EM FX Weekly New all-time low in Brazilian real
Group Economics Macro & Financial Markets Research Georgette Boele, +31 20 6297789 Roy Teo ,+65 6597 8616
24 September 2015
Come-back of the US dollar pushes EM FX lower, while weak Chinese data weigh on Asian FX A new all-time low in the Brazilian real We have downgraded Indonesia rupiah and focus on SGD weakness and MAS policy
Come-back of the US dollar
Downgrade of IDR forecasts
The weakness of the US dollar after the FOMC decision was
The Indonesian rupiah (IDR) has surpassed our year-end
short-lived. Since the meeting, FOMC members have clearly
target of 14,300, due to growth and inflation concerns. We
expressed that last week’s outcome was a close call and that a
recently lowered our 2016 growth forecast from 5.5% to 5%.
lift-off this year remains likely. This has given a boost to the US
We expect further weakness in the IDR due to Indonesia’s
dollar across the board and heavily weighed on emerging
external imbalance and potential reversal of capital flows
market currencies. Moreover, weak economic data in China
(foreign ownership of government bonds of almost 40%). We
weighed on most Asian currencies in the past week. In our
have classified Indonesia as one of the EMs currently most at
view, financial markets are still under-estimating the magnitude
risk for events in China and the looming Fed lift-off (see our
of depreciation in the Chinese yuan by the end of this year.
Macro Focus – the top 6 emerging markets at risk). We have raised our 2015 and 2016 USD/IDR forecasts to 15,000 (from
Rout in Brazilian real
14,300) and 15,600 (from 15,000) respectively.
The Brazilian real fell sharply this week; close to 6% and set a new all-time low versus the US dollar. This steep decline
SGD weakness with MAS monetary policy in focus
further increases inflationary pressures. As a result, the central
The Singapore dollar is on track to retest this month’s low.
bank is between a rock (deep recession) and a hard place
Core inflation eased from 0.4% to 0.2% yoy in August, while
(inflation) in an environment of political turmoil and risk of
headline inflation fell deeper into negative territory (-0.8% yoy).
further downgrades. The central bank will probably continue to
Core inflation has been lower than the central bank’s forecast
intervene in FX markets to dampen the slide in the real, but
of 0.5-1.5% since April this year. Indeed, we maintain our view
this will unlikely be very aggressive. In the near-term, it is likely
that the Monetary Authority of Singapore is likely to downgrade
that weakness in the real will persist. In the current
its inflation forecast and shift the current modest appreciation
environment USD/BRL may overshoot to 4.5. Meanwhile, CDS
of S$NEER policy to neutral in the next monetary policy
spreads of Brazil have risen sharply. They have surpassed the
meeting in October. A wider trading band to accommodate the
level seen at the height of the global financial crisis, but it is
recent higher volatility in the currency also cannot be ruled out.
still far away from the 2002 crisis levels.
Our year end USD/SGD forecast is 1.46.
USD/BRL and CDS Brazil
ABN AMRO emerging market currency forecasts
CDS spread
USD/BRL
5,000
4.50
4,000
4.00 3.50
3,000
3.00 2,000
2.50
1,000
2.00
0
1.50 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 CDS spread Brazil (lhs)
USD/BRL (rhs)
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
24-Sep Q4 2015 6.38 6.55 6.43 6.55 66.1 66 1,193 1,240 1.40 1.46 36.24 36.40 33.13 33.40 14,667 15,000 67 60 3.05 3.10 13.92 14.00 4.22 4.15 27.50 27.50 313 315 4.18 4.00 17.15 17.00 704 700
Q1 2016 6.60 6.60 67 1,250 1.47 36.60 33.50 15,200 60 3.05 13.80 4.10 27.40 315 3.90 16.75 690
Source: ABN AMRO Group Economics Source: Bloomberg, ABN AMRO Group Economics
Q2 2016 6.65 6.65 67 1,270 1.49 36.80 33.70 15,400 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 15,500 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 15,600 55 2.90 13.20 4.00 26.75 310 3.75 16.00 660
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EM FX Weekly - New all-time low in Brazilian real
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