Em fx weekly 29 may 2015

Group Economics

EM FX Weekly

Macro & Financial Markets Research Roy Teo +65 65978616

EM FX extend losses except CNY

29 May 2015 • • •

EM currencies extend losses Ruble slides on crude oil easing and dovish comments from officials Chinese yuan resilient

EM currencies extend losses

Chinese yuan resilient

Emerging market currencies extended their slide against the

The Chinese yuan (CNY) remained resilient despite the

US dollar as the latter recovered. The Brazilian real weakened

People’s Bank of China fixing a weaker yuan. This is due to

after the current account deficit widened in April. In addition,

some market expectations that the inclusion of the yuan in the

the central bank stated that a weaker real is needed to help

Special Drawing Rights (SDR) basket later this year will

narrow the current account deficit. In Asia, a weaker Japanese

enhance the yuan’s reserve currency status, increasing central

yen (JPY) weighed on the South Korean won (KRW). The

banks’ demand for the currency. Indeed, the International

Korea International Trade Association stated that South

Monetary Fund (IMF) stated that the inclusion of the yuan in

Korea’s exporters cannot maintain competitiveness with Japan

the SDR basket is a matter of time. Nevertheless, we maintain

when JPY/KRW is at its current levels of below 9.0. In addition,

our slightly bearish forecast on the yuan as the currency is no

a weaker euro against the won (EUR/KRW below 1230) will

longer undervalued, a view that was also explained by the IMF

reduce export competitiveness. We remain bearish on the won

recently. We will be releasing an FX Watch next month to

due to the increased likelihood that the central bank will either

express our view on China’s push for the yuan to be included

loose monetary policy further or intervene in the currency

in the SDR basket.

market to weaken the won.

RBI widely expected to cut interest rates

EM currencies spot performance vs USD in past week

The Reserve Bank of India (RBI) is widely expected to lower

%

the repo and reverse repo rate by 25bp on 2 June. This is

0.0

almost fully priced in by financial markets. Since the RBI

RUB

PLN

BRL

TRY

versus the US dollar at the end of this year, because of HUF

-4.0 CZK

earlier this year. We expect the rupee to weaken towards 65 ZAR

-3.5 CLP

although the RBI’s timing has surprised financial markets twice

KRW

an interest rate cut to reduce the rupee attractive carry,

-3.0

INR

preference for a weaker Indian rupee (INR), we see a case for

-2.5

SGD

the highest level since December last year. Given the RBI’s

-2.0

THB

-1.5

TWD

inflation has declined, pushing short term real interest rates to

IDR

-1.0

MXN

decided to keep monetary policy rates unchanged on 7 April,

CNY

-0.5

narrowing interest rate spreads between India and the US.

ABN AMRO emerging market currency forecasts Source: Bloomberg

The ruble slides on lower oil and dovish comments The Russian ruble declined by more than 3% as crude oil prices moved lower and because markets expect that the central bank is less tolerant towards a stronger currency. The Bank of Russia deputy governor stated that it would be good to have larger foreign reserves. Indeed, since the 14 April the amount of FX purchases has averaged 213 million US dollar.

In addition, Russian President said that a weaker ruble will increase competitiveness.

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

28-May 6.20 64 1,108 1.35 33.80 30.61 13,216 52 2.64 12.04 4.13 27.50 309 3.14 15.30 616

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 - EM FX extend losses except CNY

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