EM FX Weekly
Group Economics Macro & Financial Markets Research
11 February 2016
EM FX divergence
• …while currencies of commodity exporters have suffered • The sentiment in offshore Chinese yuan has improved
EM FX divergence… In the past week, emerging market currencies performance has diverged as investors cherry pick which currencies are likely to benefit given continued weak commodity prices and lower probability that the Fed will tighten monetary policy this year. Asian currencies did relatively well (see below) while currencies of commodity exporting countries suffered. The weakest performing currencies were Mexican peso, Russian ruble and the Chilean peso.
Performance since 4 February 2016 In % with USD as basis
2 0 -2 -4
MXN
CLP
RUB
BRL
INR
TRY
ZAR
CNY
KRW
SGD
TWD
PLN
-6
HUF
roy.teo@sg.abnamro.com
• …with most Asian FX recovering…
THB
Tel: +65 6597 8616
IDR
Senior FX Strategist
• EM FX divergence…
CZK
Roy Teo
Source: Bloomberg
…with most Asian FX recovering The IDR has outperformed for five consecutive weeks as the probability of Fed rate hike has diminished. In our view, most of the IDR gains are probably behind us as Bank Indonesia (BI) is likely to replenish its foreign currency reserves. In addition, it will not tolerate too much strengthening of the IDR. Indeed, BI recently stated that USD/IDR is likely to be in a range of 13,300 to 13,700 this year. The Thai baht (THB) was also in favour as a stronger Japanese yen (JPY) would benefit Thai exporters due to export similarities with Japanese exporters. Given the Singapore dollar’s (SGD) high sensitivity to
Insights.abnamro.nl/en
2
EM FX Weekly - EM FX divergence - 11 February 2016
short term yields in the US, lower US Treasury yields have supported the SGD against the USD. We like to highlight that the S$NEER is at stronger levels than when the Monetary Authority of Singapore (MAS) shifted to a slower appreciation pace of S$NEER on 14 October last year. Further gains in the SGD are likely to pose downside risks to Singapore’s economic growth and inflation outlook. On the other hand, the Indian rupee underperformed due to concerns about the sustainability of India’s growth engine and fiscal discipline. The sentiment in CNH has improved Sentiment in the offshore Chinese yuan (CNH) also improved in both the spot and forwards market as the prospects of capital outflows are likely to recede if monetary policy in the US remains on hold. The 1 year USD/CNH outright has slumped from above 6.95 in early January to below 6.75, closer to our year-end target of 6.73.
1 year USD/CNH and USD/CNY NDF outright Outright level
7.0 6.8 6.6 6.4 6.2 Jun-15
Aug-15
Oct-15
1 year USD/CNH outright
Dec-15
Feb-16
1 year USD/CNY NDF outright
Source: Bloomberg
ABN AMRO EM currency forecasts (under revision) Changes in red/bold 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
11-Feb Q1 2016 6.57 6.55 6.54 6.65 68.3313 67.00 1,203 1,200 1.39 1.45 35.24 36.70 33.05 33.50 13,463 14,200 79 74 2.93 3.00 15.93 16.50 4.44 4.35 27.06 27.00 311 315 3.93 4.00 18.99 17.75 713 720
Q2 2016 6.60 6.65 67.50 1,230 1.48 37.20 33.80 14,600 72 2.95 16.25 4.30 27.00 310 4.00 17.50 715
Q3 2016 6.65 6.70 68.00 1,250 1.50 37.50 34.20 14,800 70 2.95 16.00 4.30 27.00 310 4.00 17.25 710
Source: ABN AMRO Group Economics
Q4 2016 6.70 6.73 68.00 1,260 1.52 38.00 34.50 15,000 68 2.90 16.00 4.25 27.00 305 4.00 17.00 700
Q1 2017 6.70 6.70 67.50 1,250 1.50 38.00 34.30 15,000 66 2.85 15.80 4.20 26.50 300 3.95 16.50 680
Q2 2017 6.65 6.65 67.00 1,240 1.48 37.50 34.00 14,700 64 2.80 15.60 4.15 26.25 300 3.90 16.25 670
Q3 2017 6.65 6.65 66.50 1,220 1.46 37.20 33.70 14,500 62 2.75 15.40 4.15 26.00 295 3.85 16.00 660
Q4 2017 6.60 6.60 66.00 1,200 1.45 37.00 33.50 14,200 60 2.75 15.00 4.10 25.50 290 3.80 15.50 650
3
EM FX Weekly - EM FX divergence - 11 February 2016
Find out more about Group Economics at: https://insights.abnamro.nl/en/
DISCLAIMER ABN AMRO Bank Gustav Mahlerlaan 10 (visiting address) P.O. Box 283 1000 EA Amsterdam The Netherlands This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics.The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product 窶田onsidering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. ﾂｩ Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").
EM FX Weekly
Group Economics Macro & Financial Markets Research
11 February 2016
EM FX divergence
• …while currencies of commodity exporters have suffered • The sentiment in offshore Chinese yuan has improved
EM FX divergence… In the past week, emerging market currencies performance has diverged as investors cherry pick which currencies are likely to benefit given continued weak commodity prices and lower probability that the Fed will tighten monetary policy this year. Asian currencies did relatively well (see below) while currencies of commodity exporting countries suffered. The weakest performing currencies were Mexican peso, Russian ruble and the Chilean peso.
Performance since 4 February 2016 In % with USD as basis
2 0 -2 -4
MXN
CLP
RUB
BRL
INR
TRY
ZAR
CNY
KRW
SGD
TWD
PLN
-6
HUF
roy.teo@sg.abnamro.com
• …with most Asian FX recovering…
THB
Tel: +65 6597 8616
IDR
Senior FX Strategist
• EM FX divergence…
CZK
Roy Teo
Source: Bloomberg
…with most Asian FX recovering The IDR has outperformed for five consecutive weeks as the probability of Fed rate hike has diminished. In our view, most of the IDR gains are probably behind us as Bank Indonesia (BI) is likely to replenish its foreign currency reserves. In addition, it will not tolerate too much strengthening of the IDR. Indeed, BI recently stated that USD/IDR is likely to be in a range of 13,300 to 13,700 this year. The Thai baht (THB) was also in favour as a stronger Japanese yen (JPY) would benefit Thai exporters due to export similarities with Japanese exporters. Given the Singapore dollar’s (SGD) high sensitivity to
Insights.abnamro.nl/en
2
EM FX Weekly - EM FX divergence - 11 February 2016
short term yields in the US, lower US Treasury yields have supported the SGD against the USD. We like to highlight that the S$NEER is at stronger levels than when the Monetary Authority of Singapore (MAS) shifted to a slower appreciation pace of S$NEER on 14 October last year. Further gains in the SGD are likely to pose downside risks to Singapore’s economic growth and inflation outlook. On the other hand, the Indian rupee underperformed due to concerns about the sustainability of India’s growth engine and fiscal discipline. The sentiment in CNH has improved Sentiment in the offshore Chinese yuan (CNH) also improved in both the spot and forwards market as the prospects of capital outflows are likely to recede if monetary policy in the US remains on hold. The 1 year USD/CNH outright has slumped from above 6.95 in early January to below 6.75, closer to our year-end target of 6.73.
1 year USD/CNH and USD/CNY NDF outright Outright level
7.0 6.8 6.6 6.4 6.2 Jun-15
Aug-15
Oct-15
1 year USD/CNH outright
Dec-15
Feb-16
1 year USD/CNY NDF outright
Source: Bloomberg
ABN AMRO EM currency forecasts (under revision) Changes in red/bold 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
11-Feb Q1 2016 6.57 6.55 6.54 6.65 68.3313 67.00 1,203 1,200 1.39 1.45 35.24 36.70 33.05 33.50 13,463 14,200 79 74 2.93 3.00 15.93 16.50 4.44 4.35 27.06 27.00 311 315 3.93 4.00 18.99 17.75 713 720
Q2 2016 6.60 6.65 67.50 1,230 1.48 37.20 33.80 14,600 72 2.95 16.25 4.30 27.00 310 4.00 17.50 715
Q3 2016 6.65 6.70 68.00 1,250 1.50 37.50 34.20 14,800 70 2.95 16.00 4.30 27.00 310 4.00 17.25 710
Source: ABN AMRO Group Economics
Q4 2016 6.70 6.73 68.00 1,260 1.52 38.00 34.50 15,000 68 2.90 16.00 4.25 27.00 305 4.00 17.00 700
Q1 2017 6.70 6.70 67.50 1,250 1.50 38.00 34.30 15,000 66 2.85 15.80 4.20 26.50 300 3.95 16.50 680
Q2 2017 6.65 6.65 67.00 1,240 1.48 37.50 34.00 14,700 64 2.80 15.60 4.15 26.25 300 3.90 16.25 670
Q3 2017 6.65 6.65 66.50 1,220 1.46 37.20 33.70 14,500 62 2.75 15.40 4.15 26.00 295 3.85 16.00 660
Q4 2017 6.60 6.60 66.00 1,200 1.45 37.00 33.50 14,200 60 2.75 15.00 4.10 25.50 290 3.80 15.50 650
3
EM FX Weekly - EM FX divergence - 11 February 2016
Find out more about Group Economics at: https://insights.abnamro.nl/en/
DISCLAIMER ABN AMRO Bank Gustav Mahlerlaan 10 (visiting address) P.O. Box 283 1000 EA Amsterdam The Netherlands This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics.The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product 窶田onsidering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. ﾂｩ Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").