Group Economics
EM FX Weekly
Macro & Financial Markets Research Roy Teo, Georgette Boele, Peter de
Lira outshines the rest
Bruin, +31 20 6297789
25 June 2015 • • •
Weakness in EM FX because of a stronger US dollar… …with the exception of the Turkish lira It is unlikely that the low volatility in the Chinese yuan will persist
Weakness of EM FX especially CEEMA FX…
0.1% yoy, below the central bank's forecast of 0.5-1.5%. Core
Emerging market currencies have generally moved lower this
inflation is expected to remain subdued in the coming months
week because of a stronger US dollar. Central and Eastern
before rising later this year due to higher oil prices and as the
European currencies were the weakest performing currencies.
effects of budgetary measures dissipate. In our view,
Weaker domestic data (Poland), an interest rate reduction
USD/SGD will rise towards 1.40 by the end of this year given
(Hungary), and accumulation of foreign currencies reserves
the SGD's rich valuation and vulnerability to higher interest
(Russia) weighed on the respective currencies.
rates in the US.
…with the exception of the Turkish lira
Low volatility in the yuan to persist?
A positive exception was the Turkish lira. The central bank
The Chinese yuan has been stable in the past three months as
decided to leave interest rates unchanged. Although the CBRT
Chinese authorities aim to calm investor sentiment in the yuan
left its policy rates on hold during its June meeting, the
currency after China experienced capital outflows earlier this
accompanying press statement struck a slightly more hawkish
year. Another possible reason is that a stable currency is
tone. While the CBRT has already pushed interbank rates to
necessary ahead of further capital liberalisation of the yuan,
the upper bound of its interest rate corridor, we think that it
including widening of the trading band. We remain cautious
needs to do more later this year as it needs to combat
that this low volatility environment in the yuan will persist. It is
stubbornly high inflation, a weak lira, and possible market
likely that the central bank will widen the trading band from +/-
unrest due to prospects of Fed tightening. In addition, there are
2% to +/-3% later this year as they seek to allow a more
some tentative signs that the AKP is more willing to form a
flexible exchange rate regime ahead of IMF review of including
coalition than was initially thought. Going forward, we expect
the yuan in the SDR basket. This is likely to result in greater
the lira to weaken to 2.85 versus the US dollar, mainly
volatility in the currency and a weaker exchange rate as
because of US dollar strength.
economic growth in China remains fragile. Second, the current low volatility environment in the yuan is likely to attract more
Lira outperforms the rest
carry trades as the yuan's yield is still relatively more attractive
Performance versus USD in USD terms
compared to other major currencies. This may trigger a response from the central bank to warn speculators that yuan
2
carry trades are not a one-way bet 1
ABN AMRO emerging market currency forecasts 0 -1
RUB
PLN
CZK
HUF
MXN
BRL
CLP
SGD
THB
TWD
KRW
IDR
INR
CNY
TRY
ZAR
-2
Source: Bloomberg
Asian currencies lacking direction In Asia, the Singapore dollar (SGD) underperformed as core inflation in May declined for the third consecutive month to
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
25-Jun 6.21 64 1,110 1.34 33.79 30.93 13,329 54 2.68 12.15 4.17 27.50 312 3.10 15.51 633
Q3 2015 6.26 65 1,130 1.37 33.80 31.30 13,500 52 2.85 12.20 3.95 27.50 315 3.15 15.50 630
Q4 2015 6.30 65 1,130 1.40 34.00 31.50 13,700 50 2.85 12.20 3.90 27.50 320 3.20 15.50 630
Source: ABN AMRO Group Economics
Q1 2016 6.35 65 1,140 1.42 34.50 31.80 13,800 48 2.85 12.20 3.85 27.40 320 3.20 15.25 635
Q2 2016 6.37 66 1,150 1.43 34.80 32.00 13,900 47 2.85 12.20 3.85 27.25 325 3.25 15.25 640
Q3 2016 6.38 66 1,150 1.44 34.80 32.20 14,000 46 2.85 12.20 3.85 27.00 325 3.30 15.00 645
Q4 2016 6.40 66 1,150 1.45 34.80 32.50 14,100 45 2.85 12.20 3.85 26.75 330 3.40 15.00 650
2
EM FX Weekly - Lira outshines the rest
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