Em fx weekly 6 august 2015

Group Economics

EM FX Weekly

Macro & Financial Markets Research Roy Teo , +65 6597 8616

Chinese yuan liberalization to accelerate

Marijke Zewuster, Peter de bruin

6 August 2015    

CNY inclusion in SDR basket delayed?

PBoC to accelerate liberalization of capital account and exchange rate Asian FX outlook downgraded Weak commodity prices weigh on RUB and BRL

CNY inclusion in SDR basket delayed?

Asian FX outlook downgraded

Earlier this week, the IMF issued a staff report dated 17 July

We have become more bearish on several Asian currencies

which cast doubt on whether the yuan would be included in the

(changed forecasts highlighted in red in the table below). We

SDR basket in the near term. It proposed the possibility of

expect the Central banks of China, Taiwan to cut the policy

delaying the inception of a new SDR basket (current SDR

rate later this year to stimulate the economy. The Monetary

basket expires on 31 December 2015) to 30 September 2016.

Authority of Singapore is also likely to shift the current modest

This is due to SDR users’ concerns that introducing a new

appreciation of S$NEER to neutral in October. We have left

currency to the SDR basket on the first trading day of the year

our moderately bearish forecasts for the Indian rupee and

can expose them to increased risks and costs. A delay also

Chinese yuan unchanged. For more details, please see our FX

allows time to make changes to contractual arrangements.

Watch – ‘Weaker Asian FX outlook’, published on 6 August.

More work needs to be done before SDR decision

Weak commodity prices weigh on RUB and BRL

In addition, the IMF stated that it still need to ascertain how

In the past week, the Russian ruble (RUB) extended its decline

widely used and traded the yuan is as data from BIS 2013

on the back of further drops in oil prices. While, in the light of

report is outdated and data from other sources like SWIFT

the renewed RUB weakness, Russia’s central bank has

needs to be treated with caution given its limited coverage.

stopped its FX purchases and has lowered the pace of rate

Other issues that are in work in progress include: the

reductions, ongoing weakness in the economy should prompt

availability of suitable exchange rates from the New York

the CBR to loosen policy further. The Brazilian real (BRL) also

market and the ECB; a market based representative yuan rate

was pressured due to further negative economic data, on top

(the onshore yuan fixing rate published 0915hrs local time is

of the continuing fiscal and political woes.

sometimes not based on actual market trades); to assess if the three-month sovereign yield in China is a suitable interest rate instrument for SDR basket inclusion and, last but not least, a suitable weight for the yuan in the SDR basket.

Liberalization of yuan and capital account to accelerate In the run-up to the IMF decision, we think that Chinese authorities are likely to accelerate the liberalisation of the capital account and exchange rate regime. A wider yuan trading band from +/-2% to +/-3% is expected. A more market based yuan fix (published at 0915hrs local time) will be desired, though the benchmark exchange rates calculated daily at 1500hrs local time by the China Foreign Exchange Trading System can be used as a representative exchange rate for SDR valuation purposes. We also expect the central bank to give greater assurance that they will support foreign central banks in conducting necessary foreign exchange transactions during periods of thin liquidity in the onshore market. Less restrictions on SDR members’ access to onshore hedging instruments is also likely.

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

06-Aug 6.21 63.76 1,172 1.38 35.15 31.72 13,515 64 2.79 12.77 4.17 27.50 310 3.49 16.36 682

Q3 2015 6.26 65 1,180 1.40 35.40 32.00 13,700 52 2.85 12.20 3.95 27.50 315 3.15 15.50 630

Q4 2015 6.30 65 1,200 1.42 35.70 32.50 14,000 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 1,210 1.43 35.80 32.60 14,100 48 2.85 12.20 3.85 27.40 320 3.20 15.25 635

Q2 2016 6.37 66 1,230 1.45 36.00 32.80 14,400 47 2.85 12.20 3.85 27.25 325 3.25 15.25 640

Q3 2016 6.38 66 1,240 1.47 36.30 32.90 14,600 46 2.85 12.20 3.85 27.00 325 3.30 15.00 645

Q4 2016 6.40 66 1,250 1.48 36.70 33.00 14,700 45 2.85 12.20 3.85 26.75 330 3.40 15.00 650

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EM FX Weekly - Chinese yuan liberalization to accelerate

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