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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