealed that non-farm payrolls were weaker
36.8 against the US dollar (from previous forecast of 36.4).
than expected in August and September. We now expect the
Our more bearish view on the THB is due to continued
US Federal Reserve to delay tightening monetary policy until
sluggish consumer and business confidence which will weigh
June 2016 (from December 2015). This should support
on economic growth and leads to rising risks for the banking
sentiment in Asian currencies in the coming weeks. Hence we
sector (higher NPLs). Political uncertainty will remain a
have become less bearish on Asian currencies, with the
headwind to foreign investors inflows. In addition, a weaker
exception of the Thai baht (THB).
THB is needed to support exports and re-inflate the economy. Furthermore, we think that it is unlikely that the Bank of
Recovery in Asian currencies temporary
Thailand (BoT) will support the THB aggressively given that FX
We expect the current recovery in Asian currencies to be
reserves are now about 10% lower than during the Fed
temporary for the following reasons. Reduced fears of capital
tapering dry run in mid-2013. The BoT could even aim at
outflows from Asian economies will allow more flexibility for
replenishing its FX reserves in the coming months. If market
Asian central banks to ease monetary policy to support the
conditions are conducive in the coming months, a rate cut to
economy. This will reduce Asian currencies’ carry
stimulate the economy is also likely.
attractiveness. In addition, a stronger currency is not likely to be welcomed given the current weak exports and inflation
IDR to underperform other Asian FX
dynamics in most Asian economies. A slowing Chinese
We expect the Indonesian rupiah (IDR) to underperform other
economy (we forecast economic growth of 6.5% in 2016,
Asian currencies well into 2016. Indonesia’s external
versus around 7% this year) will provide less support to Asian
imbalances, low real short term interest rates and weak
exports. Last but not least, a weaker euro, Chinese yuan and
economic fundamentals persist. We also expect Bank
Japanese yen will weigh on Asian exports competitiveness.
Indonesia to replenish its foreign currency reserves which have declined by about 10% this year.
Chinese yuan at equilibrium; no depreciation? The People’s Bank of China (PBoC) determination to support the Chinese yuan, after the August yuan devaluation caused widespread market turmoil, and our more cautious Fed view have made us less bearish on the yuan. However, we still expect some depreciation, as a weaker yuan helps to inflate the economy and support exports. Our 2015 and 2016 year end USD/CNY forecasts are now 6.40 (from 6.55) and 6.55 (from 6.75). We expect the offshore yuan (CNH) divergence with the onshore yuan (CNY) to be minimal in the coming months as financial markets sentiment improve. However the CNH discount to the CNY will widen next year due to a slower Chinese economy and tighter monetary policy in the US, which is not yet fully priced in.
Asian FX forecasts 09-Oct Q4 2015 Q1 2016 USD/CNY (onshore) 6.35 6.40 6.45 USD/CNH (offshore) 6.34 6.40 6.47 USD/INR 65.1 65 66 USD/KRW 1,159 1,190 1,200 USD/SGD 1.40 1.44 1.46 USD/THB 35.69 36.80 37.00 USD/TWD 32.70 33.00 33.50 USD/IDR 13,478 14,300 14,500 Source: ABN AMRO Group Economics
Q2 2016 6.50 6.53 66 1,220 1.48 37.20 33.70 14,800
Q3 2016 6.55 6.57 67 1,230 1.50 37.50 33.80 14,900
Q4 2016 6.55 6.57 67 1,240 1.50 38.00 34.00 15,000
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FX Watch - Asian FX recovery to last? - 9 October 2015
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