EM FX Weekly
Group Economics Macro & Financial Markets Research
05 November 2015
Lira and ruble stand out Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
• Turkish lira strongly outperforms on lower political uncertainty… • …and investor sentiment towards the ruble also improved • Positive Chinese data and improving inflation outlook support Asian FX • Widening CNH discount to CNY to trigger response from PBoC
Georgette Boele Co-ordinator FX & Precious Metals Strategy
Turkish lira strongly outperforms on lower political uncertainty…
Tel: +31 20 629 7789
Despite firmer short term yields in the US on the back of rising rate expectations,
georgette.boele@nl.abnamro.com
emerging market currencies had a mixed outlook in the past week. The surprising
Peter de Bruin Senior Economist
election outcome in Turkey, a majority for the ruling party AKP, resulted in a strong rally in the Turkish lira. This is mainly because financial markets welcomed the prospect of lower
Tel: +31 20 343 5619
political uncertainty. However, challenges remain. It is now likely that President Erdogan
peter.de.bruin@nl.abnamro.com
will attempt to change the constitution in order to strengthen the role of the Presidency and increase his political power. In addition, there are fears that the independence of the central bank will be curbed. An abrupt change in investor sentiment is another important challenge for the Turkish lira and the Turkish economy. A rate hike by the Fed could result in capital outflows, while inflows are needed to finance its substantial current account deficit. In short, sentiment may be positive currently but it remains to be seen if this continues. We continue to expect lira weakness if the Fed hikes interest rates.
EM FX performance versus USD % with USD as basis
3 2 1 0 -1 -2
HUF
CLP
CZK
ZAR
SGD
PLN
THB
CNY
MXN
TWD
KRW
INR
IDR
BRL
TRY
RUB
-3
Source: Bloomberg
Insights.abnamro.nl/en
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EM FX Weekly - Lira and ruble stand out - 05 November 2015
‌while improvement in sentiment helps the ruble The Russian ruble was also among the gainers this week. This decision by the central bank not to cut interest rates last week supported investor sentiment towards the ruble. This is because the ruble is a high yielding currency. In general higher yielding currencies are in demand if overall investor sentiment is constructive and investors are more comfortable with the fundamental picture. Investors have become less negative about the Russian economy as there are signs that the economy is stabilising. A stabilisation in the oil price has also provided support to the ruble. China and inflation outlook supports Asian currencies Recent economic data releases in China support our view that growth is stabilising as the fiscal and monetary policy stimulus start to support the economy. This has supported Asian currencies in the past week. In addition, the Indian rupee was supported as composite PMI data suggests that economic growth is expanding at a faster pace in October than in September. The Taiwan dollar also gained due to expectations that meetings between leaders in China and Taiwan for the first time since 1949 will support economic relationships. Separately, the inflation outlook in South Korea, Taiwan and Thailand, though weak is improving. This has reduced the probability that central banks of these economies need to loosen monetary policy further in the short term. This supported sentiment in the South Korean won, Taiwan dollar and Thai baht. As expected, the Bank of Thailand left monetary policy unchanged and stated that the current monetary policy stance and exchange rate is supporting the economy. Inflation is expected to rise gradually to positive territory in the first quarter of next year. On the other hand, investors remain concerned about the strength of the Singapore economy. Widening CNH discount to CNY to trigger response from PBoC Expectations that the Fed will raise interest rates next month and market talk that the IMF review of SDR basket could be delayed weighed on the offshore yuan (CNH). We do not rule out that the People’s Bank of China (PBoC) could be in the market to narrow the divergence between the onshore and offshore yuan. We expect gradual yuan depreciation to around 6.40 at the end of this year.
ABN AMRO emerging market currency forecasts
USD/CNY (onshore) USD/CNH (offshore) USD/INR USD/KRW USD/SGD USD/THB USD/TWD USD/IDR USD/RUB USD/TRY USD/ZAR EUR/PLN EUR/CZK EUR/HUF USD/BRL USD/MXN USD/CLP
05-Nov 6.35 6.37 65.7 1,139 1.40 35.57 32.46 13,543 63 2.87 13.88 4.24 27.50 314 3.80 16.54 694
Q4 2015 6.40 6.40 65 1,190 1.40 36.80 33.00 14,300 60 3.10 14.00 4.15 27.50 315 4.00 17.00 700
Source: ABN AMRO Group Economics
Q1 2016 6.45 6.47 66 1,200 1.42 37.00 33.50 14,500 60 3.05 13.80 4.10 27.40 315 3.90 16.75 690
Q2 2016 6.50 6.53 66 1,220 1.44 37.20 33.70 14,800 55 3.00 13.60 4.05 27.25 310 3.85 16.50 680
Q3 2016 6.55 6.57 67 1,230 1.45 37.50 33.80 14,900 55 2.95 13.40 4.00 27.00 310 3.80 16.25 670
Q4 2016 6.55 6.57 67 1,240 1.46 38.00 34.00 15,000 55 2.90 13.20 4.00 26.75 310 3.75 16.00 660
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EM FX Weekly - Lira and ruble stand out - 05 November 2015
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