EM FX Weekly
Group Economics Macro & Financial Markets Research Roy Teo +65-6597 8616
China stimulus and weak dollar
Arjen van Dijkhuizen, Georgette Boele
1 May 2015 • • •
China stimulus speculation and weak US dollar support EM FX… …except the Chinese yuan, Thai baht and Russian ruble… …while budget concerns are back in Brazil
China stimulus speculation supports EM FX…
…but sentiment towards the Chinese yuan is weak…
Market speculation has grown recently about the possibility of
Though the People's Bank of China continued to engineer a
the PBoC following other major central banks in launching
strong daily yuan fix, investor sentiment in the currency
unconventional QE policies. This would come in the form of the
remains weak due to market concerns that the central bank will
PBoC buying local government bonds directly. We believe that
inject more liquidity into the system.
China will continue to add further stimulus to keep economic growth at around its 7% target for 2015, but do not think that
…and larger rate cuts weigh on the Thai baht and the
China needs to implement such unconventional policies at this
Russian ruble…
stage, because there is plenty of room for more easing using
The Thai baht underperformed as the Bank of Thailand
conventional instruments. The PBoC could cut banks’ reserve
surprised financial markets by cutting interest rates earlier than
requirements (RRRs), the main policy rate (5.35%) and/or the
expected. This was triggered by higher risks to economic
benchmark deposit rate. In addition, the authorities can use
growth due to the strong baht and a slowing Chinese
specific lending instruments targeting banks and can even
economy. In addition, the central bank of Thailand is of the
stimulate banks to buy local government bonds.
view that government spending and a rebound in tourism will not be enough to offset the weak export outlook. Despite
EM FX perform relatively well this week
higher oil prices, the Russian ruble also moved lower, because
performance in %, with USD as basis
of the sharper-than-expected interest rate cut by CBR.
4
…while investors remain concerned about Brazil’s budget
3
deficit
2
The Brazilian real was also not able to profit from a weaker
1
dollar. Investors are concerned that if Brazil fails to reduce its
0
budget deficit, the risk of a credit rating downgrade would
BRL
THB
IDR
RUB
CLP
CNY
KRW
INR
MXN
SGD
TRY
that the central bank will not hike in June amid a weak TWD
-3
PLN
failed to support the real this week, because of expectations ZAR
-2
HUF
increase. The 50bp rate hike by the central bank to 13.25%
CZK
-1
Source: Bloomberg
…so does the weaker US dollar The US dollar fell under heavy pressure because of a weak US Q1 GDP report and an overall improvement in investor sentiment (see G10 FX weekly). Most emerging market currencies were able to profit from this weakness. Given their larger export exposure to China, the South Korean won, Taiwan dollar and Singapore dollar made gains due to expectations that China will further stimulate its own economy.
economy, although we expect a 25bp rate hike.
ABN AMRO emerging market currency forecasts USD/CNH 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
30-Apr 6.20 64 1,071 1.32 32.88 30.62 12,946 51 2.66 11.82 4.01 27.50 302 2.96 15.26 608
Q2 2015 6.25 63 1,100 1.36 32.80 31.50 13,100 53 2.80 12.00 3.95 27.50 310 3.30 15.25 630
Q3 2015 6.30 64 1,130 1.39 33.20 32.00 13,200 52 2.85 12.20 3.95 27.50 315 3.25 15.50 630
Q4 2015 6.35 64 1,130 1.40 34.00 32.10 13,300 50 2.85 12.20 3.90 27.50 320 3.20 15.50 630
Source: ABN AMRO Group Economics
Q1 2016 6.40 64 1,140 1.42 34.50 32.30 13,400 48 2.85 12.20 3.85 27.40 320 3.20 15.25 635
Q2 2016 6.41 65 1,150 1.43 34.80 32.50 13,500 47 2.85 12.20 3.85 27.25 325 3.10 15.25 640
Q3 2016 6.43 65 1,150 1.44 34.80 32.80 13,600 46 2.85 12.20 3.85 27.00 325 3.10 15.00 645
Q4 2016 6.45 65 1,150 1.45 34.80 33.00 13,700 45 2.85 12.20 3.85 26.75 330 3.10 15.00 650
2
EM FX Weekly - China stimulus and weak dollar support
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