EM FX Weekly
Group Economics Macro & Financial Markets Research
02 June 2016
Weak month of May Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
A weak month of May for EM FX Moderate yuan depreciation path this year US-China Strategic and Economic Dialogue on 5-7 June
Georgette Boele Co-ordinator FX & Precious Metals
A weak month of May for EM FX
Strategy
In May most emerging market currencies fell, especially currencies of commodity
Tel: +31 20 629 7789
exporting countries. Hawkish rhetoric from Fed officials triggered an upward adjustment in
georgette.boele@nl.abnamro.com
interest rate hike expectations resulting in a higher US dollar, lower commodity prices (except oil) and lower emerging market currencies. Since the end of last week, the picture is more mixed. On the one hand, the recovery in the US dollar came to a halt as financial markets await the release of the US employment report tomorrow. This has supported emerging market currencies. On the other hand, uncertainty surrounding the outcome of the OPEC meeting today has weighed somewhat on the sentiment of currencies of oilexporting countries. Overall, we remain relatively constructive on emerging market currencies.
Performance in May Performance in %, USD as basis
ZAR
MXN
TRY
CLP
BRL
IDR
KRW
HUF
PLN
RUB
CZK
THB
SGD
CNY
INR
TWD
0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10
Source: Bloomberg, Bank of England
More dovish Bank of Korea minutes weighed on the won… In Asia, the South Korean won (KRW) declined by about 1% to 1190 after the Bank of Korea minutes was rather dovish tone. This has raised market expectations that a rate cut is likely sooner than later. The latter has mostly been priced in by financial markets. Economic data releases in South Korea were also generally weak with inflation falling in
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EM FX Weekly - Weak k month of May M - 02 Jun ne 2016
May and the current account surplu us narrowing in n April. This weeighed on sentiment in the KRW.
…while weakness in the rupiah h was not wellcomed by Baank Indonesia… Bank Indonesia (BI) h has expressed d some discomfort with the paace of deprecia ation of the IDR fro om 13,200 to a above 13,600 since s early May y. BI stated thaat the IDR is de eviating from fundam mentals and tha at the IDR is unlikely to hit 14 4,000. Indeed, Indonesia’s infflation and external imbalances have improved d and foreign re eserves have rrisen. Having said s that Indone esia’s weak fisccal performanc ce due to expec cted larger buddget deficits an nd decline in corporrate credit qual ity have resulte ed in S&P Glob bal Ratings refr fraining from up pgrading Indone esia’s to invest ment grade, although keeping its positive o utlook.
…and d concerns th hat Rajan may y not stay forr another term m hurt the rup pee Separa ately, despite e economic grow wth in India gain ning momentum m in the first qu uarter (see our As sia outlook, Gro owth stable at 6%, 6 risks aroun nd China and F Fed remain, pu ublished earlier this week), the e Indian rupee was sold off on concerns thaat RBI Governo or Rajan may no ot stay for anotther term. His current c term ex xpires in Septeember this yearr. These concerrns have weigh hed on the rupe ee because RB BI governor Raajan has been instrumental in taming India’s high h inflation, imprroving the curre ent account baalance and building up foreign n currency rese erves. preciation path h Moderrate yuan dep Since the end of Aprril the US dollarr has strengthe ened across thee board, includ ding versus the Ch hinese yuan. Ass a result, USD D/CNY has mov ved from 6.47 tto above 6.58. However, the we eakness in the yuan has been n more modest than weaknesss of other currrencies versus s the US dollar.. Therefore, the e yuan has app preciated againnst currencies of China’s trading g partners. The e People’s Bank of China (PB BoC) tends to li mit the extent of deprec ciation against the US dollar because b it wou uld like to avoidd that weaknes ss in the yuan would w trigger co oncerns about the state of the e Chinese econnomy and unre est on financiial markets. In addition, it wou uld like to avoid d large capital outflows. We continue c to hold th he view that the e depreciation on the yuan wiill be modest. O Our year-end fo orecast for USD/C CNY is 6.7. hina Strategic and Economic Dialogue US-Ch The eight session of the US–China a Strategic and Economic Dia logue will be held in China on 5-7 June 2016. Th he dialogue will focus on the challenges andd opportunities s that both countries face on bila ateral, regionall and global are eas. US Treasuury Secretary Lew L is likely to urge e China policy makers to mov ve towards an orderly o transitioon to a more market m based yuan. In addition an e establishment of a yuan trading hub in the U US is also on the agenda. e exchange rate he PBoC to kee ep the CNY TW WI relatively sta able. Market On the e, we expect th bets th hat policy make ers in China will not be able to o control volati lity and potentiial deprec ciation in the yu uan have declined. We expec ct only a modesst depreciation n of the CNY versus s the USD in th he remainder off this year (our year end USD D/CNY forecastt is 6.70).
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EM FX Weekly - Weak k month of May M - 02 Jun ne 2016
ABN AMRO emerg ging market currency c fore ecasts
USD/C CNY (onshore) USD/C CNH (offshore) USD/IN NR USD/K KRW USD/S SGD USD/T THB USD/T TWD USD/ID DR USD/R RUB USD/T TRY USD/Z ZAR EUR/P PLN EUR/C CZK EUR/H HUF USD/B BRL USD/M MXN USD/C CLP
002-Jun 6.58 6.59 67.3 1,187 1.38 35.61 32.40 1 13,643 67 2.94 15.58 4.40 27.03 314 3.60 18.55 692
Q2 20166 6.555 6.555 66.55 1,1655 1.366 35.000 32.500 13,2000 666 2.855 15.000 4.400 27.000 3100 3.600 17.255 6700
Q3 2016 6.60 6.60 67.0 1,165 1.38 35.00 32.80 13,400 64 2.80 14.75 4.40 27.00 310 3.55 17.00 660
Q44 2016 6.70 6.70 67.0 1,165 1.40 35.00 33.00 1 13,500 60 2.75 14.50 4.35 27.00 305 3.50 16.75 650
Q1 2017 6.75 6.75 67.0 1,150 1.38 34.80 32.80 13,400 59 2.75 14.25 4.30 27.00 300 3.45 16.50 640
Q2 2017 6.80 6.80 66.0 1,140 1.36 34.60 32.50 13,300 58 2.75 14.00 4.25 27.00 300 3.40 15.75 630
Q3 20017 6 6.80 6 6.80 6 65.5 1,130 1 1.35 344.40 322.20 13,2200 57 2 2.75 133.75 4 4.20 266.50 2 295 3 3.35 155.50 6 620
Q4 2017 6.80 6.80 65.0 1,120 1.35 34.00 32.00 13,000 55 2.75 13.50 4.20 26.00 290 3.30 15.25 600
Source: ABN AMRO Grouup Economics
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