Group Economics
EM FX Weekly
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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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