Emerging Markets: All Up Against the US Dollar

All, Up, Against, US Dollar, Emerging Markets, ZAR, MXN. BRL, PHP, Trump, fx trader, forex

27 Mar 2017

Emerging Markets FX ended the week on a firm note. Indeed, virtually all of EM was up against the dollar last week, led by ZAR and MXN. BRL and PHP were the laggards. It remains to be seen how markets react to the failure to pass the health care reform in the US. Will Trump move on the tax reform? Can the Republicans proceed with its agenda in light of the fissures within the party?

Mexico reports February trade and January GDP proxy Monday. Banco de Mexico meets Thursday and is expected to hike rates 25 bp to 6.5%. Mid-March CPI rose 5.29% y/y, a cycle high and further above the 3% target. We think Banxico will have to hike several more times this year to head off inflationary pressures.

Hungary central bank meets Tuesday and is expected to keep policy unchanged. However, there is a chance that it makes a small symbolic cut to the deposit cap. CPI rose 2.9% y/y in February, the highest since January 2013 but just below the 3% target. While easing is nearing an end, we do not see tightening until next year.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%. CPI rose 1.4% y/y, down from the cycle high of 1.6% y/y in January and still well within the 1-4% target range. We think base effects will push inflation higher this year, and should cause the BOT to tilt more hawkish.

Czech central bank meets Thursday and is expected to keep policy unchanged. The debate continues over when the bank will actually exit the koruna cap. This meeting seems too soon, but May 4 and June 29 should be seen as very “live.”

Brazil central bank releases its quarterly inflation report Thursday. Mid-March IPCA inflation rose 4.73% y/y, the lowest since September 2010. Markets are looking for a 100 bp cut to 11.25% when COPOM meets April 12. Brazil also reports January retail sales that day, which are expected at -4.3% y/y vs. -4.9% in December. It also reports central government budget data Thursday, to be followed by consolidated budget data Friday.