EM FX Weekly – CEEMA FX in action

by: Georgette Boele , Peter de Bruin , Arjen van Dijkhuizen

  • 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.

150611 - EM1

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.

150611 - EM2