Em fx weekly 25 may 2015

Group Economics

EM FX Weekly

Macro & Financial Markets Research Georgette Boele, Peter de Bruin & Roy Teo

Stronger dollar weighs on EM FX

25 May 2015 • • •

Stronger dollar weighed on EM currencies Weak Polish data hurt on zloty, while Turkish lira strengthens due to ongoing ‘stealth’ tightening Some adjustment in Asian FX forecasts

Recovery of the US dollar hurt EM currencies

rate corridor, by increasing the amount of bank funding through

Emerging market currencies generally moved lower as the 10y

its more expensive ON-lending facility.

US Treasury yield and the US dollar moved higher. Central and Eastern European currencies were among the weakest

…helping the lira to recovery further

currencies, while the Chinese yuan was the most resilient.

The decision helped the Turkish lira to recover further. A stabilisation of the oil price, weakness in the US dollar, and an

Weak Polish data weigh on the zloty

increasing recognition by investors that monetary conditions

From the start of 2015 until 21 April, the Polish zloty had a

are relatively tight were the most important reasons for this. In

strong run versus the euro. A weak euro, strong economic data

addition, polls are suggesting that the ruling AKP will not

and the message by the central bank that it will unlikely cut

secure enough seats to change the constitution in the

interest rates despite negative year-on-year consumer

upcoming elections, which could further jeopardise the central

inflation, gave strong support to the zloty. However, since 21

bank’s independence. Still, we expect to see a renewed bout

April the positive sentiment eased somewhat. The recovery in

of lira weakness when the Fed starts its tightening cycle.

the euro, weaker Polish economic data were the main reasons for this. For example a sharp drop in retail sales pushed

Some adjustments in Asia FX forecasts

EUR/PLN towards 4.10. We expect this move to be temporary

We are now more bearish on both the Indonesian rupiah and

and the zloty to rally again going forward because of the strong

Indian rupee. Although S&P recently raised Indonesia’s credit

economy and monetary policy divergence.

rating from stable to positive, we remain concerned about its growth and inflation dynamics. Headwinds for the region are

CBT pushing up interbank rates

rising with an El Nino event expected to happen this year. This

%

should provide less flexibility for the Reserve Bank of India to lower interest rates. On the other hand, we are less bearish on

14

the Chinese yuan as the authorities have implemented

12

targeted fiscal and monetary stimulus to stimulate economic

10

growth, with a weaker exchange rate as a less preferred option

8

currently. A more resilient yuan will have positive spillover

6

effects on the Taiwan dollar given its sensitivity to the yuan.

4 10

11

12

Benchmark repurchase rate

13

14

15

ABN AMRO emerging market currency forecasts

Overnight lending rate

One-week interbank rate

Source: Thomsons Reuters Datastream

CBRT keeps stealth tightening in place,…

On Wednesday, the Turkish central bank (CBRT) left its policy rates unchanged. Being under political pressure, the CBRT has refrained from hiking any of its rates to combat inflation lately. Still, it has implemented a policy of ‘stealth’ tightening. It has pushed the interbank rate to the upper bound of its interest

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

21-May 6.20 64 1,094 1.34 33.43 30.55 13,122 50 2.59 11.83 4.10 27.50 308 3.03 15.22 604

Q2 2015 6.22 64 1,100 1.34 33.50 30.80 13,200 53 2.65 12.00 3.95 27.50 310 3.05 15.25 630

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 3.25 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 3.10 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 3.10 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 3.10 15.00 650

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EM FX Weekly - Stronger dollar weighs on EM FX

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