Group Economics
EM FX Weekly
Macro & Financial Markets Research Roy Teo ,+65 6597 8616
Dovish tone Fed helps EM FX
Georgette Boele, +31 20 629 7789
17 September 2015 • •
Emerging market currencies recover ahead of the FOMC meeting Dovish tone of the Fed helps EM FX
Emerging markets recover ahead of FOMC
we expect central banks to replenish their FX reserves during
In the past week, most emerging market currencies recovered
period of domestic currencies’ strength.
as short positions were reduced ahead of FOMC meeting later today. The Russian ruble rose by more than 3% as oil prices
Performance
recovered and the central bank signalled that there are
In %, with US dollar as basis
3
pared down rate cut expectations. Sentiment in the KRW also
2
improved after rating agency S&P upgraded South Korea’s
1
IDR will put strain on domestic companies’ credit quality.
IDR
INR
CNY
CZK
PLN
BRL
TWD
rating agencies have also expressed concerns that a weaker
CLP
-2
the trade surplus in August was weaker than expected. Credit
THB
other hand, the Indonesian rupiah (IDR) underperformed as
RUB
-1
SGD
0
supported investor sentiment in most Asian currencies. On the
HUF
sovereign assessment. A stable Chinese yuan has also
TRY
won (KRW) recovered by more than 1% as financial markets
4
KRW
sales were stronger than expected. In Asia, the South Korean
5
ZAR
supported as the current account deficit narrowed and retail
MXN
limitations to further rate cuts. The South African rand also was
Source: Bloomberg, ABN AMRO Group Economics
Dovish tone Fed supports EM FX… The FOMC strikes a dovish tone but continues to signal rates hike this year. Our view is that a rate hike in December
ABN AMRO emerging market currency forecasts 17-Sep 6.37 6.40 66.5 1,166 1.40 35.59 32.47 14,459 65 2.98 13.18 4.19 27.50 310 3.84 16.38 679
Q3 2015 Q4 2015 6.50 6.55 6.55 6.55 66 66 1,200 1,240 1.43 1.46 36.00 36.40 32.80 33.40 14,000 14,300 65 60 3.00 3.10 13.90 14.00 4.20 4.15 27.50 27.50 315 315 3.90 4.00 17.00 17.00 690 700
year. This and lower US Treasury yields supported emerging
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
markets currencies.
Source: ABN AMRO Group Economics
remains likely, but concerns about the global economy suggest that risks of a delay to 2016 are now larger. The US dollar moved lower because of concerns about the outlook. In addition, financial markets had priced in around 30% probability of a rate increase today. As no rate hike was delivered this also weighed on the US dollar. Financial markets have slightly priced out the possibility of a rate hike this year. Investors now expect a lower amount of rate increases next
…but any recovery in EM FX to be transitory However, we expect any recovery to be small and transitory as it is still likely that the Fed will hike later this year. In addition, emerging market central banks are unlikely to tolerate a strong rally in domestic currencies as exports and inflation dynamics remain unfavourable. Most emerging market central banks’ foreign currency reserves have declined in recent months as they seek to limit the depreciation of their currencies. Hence
Q1 2016 6.60 6.60 67 1,250 1.47 36.60 33.50 14,400 60 3.05 13.80 4.10 27.40 315 3.90 16.75 690
Q2 2016 6.65 6.65 67 1,270 1.49 36.80 33.70 14,600 55 3.00 13.60 4.05 27.25 310 3.85 16.50 680
Q3 2016 6.70 6.70 68 1,290 1.50 37.00 33.80 14,800 55 2.95 13.40 4.00 27.00 310 3.80 16.25 670
Q4 2016 6.75 6.75 68 1,300 1.52 37.30 34.00 15,000 55 2.90 13.20 4.00 26.75 310 3.75 16.00 660
2
EM FX Weekly - Dovish tone Fed helps EM FX
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