Group Economics
EM FX Weekly
Macro & Financial Markets Research Roy Teo, +65 6597 8616
Refocus on weak fundamentals
Georgette Boele, +31 20 629 7789
22 October 2015 • • •
Emerging market currencies lose ground, because of a stronger USD, weaker commodity prices… …as well as a refocus on weak domestic fundamentals and political uncertainty But Chinese yuan has been resilient given better economic data
Emerging market currencies lose ground
…and so is the South African rand
Emerging market currencies’ gains seen last week were
The South African rand has weakened because of a stronger
completely erased this week. A stronger US dollar across the
US dollar and a refocus on domestic fundamentals in emerging
board and lower commodity prices pushed emerging market
markets. South Africa is clearly one of the countries with
currencies down. Moreover, investors turned their focus back
weaker fundamentals. Next to weak growth, a high current
on domestic fundamentals and political developments. The
account deficit and political challenges, investors are
latter have remained negative for some countries. Next week,
concerned about fiscal slippage and the higher probability of a
the US FOMC decision and US Q3 GDP will be closely
possible downgrade. This would bring South Africa closer to
watched. A signal by the FOMC that a rate hike is still on for
speculative grade.
this year and/or a stronger than expected US GDP, will likely put EM FX under further pressure. However, our base case is
Chinese yuan resilient
that the Fed will delay, which should be some relief.
In the past week, the Chinese yuan was resilient as economic growth in the third quarter was slightly better than market
The Brazilian real sharply lower again…
expectations. In addition, there was some speculation that
The Brazilian real has lost more than 3% versus the US dollar
onshore local banks were supporting the yuan earlier this
since the end of last week. Three Brazilian lawyers, including
week. Nevertheless, data from the National Bureau of
one of the founders of the ruling party, filed a request for
Statistics of China show that intervention in the currency spot
impeachment of Dilma Rousseff yesterday. This request is
and forward market to support the yuan has eased in
supported by the opposition (PSDB). The initiative refers to the
September as sentiment in the yuan improved. Earlier this
manipulation of the 2014 fiscal accounts and the use of public
week, the US Treasury semi-annual report on exchange rate
bank loans to pay for social benefits. Lower House President
policies softened their tone on the yuan, increasing the
Cunha received the request and must decide whether he will
likelihood that they will support the yuan’s inclusion in the SDR
accept it. In addition, financial markets have questioned the
basket later this year. The US report stated that the yuan
stance by the central bank not to increase rates with inflation
remains below its appropriate medium term valuation,
rates this high and the real remaining under pressure. We
compared to previous statement that the yuan is significantly
expect the real to remain under pressure in the near-term
undervalued. Looking ahead, the market is pricing in that the
because the challenges are likely to remain.
yuan will decline gradually towards our year end forecast of around 6.40.
EM FX performance
ABN AMRO emerging market currency forecasts
In % with as basis
1 0 -1 -2 -3
Source: Bloomberg
BRL
CLP
ZAR
PLN
RUB
MXN
IDR
HUF
THB
SGD
KRW
TWD
INR
CZK
TRY
CNY
-4
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
22-Oct 6.35 6.37 65.1 1,139 1.40 35.63 32.44 13,601 63 2.89 13.54 4.29 27.50 312 3.94 16.64 694
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 - Refocus on weak fundamentals
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