EM FX ended the week on a firm note, helped by softer than expected US data. Indeed, EM FX was up across the board for the entire week and was led by BRL, MXN, and ZAR. The ECB meeting this week will draw some interest, especially after the BOC last week became the second major central bank to hike rates.
National Bank of Hungary meets Tuesday and is expected to keep policy steady. The bank has been loosening policy quarterly via unconventional measures, which it just did at its June meeting. Further easing is possible at the September meeting. CPI rose only 1.9% y/y in June, the lowest since December and below the 2-4% target range
Malaysia reports June CPI Wednesday, which is expected to rise 3.8% y/y vs. 3.9% in May. Although the central bank does not have an explicit inflation target, falling price pressures should allow it to keep rates steady into 2018.
South Africa reports June CPI Wednesday, which is expected to rise 5.2% y/y vs. 5.4% in May. If so, this would be the lowest rate since November 2015 and would remain in the 3-6% target range. SARB then meets Thursday and is expected to keep rates steady at 7.0%. However, we think the weak economy will lead the bank to start an easing cycle in H2 2017. That leaves September 21 and November 23.
Poland reports June industrial and construction output, real retail sales, and PPI Wednesday. Consensus for y/y readings are 3.9%, 9.8%, 6.0%, and 2.1%, respectively. The economy remains robust, but price pressures are falling and so there is no urgency to hike rates. CPI rose only 1.5% y/y in June, the lowest since December and at the bottom of the 1.5-3.5% target range.
Taiwan reports June export orders Thursday. Exports and export orders have slowed a bit in recent months and so bears watching. The mainland economy appears to be holding up well, which should be reflected in Taiwan data.
Bank Indonesia meets Thursday and is expected to keep rates steady at 4.75%. CPI rose 4.4% y/y in June, above the 4% target but still in the 3-5% target range. While the bank signaled the end of the easing cycle after its last 25 bp cut in October, we think a tightening cycle is still some ways off.
Brazil reports mid-July IPCA inflation Thursday, which is expected to rise 2.84% y/y vs. 3.52% in mid-June. If so, this is further below the 4.5% target and even below the 3-6% target range. Next COPOM meeting is July 26, and markets are leaning towards another 100 bp cut to 9.25%. Brazil then reports June current account and FDI data Friday.
Korea reports trade data for the first 20 days of July Friday. This will be the first glimpse of global activity in H2. China appears to be starting off the second half on a firm note, which should help boost regional growth.
Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.
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