EM FX ended last week on a firm note, shrugging off political risk that consumed markets earlier in the week. With US rates remaining low, the dollar remains under pressure against the majors, and so EM FX is likely to benefit also. Yet we warn investors not to jump back into EM countries that are inherently riskier, such as Brazil, South Africa, and Turkey. We continue to favor Asia in the current environment.
Taiwan reports April export orders Monday, which rose 12.3% y/y in March. It reports April IP Tuesday, which is rose 3.2% y/y in March. The central bank does not have an explicit inflation target, but low price pressures should allow it to keep rates steady at its quarterly policy meeting in June.
Singapore reports April CPI Tuesday, which is expected to rise 0.5% y/y vs. 0.7% in March. The MAS does not have an explicit inflation target, but low price pressures led it to keep policy accommodative at its April meeting. Many look for a change in MAS forward guidance at its October meeting that sets the table for tightening in 2018. Singapore then reports April IP Friday, which is expected to rise 5.5% y/y vs. 10.2% in March.
National Bank of Hungary meets Tuesday and is expected to keep rates steady at 0.90%. The bank has moved to making quarterly adjustments to its unconventional policy, and so any changes would likely come at the June meeting. That said, the economy remains robust even as price pressures are rising.
Brazil reports mid-May IPCA inflation and April current account data Tuesday. IPCA is expected to rise 3.73% y/y vs. 4.41% in mid-April. If so, this would be the lowest rate since 2007. Yet recent political turbulence may lead COPOM to be more cautious at the next meeting on May 31. Brazil reports April central government budget data Thursday and then consolidated budget data Friday.
Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%. CPI inflation eased to 0.4% y/y in April, further below the 1-4% target range. This will allow the BOT to stay on hold for now.
