Group Economics
EM FX Weekly
Macro & Financial Markets Research Roy Teo, +65 6597 8616
EM FX cheers but for how long?
Georgette Boele, +3120 629 7789
15 October 2015
Emerging market currencies cheer as weak US data reduce Fed rate hike expectations IDR gains overdone…weakness to resume SGD gains as MAS less dovish and technical recession in Singapore narrowly avoided
Emerging market currencies cheer
will shift the S$NEER policy bias to neutral. We think that core
Emerging market currencies have profited from a weaker US
inflation will edge higher due to favorable base year effects.
dollar in an environment of better investor sentiment. Weaker
Hence the MAS is unlikely to shift towards a more dovish bias
US data (retail sales) and mixed comments from Fed officials
next year, supported by the view that global growth should
are considered as good news, because they have lowered the
gradually improve in 2016. As a result, we have revised our
likelihood of the US Federal Reserve hiking this year. As a
2015 and 2016 year end USD/SGD forecast to 1.40 (from
result, bad news is considered as good news and this is
1.44) and 1.46 (from 1.50) respectively.
supportive to investor sentiment. Consequently, investors have searched for better yielding opportunities. In this process,
EM FX performance versus the US dollar
weaker domestic data and/or negative political developments
In % with USD as basis
have had limited impact. For example weak domestic demand and disinflation in China and political uncertainty have been ignored. However, we expect this to be temporary and
3 2
emerging market currencies to come under pressure again
1
when a Fed rate hike this year is fully priced out and investors
0
are likely to focus again on fundamentals and political
-1
challenges. -2
BRL
RUB
INR
CLP
CNY
IDR
MXN
TRY
TWD
PLN
THB
CZK
KRW
HUF
SGD
The Indonesia rupiah (IDR) was the best performer as short
-3
ZAR
IDR outperforms…weakness to resume positions were reduced, supported by an improvement in market sentiment and intervention by the central bank. The
Source: BIS, ABN AMRO
current strength in the IDR will provide more flexibility for the central bank to cut interest rates if inflation declines in the
ABN AMRO emerging market currency forecasts
coming months. Looking ahead, we maintain our view that the IDR will underperform other Asian currencies well into 2016. For more details please refer to our FX Watch, Asian FX recovery to last?, published on 9 October. SGD gains as MAS less dovish and technical recession in Singapore narrowly avoided The Singapore dollar (SGD) has strengthened by about 2% against the US dollar and 1% against its trade weighted basket of currencies since the Monetary Authority of Singapore (MAS) monetary policy decision on 14 October. The MAS reduced the slope of appreciation of S$NEER slightly as advance estimates show that the Singapore economy narrowly avoided a technical recession in the third quarter against market expectations of a 0.1% qoq contraction. Economic growth in the second quarter was also revised higher from -4% qoq to 2.5% qoq. This was less dovish than our forecast that the MAS
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
15-Oct 6.35 6.35 64.8 1,130 1.40 35.18 32.15 13,380 62 2.89 13.13 4.23 27.50 310 3.81 16.41 682
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
2
EM FX Weekly - EM FX cheers but for how w long?
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