EM FX WeeklyCEEMA FX in action

Group Economics Macro & Financial Markets Research

Georgette Boele, Peter de Bruin,

Arjen van Dijkhuizen

+31 20 629 7789

11 June 2015

Political uncertainty sends the Turkish lira lower Russian ruble recovered on rise in oil prices and scaling back of CBR foreign currency purchases Chinese economic data bring signs of stabilisation

The Turkish lira drops on election outcome

The Turkish lira was the weakest emerging market currency

this week following the surprising election result. During

Monday morning trade the lira dropped by more than 5%

versus the US dollar. Afterwards it recovered. However, it is

still down more than 3% so far this week.

Turkish lira out of favour after the elections

With USD as basis, in %

Source: Bloomberg

Turkey’s AKP fails to secure a majority,…

The elections on the 7th of June unexpectedly showed that the

Turkish AKP lost its majority in parliament. It secured just 41%

of the vote, down from 50% in the 2011 elections. The loss of

the AKP suggests that the Turkish electorate disagrees with

President Erdogan’s increasingly authoritarian ambitions, and

the nationalistic tone of the AKP. Consequently, Turkey is now

faced with the first hung parliament since 2002. The resulting

coalition talks will be challenging, to say the least, and must be

completed within 45 days, according to Turkish law. If the new

parliament fails to form a government within this time period,

President Erdogan will need to call snap elections. The

resulting uncertainty weighed heavily on Turkish assets and

the lira.

The Russian ruble recovered on higher oil prices

The rise in oil prices had a delayed positive spillover effect to

Russian ruble. In addition, the fact that the Central Bank of

Russia (CBR) scaled back foreign currency purchases also

supported the ruble. Indeed, since the 5th of June, the CBR

has significantly scaled back its FX reserve interventions.

Containing any ruble weakness would also help the CBR to cut

its key rate by another 100bp during its meeting on the 15th of

June. This week the ruble recovered by almost 3% despite the

prospect that sanctions will be extended.

China’s May data show signs of stabilisation …

After weak April data indicated that China’s economy started

Q2 on a weak note, May data showed more signs the

economy is stabilising, benefiting from previous easing

measures. Still, the latest data present a rather mixed bag.

PMIs, housing sales, industrial production and retail sales

show a picture of stabilisation or even improvement, while

trade data, headline inflation and fixed investment point to

ongoing weakness. The high frequency activity data published

on Thursday also gave mixed signals, but overall were a touch

better than in April. The Chinese yuan moved sideways for the

week.

Stimulus will keep annual growth close to 7% target

We expect some improvement in growth momentum in the

coming months, as the authorities remain committed to add

measured monetary and fiscal stimulus and on the expectation

of strengthening external demand from advanced economies.

We have left our growth forecast for 2015 unchanged at 7%, in

line with the official target.

ABN AMRO emerging market currency forecasts

Source: ABN AMRO Group Economics

-4

-3

-2

-1

0

1

2

3

4

RU

B

CZK PLN

MXN ZAR

HU

F

CLP

BR

L

SGD

THB

KR

W

TWD

CN

Y

IDR

INR

TRY

11-Jun Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016USD/CNH 6.21 6.22 6.26 6.30 6.35 6.37 6.38 6.40USD/INR 64 64 65 65 65 66 66 66USD/KRW 1,109 1,100 1,130 1,130 1,140 1,150 1,150 1,150USD/SGD 1.35 1.34 1.37 1.40 1.42 1.43 1.44 1.45USD/THB 33.74 33.50 33.80 34.00 34.50 34.80 34.80 34.80USD/TWD 30.93 30.80 31.30 31.50 31.80 32.00 32.20 32.50USD/IDR 13,322 13,200 13,500 13,700 13,800 13,900 14,000 14,100USD/RUB 55 53 52 50 48 47 46 45USD/TRY 2.75 2.65 2.85 2.85 2.85 2.85 2.85 2.85USD/ZAR 12.43 12.00 12.20 12.20 12.20 12.20 12.20 12.20EUR/PLN 4.14 3.95 3.95 3.90 3.85 3.85 3.85 3.85EUR/CZK 27.50 27.50 27.50 27.50 27.40 27.25 27.00 26.75EUR/HUF 313 310 315 320 320 325 325 330USD/BRL 3.12 3.05 3.25 3.20 3.20 3.10 3.10 3.10USD/MXN 15.53 15.25 15.50 15.50 15.25 15.25 15.00 15.00USD/CLP 631 630 630 630 635 640 645 650

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