Em fx weekly 5 june 2015

Group Economics

EM FX Weekly

Macro & Financial Markets Research Roy Teo +65 65978616

EM FX lower

5 June 2015 • • •

EM FX failed to profit from dollar weakness… …except Eastern European currencies Reserve Bank of India is done with monetary easing for now

EM FX failed to profit from dollar weakness…

Meanwhile, official of the central bank of the Czech Republic

Surprisingly, emerging market currencies failed to profit from

said that the economy does not need a weaker Koruna cap

US dollar weakness earlier this week. Why is this? Emerging

now. This comment has supported the Koruna. Up to now, the

market currencies are not only sensitive to developments in

central bank has always indicated that it would be open to

the US dollar but also sensitive to developments in bond

move the cap in case the economy would need this. There is

markets and commodity markets. The sharp rise in

an increased likelihood that at the next meeting the central

government bond yields in Germany and the US have brought

bank will drop the sentence that it is ready to increase the floor

home memories of times that these higher yields coincided

in EUR/CZK. However, it is unlikely that it will also remove the

with significant drops in emerging market currencies (for

cap of the Koruna versus the euro.

example during the tapering dry-run). This effect has more than outweighed the soft US dollar. What is more, weakness

Reserve Bank of India is done for now…

in Brent oil, copper and precious metal prices have variously

On 2 June, the Reserve Bank of India lowered official rates,

weighed on the Russian ruble, Chilean peso, Mexican peso

but it said that it will wait to assess monsoon rains before

and South African rand.

acting again. It also lowered growth forecasts and said that weather related events (monsoon and El Niño) could push up

EM currencies spot performance vs USD in past week

inflation. The possibility of an El Niño weather phenomenon

With USD as basis, in %

occurring this year has attracted attention. This is because if an El Nino shock were to occur, the impact on commodity

4

prices (especially agricultural prices) and some economies

2

could be significant according to an IMF study that was

0

released in April. El Niño conditions usually coincide with a period of weak monsoon and rising temperatures in India. This

-2

could greatly damage agricultural crops in India, which could

-4

lower income for farmers and could have an upward effect on -6

agricultural prices. If inflation were to rise, it is unlikely that the CZK

HUF

PLN

BRL

THB

SGD

INR

CNY

TRY

KRW

TWD

IDR

CLP

MXN

ZAR

RUB

-8

Source: Bloomberg

…except some Eastern European currencies The economies of Poland, Czech Republic and Hungary are in relatively good shape and the prospects are bright. In addition, weaker commodity prices do not hurt them because they are mainly commodity importers. The Polish central bank left monetary policy unchanged at 1.5%. Governor Belka made it clear that that only a significant weakening of the macro situation would change the Bank’s stance on rates on hold from here. In addition, investors seem to have become more relaxed about the political situation in Poland. These developments have supported the Polish zloty.

central bank will lower official rates again. Such an environment could weigh on the Indian rupee.

ABN AMRO emerging market currency forecasts 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

05-Jun 6.21 64 1,111 1.35 33.73 30.87 13,293 56 2.67 12.39 4.17 27.50 312 3.13 15.56 629

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

Source: ABN AMRO Group Economics

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

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

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

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EM FX Weekly - EM FX lower

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