march 2017 asia fx outlook trump trade vs. the fed, which ... · jan-15 jan-16 jan-17 us - jp 10yr...

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, LEGAL ENTITY DISCLOSURE AND ANALYST CERTIFICATIONS.

Asia FX Outlook Trump trade vs. the Fed, which will drive FX?

March 2017

Fixed Income Analyst + 65 6212 3412, [email protected]

Ray Farris, Head of Fixed Income Research and Economics, Asia Pacific

mailto:[email protected]



USD-ASIA outlook

More Asian FX strength near term

− USD rangebound rather than trending

− Asian growth momentum solid, even if peaking

Higher US yields and changes in US fiscal policy to drive broad USD strength

later this year and into 2018

INR, IDR more resilient thanks to real rate support

KRW, TWD better now, but vulnerable later if risk pulls back

CNY likely stable through political transition

2

Credit Suisse FX Forecasts

3

Spot 3-Month 12-Month Spot 3-Month 12-Month

G10 EURUSD 1.079 1.03 1.00 LATAM USDBRL 3.088 3.200 3.500

USDJPY 111.39 115 112 USDCLP 662.8 670.0 680.0

EURCHF 1.071 1.06 1.06 USDCOP 2,921 3,100 3,150

USDCHF 0.993 1.02 1.06 USDMXN 19.00 19.00 22.00

GBPUSD 1.248 1.20 1.20 ASIA USDCNY 6.8856 6.980 7.180

USDCAD 1.333 1.35 1.37 USDCNH 6.8738 6.990 7.190

AUDUSD 0.766 0.72 0.70 USDIDR 13,331 13,100 13,600

NZDUSD 0.704 0.66 0.67 USDINR 65.40 64.80 67.00

USDNOK 8.469 9.03 9.50 USDKRW 1,120 1,100 1,170

USDSEK 8.799 9.03 9.15 USDMYR 4.431 4.350 4.500

EMEA USDRUB 57.73 58.0 60.0 USDPHP 50.35 50.80 51.80

USDTRY 3.616 3.80 4.10 USDSGD 1.400 1.410 1.445

USDZAR 12.561 13.50 14.25 USDTHB 34.66 34.60 35.50

USDTWD 30.50 30.00 32.00

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service

USD-Asia historically tracks USD-G10

It is a historical regularity through past cycles that USD-Asia follows USD-G10 directionally

80

85

90

95

100

105

110

11570

75

80

85

90

95

100

105

Jan-03 Jan-07 Jan-11 Jan-15

DXY

Asia USD basket, inverted (RHS)

85

86

87

88

89

90

91

9292

94

96

98

100

102

104

Sep-15 Jan-16 May-16 Sep-16 Jan-17

DXY

Asia USD basket, inverted (RHS)

4

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

USD: Border tax adjustment risk

Corporate tax change could also be a major driver in H2 2017 or 2018 on two

fronts:

− Possible lower tax rate for one-off repatriation of overseas profits

− Shift to border tax adjustment: theory argues for the USD to rise by t/(1-t)

immediately in response to the imposition of a border tax regime

A 20% tax rate would imply a 25% rally in the USD in theory

Perfect, immediate adjustment is of course unlikely, but meaningful upward

pressure on the USD is a clear risk

5

USD: But reasons to curb enthusiasm also exist

The two previous bouts of structural USD strength coincided with a wider current account deficit in the US

A similar dynamic might create a potential “home” for investment outflows from surplus economies such as Japan and Germany

6

0

20

40

60

80

100

120

140

160

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

1973 1976 1979 1982 1985 1989 1992 1995 1998 2001 2004 2008 2011 2014

Current account bal, % of GDP

Goods balance, % of GDP

Services balance, % of GDP

Income balance, % of GDP

DXY (right)


USD: Long-term limits to dollar strength persist

The US has a net international investment deficit

− The deficit is primarily a consequence of portfolio investments

A stronger USD implies that, ceteris paribus, assets are likely to grow at a slower speed than liabilities

− The NIIP deficit is therefore likely to widen as the USD strengthens

− This represents a natural long-term circuit breaker against the USD strength

7

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

FDI Portfolio Derivatives Other Reserveassets

Total

US NIIP: Gross Breakdown (%GDP)Assets % GDPLiabilities % GDP

-50%

-40%

-30%

-20%

-10%

0%

10%

FDI Portfolio Derivatives Other Reserveassets

Total

US NIIP: Net Breakdown (%GDP) Net % GDP


EUR: Bearish

EURUSD forecast: 1.03 in 3m, 1.00 in 12m

Some positives exist

− Growth is improving and current account surplus is supportive

But we expect monetary policy to remain easy

− Output gap remains large, depressing wages and core inflation

− Nonetheless, bouts of market fear of ECB taper may occur; we think these will

be false alarms

Politics is the key problem and should be EUR bearish, in our view

8

EUR: Monetary divergence – not yet

Euroarea real yields have kept pace with US real yields

We think the market is underpricing the Fed relative to the ECB

But this may have to wait until H2 to eventuate

9

31-Dec-15 30-Jun-16 30-Dec-16

-1.75

-1.50

-1.25

-1.00

-0.75

-0.50

-0.25

US 1y2yr real yield, % EU 1y2yr real yield, %

Source: Credit Suisse Locus

31-Dec-15 30-Jun-16 30-Dec-16-1.75

-1.50

-1.25

-1.00

-0.75

1.050

1.075

1.100

1.125

1.150

EU - US 1y2yr real yield, % EURUSD (RHS)

Source: Credit Suisse Locus

JPY: Neutral

USDJPY forecast: 115 in 3m, 112 in 12m

However, two factors lead us to expect JPY recovery later this year:

− Risk off, either because of market unfriendly European political developments

or higher US yields challenging US equity valuations

Not forecasts per se, but high enough probabilities to incorporate into our USDJPY outlook

− BoJ may hike or taper asset purchase earlier than expected

10

JPY: Real yields are driving the yen

As with the EUR, JPY real yields have kept pace with USD yields

For the JPY to weaken the Fed needs to turn more aggressive

11

99

104

109

114

119

124

1.3

1.5

1.7

1.9

2.1

2.3

2.5

Jan-15 Jan-16 Jan-17

US - JP 10yr govt, %

USDJPY (RHS)

100

105

110

115

120

125

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40


US-JPY real 10y yield,%

USDJPY (RHS)


AUD: Bearish

AUDUSD forecasts: 0.72 in 3m and 0.70 in 12m

Market pricing for rates may be too complacent

− Core inflation is structurally weak

− Continued weaknesses in the labor market, housing investment and domestic

consumption remain key domestic risks going forward

Political pressure to maintain AAA rating rules out fiscal stimulus

The case for further macro prudential measures on the housing market is

strengthening

12

AUD: Disinflation forced the RBA’s hand

13

Measures of core inflation have been decelerating since last year, putting pressure on the RBA to cut

– versus pricing for no change

Real yield differential risks being dragged lower by RBA-Fed policy divergence

AUD core inflation measures

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, RBA

CNY: Stability the main focus

We forecast CNY to be stable against its basket through 4Q, before

weakening to 92.5 in 1Q 2018

USDCNY spot forecasts: 6.98 and 7.18 in 3m and 12m

− USDCNH forecasts: 6.99 in 3m and 7.19 in 12m

The government seems focused on stability into political transition

The CNY’s problem is monetary conditions are too easy

− Expansionary monetary/credit policy vs. US tightening

− Real deposit rates are too low for an economy growing 6.5-6.8%

A weak USD can allow for opportunistic devaluation against the basket, but should reverse when USD regains strength

14

CNY: What is the government trying to accomplish?

Clear shift to managing CNY vs. a basket, but with what target?

We think they are trying to transition to allowing CNY flexibility driven by the

direction of BoP flows, but…

…subject to the constraint that the pace of change in USDCNY doesn’t spur

self-reinforcing speculative flows

Implies bouts of a CNY trend followed by periods of reversal

− Easy to allow the CNY to trend vs. the basket when USD-G10 is sideways

− Need to halt or reverse the CNY trend when USD-G10 is on the move

15

CNY: What is the government trying to avoid?

Many like to discuss and even recommend CNY devaluation, particularly as a “weapon” in retaliation to US protectionism

A key problem with this is that almost everything the government has done recently shows that it does not want CNY instability or devaluation:

− Increased intervention to support the CNY

− Reversed CNY depreciation vs. the basket

− Tightened implementation of capital controls and reversed internationalization of the CNY

The message we see is that the government believes that devaluation comes with costs, not just benefits

16

CNY: Opportunistic devaluation?

The PBoC has resumed basket depreciation since mid-March

Likely opportunistic as DXY falls, and should reverse if DXY strengthens

6.60

6.65

6.70

6.75

6.80

6.85

6.90

6.95

7.00

Jun-16 Aug-16 Oct-16 Dec-16 Feb-17

USDCNY fix

92.5

93.0

93.5

94.0

94.5

95.0

95.5

96.0

96.5

97.0


CNY CFETS

Source: Credit Suisse, CEIC

17

Monetary policy has begun to tighten

The PBoC has increased the level and volatility of the repo rate

The move seems to be to targeting leveraged speculation in bonds, not slow broad credit and GDP

growth

18

2.20

2.40

2.60

2.80

3.00

3.20

3.40


7-day, vol weighted, 20 day avg

7-day fixing, 20 day avg

5.9

6.1

6.3

6.5

6.7

6.9

-6.0

-5.5

-5.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

Jun-12 Jun-14 Jun-16

US-CH rate spread (1y US swaprate vs. weighted average ChinaWMP rate, %

USDCNY (RHS)


CNY: Capital outflows seem to have slowed

Capital outflows stopped in February, but likely in part thanks to supportive seasonality

Fundamentally, government’s tighter implementation of controls, PBoC tightening, and a more

subdued USD should allow outflows to moderate

19

-300

-250

-200

-150

-100

-50

0

50

100

Jan-13 May-14 Sep-15 Jan-17

From FX reserves

From PBoC foreign assets

From PBoC FX assets

From FX settlement

Capital flow estimated, excluding trade balance, $bn

-200

-150

-100

-50

0

50

100

Jun-13 Apr-14 Feb-15 Dec-15 Oct-16

Capital flows, $bn

Trade balance, $bn

Net change in PBoC FX assets, $bn


CNY: Monetary conditions – the fundamental problem

Real deposit rates are too low for an economy growing 6.5–6.8%

Problem will worsen if inflation continues to rise

20

CNY rates are household deposit rates including Wealth Management products

-6

-4

-2

0

2

4

6

8

08 09 10 11 12 13 14 15 16

Household real deposit rate ( including WMP,deflated by CPI, %p.a)

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4


USDCNY

US-CN interest rate, % (RHS)

US-CN real rate, % (RHS)


CNY: Hard to hold a parity with this monetary policy

The PBOC has more than offset the monetary impact of its FX reserve losses through OMO and

lending to banks

Narrow money is growing rapidly even as FX reserve backing for this shrinks

21

-20

-10

0

10

20

30

40

50

12 13 14 15 16

Domestic contribution

FX contribution

Reserve money growth (RRR adjusted, %yoy, 3mma)

15

20

25

30

35

40

45

50

Jan-10 Apr-12 Jul-14 Oct-16

PBOC foreign assets,RMB tn

M1, RMBtn


CNY: Credit and broad money excesses likely to rise

We expect the government to continue targeting 12–13% credit growth in support of 6.5%+ GDP

growth

Actual credit growth is likely to be stronger

22

90%

130%

170%

210%

250%

97 99 01 03 05 07 09 11 13 15 17

Credit to GDP (%)

Linear (Credit to GDP (%) )


IDR: Outperformance of market pricing

USDIDR forecasts: 13,100 in 3m and 13,600 in 12m

Growth should rise to about 5.2% in 2017

− May generate some bounce in equity flows in H1 2017

− Current account deficit should narrow on improving exports

Monetary policy has turned defensive of the IDR

− BI doesn't want IDR weakness while removal of electricity subsidies is increasing inflation

− BI has stopped cutting rates, holding real rates historically high

We expect S&P to upgrade Indonesia this year

23

IDR: C/A deficit should improve

Stronger hard commodity prices and improving exports are boosting the trade balance

We expect the current account deficit to narrow to 1.5% of GDP in 2017 from 1.8% in 2016.

24

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-10 Jul-11 Jan-13 Jul-14 Jan-16

Non-oil trade balance, US$bn, 3m avg

Oil trade balance, US$bn, 3m avg

Trade balance, US$bn, 3m avg

25

35

45

55

65

75

85

95

105

115

125-1.6

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

Jan-09 May-10 Sep-11 Jan-13 May-14 Sep-15 Jan-17

Oil trade balance, US$bn, 3m avg

Brent, 1st future, 3m avg (RHS)

Source for all: Credit Suisse, CEIC

IDR: Interest rate support remains robust

Indonesian real yields are historically high

10yr yield of 7.85% is high relative to US yields, but Fed hikes should erode this as 2017 progresses

25

-4

-2

0

2

4

6

8

Jan-08 Mar-10 May-12 Jul-14 Sep-16

Real 10y, %

Real 3m depo rate, %

2

4

6

8

10

12

14

16

18


ID - US 10yr, %


INR: Support from improving governance and growth

USDINR forecasts: 64.8 in 3m and 67.0 in 12m

Monetary policy is proving hawkish

− Growth – inflation balance should turn INR supportive

Current account deficit should widen somewhat on trend

− Q2 seasonality is negative and may partly offset improvement in portfolio flows

Policy desire for REER moderation, in our view

− Intervention is likely to continue restricting USDINR downside

26

INR: Seasonality, not the current account per se

India’s current account is likely to deteriorate slightly: the trade surplus should weaken as growth

improves and the services and income surpluses are trending weaker

But seasonality is probably more important now than the level

27

-60

-50

-40

-30

-20

-10

0

10

20

30

Jan-10 Aug-11 Mar-13 Oct-14 May-16

Current account, $bnGoods, $bnServices & income, $bn

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Q1 Q2 Q3 Q4

INR average quarterly change incurrent account balance, $bn

Source: Credit Suisse, CEIC Source: Credit Suisse, CEIC, average monthly change from 2005 to 2016 excluding 2008 and 2009

INR: Monetary policy has surprised hawkish

The RBI failed to cut rates as expected and shifted from an easing to a neutral bias in February

Real interest rates should remain historically high even after GST, oil, and the pay commission one-off

boosts to inflation this year

Monetary/credit background points to lower inflation on trend

28

-10

-8

-6

-4

-2

0

2

4

6


Real 1y deposit rate, CPI, %

fcst

3

5

7

9

11

13

15

10

12

14

16

18

20

22

24

Mar-05 Jul-07 Nov-09 Mar-12 Jul-14 Nov-16

M4, yoy %, 2y lag

CPI, yoy %, 3m avg


INR: Growth-inflation balance is becoming supportive

Our forecasts point to economic growth rising faster than inflation; historically this has supported the

INR

May not overwhelm the effect of the Fed rate hikes we expect, but should allow the INR to

outperform the current NDFs

29

-6

-4

-2

0

2

4

6

8

10

12

14

-25

-20

-15

-10

-5

0

5

10

15

20

Dec-2005 Dec-2008 Dec-2011 Dec-2014 Dec-2017

INR/USD (%yoy)

Nominal GDP growth less CPI inflation (%yoy, rhs)

fcst


INR: REER richness is a key risk to policy

Despite the hawkish policy shift, the authorities seem to have been intervening to limit INR strength

We believe they would prefer the INR REER to weaken; creates rate cut risk if inflation surprises to

the downside, in our view

30

-10

-5

0

5

10

15-40

-30

-20

-10

0

10

20

30

40

50

60

Mar-04 May-07 Jul-10 Sep-13 Nov-16

Exports, yoy% (LHS)

REER, yoy%, 2y lag

82

87

92

97

102

Jan-94 Sep-99 May-05 Jan-11 Sep-16

BIS INR real exchange rate


KRW: High beta FX play on equities

USDKRW forecasts: 1100 in 3m and 1170 in 12m

DXY weakness is allowing KRW recoupling with equities

Balance of payments likely to weaken on trend

− Current account surplus is weakening and rising tension with China hurts tourism

− Capital outflow pressure is rising structurally

Longer-term risks are rising

− Korea is exposed to the US via processing trade with China and its FTA with the US

− Structural problems are likely to constrain growth

31

KRW: Back to equities

Stall in US rates has allowed the KRW to recouple with equities

But equities are at risk of stalling if global growth momentum slows as we expect while rate spreads

are gradually moving against the KRW

32

1080

1100

1120

1140

1160

1180

1200

1220

1240

1800

1850

1900

1950

2000

2050

2100

2150

2200

Aug-15 Feb-16 Aug-16 Feb-17

KOSPI

USDKRW (RHS)

1000

1050

1100

1150

1200

1250

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

Mar-12 Nov-13 Jul-15 Mar-17

SK vs. US 1s5s yldcurve, bps

USDKRW (RHS)

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service,

KRW: Current account surplus is falling

The current account surplus has begun to roll over – we expect surplus to narrow to 6.1% of GDP

from 7.2%

Capital outflow pressure is rising structurally

33

-40

-20

0

20

40

60

80

100

120

Jan-11 Jun-12 Nov-13 Apr-15 Sep-16

Current account, US$bn, 12m sum

Basic balance, US$bn, 12m sum

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Jan-12 Jun-13 Nov-14 Apr-16

Net portfolio equity, $bn, 12m sum

Net portfolio debt, $bn, 12m sum


MYR: More positive equity sentiment

USDMYR forecast: 4.35 in 3m, 4.50 in 12m

Growth to rebound, FX flows more supportive

− Equity inflows have picked up strongly

− FX inflows from trade has increased

− April tends to see a rise in dividend repatriation

BNM intervention to limit MYR rally

− BNM needs to accumulate reserves against rising forward liability

A resumption higher in US yields would drive USDMYR higher

NDF restrictions may structurally hurt foreign participation

34

MYR: Better macro outlook supports FX

Infrastructure investment should drive growth recovery to 4.5% this year from 4.2% in 2016

Current account surplus should rise to 2.5% of GDP from 2%, thanks to both commodity prices and

better global demand

China investment and tourism have picked up strongly

35

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

USD mn Foreign Direct Investment into Malaysia

US China + HK

0

5

10

15

20

25

30

35

40

45

Mar-00 Nov-03 Jul-07 Mar-11 Nov-14

Current account, $bn, 12m sum

Basic balance, $bn, 12m sum

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC

MYR: Equity inflows are rising

Our EM equity strategist has recently upgraded Malaysia to 10% above benchmark

Bond outflows should slow after investors sharply cut positions

36

190

200

210

220

230

240

250

260

270

Jan-13 Mar-14 May-15 Jul-16

Total foreign holdings of debtsecurities, MYRbn

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Aug-16 Oct-16 Dec-16 Feb-17

MYR equity flow, $bn, 1m sum


MYR: BNM need to accumulate reserves

FX forward liability has grown to $9.6bn at the end of January

37

-10

-5

0

5

10

15

20

25

Dec-99 Oct-03 Aug-07 Jun-11 Apr-15

BNM FX forward position, US$bn

-12

-10

-8

-6

-4

-2

0

2

Jan-13 Mar-14 May-15 Jul-16

Forward

Cash

Malaysia net change in FX reserves position, $bn


SGD: Better 1H, weaker 2H

USDSGD forecasts: 1.410 in 3m, 1.445 in 12m

Rising inflation and improving global growth support NEER in 1H

− We expect MAS to hold policy unchanged in April

Pressures should return in 2H

− Singapore has a competitiveness problem

− REER overvaluation is driving market share losses and suppressing growth

− We expect inflation to fall back below 0

− GDP growth is likely to be disappointing, labor market deterioration an additional source of concern

38

SGD: Singapore has a competitiveness problem Goods and services market share is falling

Would take about five years to bring REER to

trend through deflation

39

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%Singapore Services Exports Market Share (%)

1.8%

1.9%

2.0%

2.1%

2.2%

2.3%

2.4%

1995 1998 2001 2004 2007 2010 2013

Singapore Global Goods Market Share (%)

70

80

90

100

110

120

130

Jan-75 Apr-85 Jul-95 Oct-05 Jan-16

SGD REER, CPI based

SGD REER, ULC based

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC 2015 estimated from IFS data

SGD: Inflation pressure on the NEER – up now, down later

The inflation path implies stronger NEER through H1, but lower levels in H2

Rising resident unemployment rate should also add to pressure on policy

40

-4

-2

0

2

4

6

8

10


CPI inflation, %yoy

SGD NEER, %yoy, assuming unchanged atcurrent levels

CS inflation fcst

Eurozone crisis

SARS outbreak 112

114

116

118

120

122

124

126

128


SGD NEER

Forecast assuming yoy

path tracking inflation

Policy bands

Slope


TWD: Equities and more tolerant policy

USDTWD forecasts: 30.0 in 3m, 32.0 in 12m

TWD has recoupled with equities and diverged from rate spreads

− Positive tech cycle has driven net foreign buying of Taiwanese equity

− Exports have surprised to the upside, boosting the trade surplus

− Policy is allowing REER appreciation

BoP strength should moderate somewhat as 2017 progresses

− Allowing USDTWD to catch up with interest rate spreads

41

TWD: Shifting back to equities

Strong tech cycle is driving export outperformance and inflows into equities

And allows USDTWD to decouple from rate spreads

42

28

29

30

31

32

33

34

356500

7000

7500

8000

8500

9000

9500

10000

10500

Jan-11 May-13 Sep-15

TWSE

USDTWD (RHS)

28

29

30

31

32

33

34

35

36

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

Jan-10 May-12 Sep-14 Jan-17

US-TW 2y swap, %

USDTWD (RHS)


TWD: More policy tolerant to REER appreciation

Multi-year breaks stronger on a REER basis

and vs. the CNY

Threatening to break recent ranges vs. the

KRW

…but intervention has been modest

43

25.0

30.0

35.0

40.0

45.0


TWDKRW

3.9

4.1

4.3

4.5

4.7

4.9

5.1

5.3


CNYTWD

9698

100102104106108110112114116

Jan-06 Nov-08 Sep-11 Jul-14

TWD REER


TWD: BoP strength should moderate, but only gradually

Taiwan’s trade surplus has peaked and we expect its current account surplus to ease to 12.5% of

GDP in 2017 vs. 13.4% in 2016

However, portfolio outflows are also likely to slow as domestic financial institutions approach their

overseas investment limit

44

0

10

20

30

40

50

60

70

80

90

Jan-11 Sep-12 May-14 Jan-16

Taiwan portfolio investmentabroad, US$bn, 12msum

Current account, US$bn,12msum

50%

57%

60%

Increase of 1%-2%

40%

45%

50%

55%

60%

65%

4Q 2104 4Q 2015 4Q 2016(estimate)

2017guidance

Overseas investment as %of total portfolio of majorTaiwan's insurancecompanies

Source: Credit Suisse equity research, CEIC

THB: Strength limit by BoT intervention

USDTHB forecasts: 34.6 in 3m, and 35.5 in 12m

BoT intervention to limit THB strength

− Seasonally weaker current account balance makes BoT’s task easier in the next two

months

− Equity sentiment is weakening on disappointing earning outlook

But growth to recover and current account surplus should strengthen

− Exports and tourism driving current account improvement

− Growth to broaden to investment and private consumption

Domestic sector outflows are rising, albeit only slowly

− Net FDI outflow was about 2.5% of GDP in 2016, while net portfolio outflows

stabilised to a mere 0.5%

45

THB: BoT intervention the main drag

BoT bought $8.4bn in 2017 YTD, the most in Asia

Intervention seems to aim at slowing THB REER appreciation

46

95

97

99

101

103

105

107

109

111

Jan-10 Nov-11 Sep-13 Jul-15

THB REERCash Forward Net cash & forward

FX

reserves,

$bn, latest

Change

latest,

val

YTD,

$bn

YTD, %

of FX

reserve

Change

latest,

$bn

YTD,

$bn YTD, $bn

CNY 3005 7.0 -30.8 -0.9% 0.0 0.0 -30.8

INR 340 0.5 0.5 0.2% -0.1 -0.1 0.4

IDR 120 3.0 2.8 2.7% 1.1 1.1 3.9

KRW 374 0.0 0.6 0.2% 0.2 0.2 0.7

MYR 92 0.0 -0.1 -0.1% -1.2 -1.2 -1.4

PHP 81 -0.2 0.0 0.0% 0.1 0.1 0.1

SGD 253 0.4 3.7 1.5% 3.1 3.1 6.8

TWD 438 1.0 -0.6 -0.1% n/a n/a n/a

THB 175 3.7 9.7 6.5% 0.9 -1.3 8.4


THB: Flow less supportive in the coming months

Negative current account seasonality to drive surplus down by $3bn by April

Recent equity inflows have started to reverse

47

Average monthly change from 2006 to 2016, excluding 2008 and 2009

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Thailand current account monthlychange, $bn

-4

-3

-2

-1

0

1

2

3

4

Feb-11 Feb-13 Feb-15 Feb-17

THB equity flow, $bn, 1msum

THB equity flow, $bn, 3msum


THB: Structural strength from rising current account surplus

Current account surplus is likely to rise to 12.5% of GDP from 11.4%

Net FDI outflow was about 2.5% of GDP in 2016, while net portfolio outflows stabilised to a mere

0.5%

Institutional capacity appears to be constraining domestic outward investment

48

-30

-20

-10

0

10

20

30

40

50

60

Jan-06 Sep-08 May-11 Jan-14 Sep-16

Current account balance, $bn, 12msum

Financial account and errors &omissions, $bn, 12m sum (positive= outflows)

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

Jan-06 May-08 Sep-10 Jan-13 May-15

Financial account assets, $bn, 12msum

Direct Investment assets

Portfolio investment assets, $bn, 12msum

Other Investment assets, $bn, 12msum


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