Em fx weekly 8 may 2015

EM FX Weekly

Group Economics Macro & Financial Markets Research Roy Teo +65-6597 8616, Georgette Boele,

Mixed performance

Peter de Bruin +31 20 343 5619

8 May 2015 • •

Asian currencies fail to profit from dollar weakness Monetary policy in Eastern Europe remains supportive

Mixed performance

Polish Central Bank keeps rates on hold at ultra-low levels

In general, emerging market currencies showed a mixed

Following last week’s aggressive rate cut by the Russian

performance despite the weak US dollar. Asian currencies

central bank, this week, the central bank of Poland left its

were generally weak, while Eastern European currencies and

reference rate on hold, at 1.5%, as was widely expected. The

currencies of commodity exporting countries performed

NBP had reduced its key rate earlier this year in response to

relatively well. The latter is mainly the result of higher

the fall in oil prices. However, in its statement it stressed that

commodity prices.

rates are likely to remain on hold for the foreseeable future.

Indeed, an ‘expected gradual acceleration’ of growth, helped

Asian FX lower: driven by weaker domestic sentiment

by a ‘recovery’ in the eurozone and a ‘good situation’ in the

Despite weak investor sentiment towards the US dollar in the

domestic labour market were all expected to reduce the risk of

past week, most Asian currencies did not fare well due to

inflation remaining below the target in the medium term. We

weaker domestic data. The South Korean won (KRW) declined

think that we have to wait for the first rate hike at least until the

by more than 1% as the manufacturing sector contracted at the

second half of 2016.

fastest pace since October 2014. We also suspect that the central bank was in the market to weaken the won due to

…while the Czech central bank will continue to use the

increasing concerns that the weak Japanese yen would

koruna as policy instrument

adversely impact South Korea’s exports. The Indonesian

Meanwhile, the Czech central bank, which has already brought

rupiah (IDR) also underperformed as economic growth in the

its policy rate to a technical zero, reiterated its intention to use

first quarter expanded at the slowest pace since the third

the koruna exchange rate as an additional instrument to ease

quarter of 2009. With inflation still above the central bank’s

monetary policy conditions. As such, the koruna is kept close

target, the unfavourable growth and inflation dynamics were

to CZK 27 to the euro. In addition, the central bank stressed

negative for the IDR. The Indian rupee (INR) was also not

that it remains ready to move the exchange rare to an even

spared due to slower growth outlook and concerns that firmer

weaker level if deflationary risks were to materialize. We think

oil prices will widen the trade deficit.

that such a move will not be necessary. The Czech economy, as the Polish economy, will benefit from the upswing in the

KRW real effective exchange rate and exports growth %

Reverse scale Level

50 40 30 20 10 0 -10 -20 -30 -40 Jan-08 Apr-09

80 90 100 110 120 Jul-10

Oct-11 Jan-13 Apr-14

Exports YoY% (lhs)

KRW REER (rhs)

Source: BIS, South Korea Ministry of Trade, Industry and Energy

eurozone, its main trading partner, and an improvement in its labour market. This should underpin growth and help inflation to eventually pick up again.

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

08-May 6.21 64 1,088 1.33 33.53 30.70 13,107 51 2.69 12.02 4.06 27.50 303 3.03 15.30 609

Q2 2015 6.25 63 1,100 1.36 32.80 31.50 13,100 53 2.80 12.00 3.95 27.50 310 3.30 15.25 630

Q3 2015 6.30 64 1,130 1.39 33.20 32.00 13,200 52 2.85 12.20 3.95 27.50 315 3.25 15.50 630

Q4 2015 6.35 64 1,130 1.40 34.00 32.10 13,300 50 2.85 12.20 3.90 27.50 320 3.20 15.50 630

Source: ABN AMRO Group Economics

Q1 2016 6.40 64 1,140 1.42 34.50 32.30 13,400 48 2.85 12.20 3.85 27.40 320 3.20 15.25 635

Q2 2016 6.41 65 1,150 1.43 34.80 32.50 13,500 47 2.85 12.20 3.85 27.25 325 3.10 15.25 640

Q3 2016 6.43 65 1,150 1.44 34.80 32.80 13,600 46 2.85 12.20 3.85 27.00 325 3.10 15.00 645

Q4 2016 6.45 65 1,150 1.45 34.80 33.00 13,700 45 2.85 12.20 3.85 26.75 330 3.10 15.00 650

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EM FX Weekly - Mixed performance

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