Em fx weekly 23 july 2015

Group Economics

EM FX Weekly

Macro & Financial Markets Research Roy Teo, Georgette Boele, +31 20

EM FX lower

6297789

23 July 2015 • • •

EM FX under pressure… …with some exceptions Downside risk to THB and KRW forecasts

EM FX under pressure…

Emerging market currencies have in general been under

We also see downside risks to our Thai baht (THB) forecasts.

pressure since 9 July. A higher US dollar, a rise in 10y US

The recent drought impact on agriculture is likely to impact

Treasury yields and expectations that the Fed will start hiking

domestic consumption, with economic growth lower by as

rates this year weighed on EM FX. The Turkish lira was the

much as 0.5pp, according to the central bank's estimate. The

weakest performing currency due to security concerns after the

50bp rate cut earlier this year has also failed to stem the

attack in Suruc on Monday. The Chilean peso, Mexican peso

decline in consumer confidence which is at its lowest level

and Russian ruble fell because of weakness in oil and base

since May of last year. In addition, exports have also

metal prices. In the case of the Brazilian real, the political

underperformed the government's target and inflationary

scandals and commodity price weakness weighed on the

pressures remain subdued. We are currently reviewing both

currency. Going forward, we expect the start of the Fed rate

our USD/KRW and USD/THB forecasts.

hike cycle to weigh on EM FX, especially currencies with weaker fundamentals such as the Turkish lira and the Brazilian

Weaker EM FX

real.

Performance versus USD in USD terms

2

…with some exceptions However, some currencies have been able to outperform the

1

US dollar. The Hungarian forint outperformed EM FX this

0

week, as the central bank unexpectedly signalled that its easing cycle is finished. Moreover, the Czech Koruna profited from expectations that the central bank may be forced to

-1 -2

abandon the floor in EUR/CZK due to a strengthening BRL

MXN

TRY

THB

CLP

RUB

KRW

IDR

TWD

INR

ZAR

SGD

PLN

CNY

CZK

-3

HUF

economy at some point in time.

Downside risks to THB and KRW forecasts The South Korean won (KRW) has declined faster than

Source: Bloomberg

expected in recent weeks and has reached our year-end target. This was triggered by several developments. The

ABN AMRO emerging market currency forecasts

Middle Eastern Respiratory Syndrome outbreak since May has

23-Jul 6.21 64 1,165 1.37 34.87 31.28 13,422 57 2.71 12.43 4.12 27.50 308 3.22 16.11 654

Q3 2015 6.26 64 1,130 1.39 33.20 32.00 13,200 52 2.85 12.20 3.95 27.50 315 3.15 15.50 630

Q4 2015 6.30 64 1,140 1.40 34.00 32.10 13,300 50 2.85 12.20 3.90 27.50 320 3.20 15.50 630

central bank will be more tolerant of a weaker exchange rate,

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

which will fuel speculators to use the won as a funding

Source: ABN AMRO Group Economics

dampened domestic consumption significantly. As a result, the Bank of Korea has lowered this year's economic growth forecast from 3.1% to 2.8% earlier this month. The Finance Ministry has also announced some measures to recycle some of the current account surplus. Given the uneven global recovery and strong won, exports have remained weak since the beginning of this year. Though the won real effective exchange rate has declined in the past month, it is still 2% stronger since the start of this year. Hence, we judge that the

currency.

Q1 2016 6.35 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 6.37 65 1,150 1.43 34.80 32.50 13,500 47 2.85 12.20 3.85 27.25 325 3.25 15.25 640

Q3 2016 6.38 65 1,150 1.44 34.80 32.80 13,600 46 2.85 12.20 3.85 27.00 325 3.30 15.00 645

Q4 2016 6.40 65 1,150 1.45 34.80 33.00 13,700 45 2.85 12.20 3.85 26.75 330 3.40 15.00 650

2

EM FX Weekly - EM FX lower

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