Investment Research 20 August 2015 Emerging Markets Briefer · unemployment and a substantial increase in real wages due to deflation as consumer prices fell 0.8% y/y in July. We

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Investment Research

For the past 10 years, the CNY has been the anchor of stability in global FX markets, appreciating against all currencies. This has now ended, as the Chinese authorities have allowed market forces to play a greater role (note that markets have tried to weaken the currency since late 2014) and the CNY is now a lot closer to fair value. We expect it to depreciate by around 5% versus the USD over the coming year. CNY reforms and likely depreciation have two major implications for Nordic corporates: (1) they should begin to treat the CNY as an independent currency rather than treat it as a USD proxy and (2) they should shift hedging from CNY NDFs to CNH DFs as the curves will converge and liquidity in USD/CNY NDF will gradually disappear. We examine this further in the hedging sections.

The beginning of CNY depreciation is the latest blow to emerging market currencies. CNY depreciation is particularly negative for currencies whose economies have substantial trade with China such as TWD and KRW, or currencies that are managed against a trade-weighted basket where the CNY carries a large weight, in particular SGD and to a lesser extent MYR (see Chart 1). In addition, high leverage (e.g. in China, Malaysia and Thailand) and political turmoil (Malaysia) are medium-term negatives for Asia. Hence, we have lifted our USD/AXJ forecasts above forwards over the next one to 12 months.

However, CNY depreciation is only the tip of the iceberg for emerging markets. The commodity price collapse has driven the plunge in emerging market FX over the past three months. The next driver is likely to be higher US rates (see FX Strategy: A perfect storm for

EM currencies, 5 August). We see CA deficit currencies such as the ZAR and BRL as particularly vulnerable to higher USD funding costs. In addition, we believe downside risks to oil prices will put further pressure on the Russian rouble. The CNY depreciation and renewed pressure on oil prices and the RUB triggered the large devaluation of the Kazakh tenge (KZT) over the past few days and we think there is room for it to fall further.

In our view, the CEE countries and currencies are immune to the commodity collapse and CNY depreciation. Hungary and the Czech Republic have solid external balances and growth prospects are improving in Poland. Also, the CEE currencies have a negative, albeit small, correlation to CNY (see Chart 2). Hence, over both the short and medium term, we expect CEE currencies to outperform and Asia to underperform, with Latin America in between.

Chart 1: Asian FX to fall on CNY* Chart 2: CEE FX is immune to CNY*

* Based on the correlation between the daily %

changes over the past two years (mid-August

2013 to mid-August 2015)

Source: Macrobond Financial

* Based on the correlation between the daily %

changes over the past two years (mid-August

2013 to mid-August 2015)

Source: Macrobond Financial

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

TWD SGD MYR KRW HKD IDR THB PHP INR

Correlation with CNY

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

MXN ZAR CLP BRL RUB TRY PLN HUF CZK

Correlation with CNY

20 August 2015

Global Head of FICC Research Thomas Harr +45 45 13 67 31 [email protected]

Senior Analyst Flemming Jegbjærg Nielsen +45 45 12 85 35 [email protected]

Senior Analyst Morten Helt +45 29 62 62 33 [email protected]

Analyst Vladimir Miklashevsky +358 10 546 7522 [email protected]

Analyst Rokas Grajauskas +370 5 215 6231 [email protected]

Emerging Markets Briefer Short Asia, long CEE

Contents

Poland ...................................................... 2

Czech Republic ................................... 3

Hungary ................................................... 4

Baltics ...................................................... 5

Russia ...................................................... 6

Ukraine .................................................... 7

Kazakhstan ........................................... 8

Turkey ...................................................... 9

South Africa ...................................... 10

Brazil ...................................................... 11

China ...................................................... 12

India ........................................................ 13

Hedging recommendations ..... 14

FX forecasts ...................................... 15

Forecasts vs forwards ............... 20

Monetary policy calendar ......... 21

http://danskeanalyse.danskebank.dk/abo/FXStrategyEMFX050815TH/$file/FXStrategyEMFX_050815TH.pdf

http://danskeanalyse.danskebank.dk/abo/FXStrategyEMFX050815TH/$file/FXStrategyEMFX_050815TH.pdf

mailto:[email protected]





2 | 20 August 2015 www.danskeresearch.com

Emerging Markets Briefer

Poland Macro outlook

The initial estimate showed that Polish GDP grew 0.9% q/q in Q2 and 3.3% y/y. This was the seventh consecutive quarter with an annual growth rate above 3%. The economy continues to be supported by private consumption driven by falling unemployment and a substantial increase in real wages due to deflation as consumer prices fell 0.8% y/y in July. We expect real GDP growth of 2.9% in 2015 and 3.2% in 2016 but stress that the risks to our forecasts are mostly on the upside. Political risks, however, have risen sharply recently in Poland and that on its own could weigh on economic growth.

Monetary policy outlook

We expect the Polish central bank (NBP) to keep interest rates unchanged at 1.5% for the rest of 2015. Inflation continues to undershoot significantly the central bank’s 2.5% target and we are likely to see continued deflation in the coming months, which theoretically should leave room for rate cuts. However, the pickup in Polish growth is likely to reduce the feeling of urgency regarding further rate cuts.

FX outlook

The zloty is currently trading close to what we would consider fair value levels. Currently the risk to the zloty is shifting from global factors – such the Russia-Ukraine crisis – to domestic. In particular, the Polish parliamentary elections (due no later than October) are likely to cause more PLN volatility in the next 1-3 months.

We target the cross at 4.20 in 1M and 4.25 in 3M. On a 6-12M horizon, we expect the zloty to remain supported by both a moderately more positive outlook for growth and the ECB’s QE programme as well as the end of the central bank rate cuts. Hence, we expect EUR/PLN to fall back towards 4.15 in 6-12M.

Record-low policy rates EUR/PLN

Source: Macrobond Financial Source: Macrobond Financial

PLN

Credit rating:

S&P: A- (positive)

Currency regime:

Free float (freely convertible)

Inflation target:

2.5% +/-1pp

Macro forecasts

Source: Macrobond Financial, Danske Bank

Markets

Interest rate forecast

Source: Danske Bank Markets

FX forecasts


2014 2015 2016 2017

GDP (% y/y) 3.5 2.9 3.2 3.7

GDP deflator (% y/y) 0.5 1.2 1.7 1.9

CPI (% y/y) 1.0 0.1 -0.4 1.8

Private consumption (% y/y) 3.0 3.4 3.1 3.6

Fixed investments (% y/y) 9.5 6.9 3.5 3.6

Unemployment (%) 13.4 11.0 10.9 10.7

Current account (% of GDP) -1.3 -1.3 -1.8 -2.4

Policy rate

Next meeting

Next change

End-2015

National Bank of Poland (NBP)

1.50

02 September 2015

1.50

Unchanged 2015

Danske Forward

19-Aug 4.18

+3M 4.25 4.19

+6M 4.15 4.20

+12M 4.15 4.24

Danske Forward

19-Aug 3.78

+3M 4.01 3.76

+6M 3.84 3.77

+12M 3.77 3.78

EUR/PLN

USD/PLN



Czech Republic Macro outlook

Last week’s GDP release surprised heavily to the upside revealing a Q2 growth rate of 4.4 % y/y (consensus 3.4%). This is the fastest growth rate since 2007 and covered a general robustness across sectors with rising domestic demand and solid exports.

July inflation meanwhile surprised to the downside with the headline figure contracting 0.1% m/m against an expected 0.1% rise. The drop was in particular caused by lower prices on food and clothing. In terms of yearly growth rates the print translated to 0.6% and consequently inflation remains below the lower boundary of the CNB tolerance band.

We expect GDP to be supported in 2015 by stronger external demand, the low oil price and expansionary fiscal policy. This should eventually support inflation albeit from low levels.


On the back of the fall in EUR/CZK this year, the CNB was forced to intervene last month for the first time since 2013. We believe the CNB will defend the floor, but there is also a risk that the political pressure to give it up could mount if there are substantial inflows into the CZK. At the August monetary policy meeting the CNB kept rates on hold for the 22nd consecutive month and reiterated that the floor will remain ‘at a level of 27 to the euro or weaker at least until mid-2016’.

FX outlook

The Czech koruna is somewhat undervalued from a long-term perspective. To hit the 2% inflation target, the CNB will, in our view, have to keep the koruna undervalued.

EUR/CZK has moved lower since we published EM Briefer – June 2015 on 18 June, forcing CNB back into the market on 17 July. As the board states, there have not yet been any serious discussions about introducing negative rates – despite low inflation. This highlights the CNB’s dedication to the currency floor. We consequently maintain our EUR/CZK forecasts at 27.1 on 1-12M.

The biggest risk to this view is a prolonged test of the EUR/CZK floor, which could trigger a kneejerk change in monetary policy.

The inflation is at low levels

Floor under EUR/CZK to curb deflationary pressures


CZK

Credit rating:

S&P: AA- (stable)

Currency regime:


Inflation target:

2% +/-1pp

Macro forecasts


Markets



FX forecasts


2014 2015 2016 2017

GDP (% y/y) 2.0 2.7 3.1 3.2

GDP deflator (% y/y) 2.4 1.6 2.0 2.0

CPI (% y/y) 1.4 0.4 0.7 2.0



Unemployment (%) 7.4 7.6 7.3 7.2

Current account (% of GDP) -0.5 0.6 0.0 0.0

Policy rate

Next meeting

Next change Unchanged 2015

End-2015

Czech National Bank (CNB)0.05

24 Sep 2015

0.05

Danske Forward

19-Aug 27.02

+3M 27.10 26.96

+6M 27.10 26.89

+12M 27.10 26.83

Danske Forward

19-Aug 24.44

+3M 25.57 24.23

+6M 25.09 24.13

+12M 24.64 23.95

EUR/CZK

USD/CZK

http://danskeresearch.danskebank.com/abo/EMBriefer180615/$file/EMBriefer_180615.pdf



Hungary Macro outlook

The Hungarian economy grew less than expected in Q2 with GDP up just 0.5% q/q compared to 0.8% q/q according to the initial estimate. While the weaker than expected Q2 GDP figure challenges our above-consensus growth forecast of 3.3% in 2015, we still think it is likely that the Hungarian economy will grow more than 3% this year. Demand components of GDP due to be released on 4 September will give us more insight into what caused the slowdown in Q2.


The Hungarian central bank (MNB) cut its base rate by another 15bp to 1.35% on 21 July. While headline inflation (0.4% y/y in July) remains below the central bank’s target (3% ±1%), we expect inflation to pick up next year mostly due to base effects. This should allow the central bank some time to wait and see how prices and the economy develop and we expect it to stay on hold for the rest of 2015. That said, it is still our view that substantial forint appreciation could trigger further rate cuts.

FX outlook

The HUF has fairly attractive long-term fundamentals and the relatively large current account surplus is particularly helpful. Current risks to the forint seem fairly small and well-balanced to the up and downside.

While the low interest rate in Hungary is likely to keep the HUF attractive as a funding currency within the emerging market carry trade space, we continue to believe that Hungary’s fairly strong external position is likely to be supportive for the HUF in the medium term. We expect EUR/HUF to trade around 310 in the coming one to six months but still look for modest medium-term appreciation against EUR, targeting EUR/HUF at 305 in 12M.

Is the easing cycle over? EUR/HUF


HUF

Credit rating:

S&P: BB+ (stable)

Currency regime:


Inflation target:

3% (medium term)

Macro forecasts


Markets



FX forecasts


2013 2014 2015 2016 2017

GDP (% y/y) 1.6 3.6 3.3 3.0 2.5

GDP deflator (% y/y) 3.2 3.0 3.2 3.2 3.1

CPI (% y/y) 1.7 -0.2 0.1 3.2 3.1

Private consumption (% y/y) -0.1 1.6 2.7 3.0 2.6

Fixed investments (% y/y) 2.7 13.6 -5.7 1.5 2.5

Unemployment (%) 7.4 7.1 5.9 5.5 5.3

Current account (% of GDP) 3.0 3.3 2.8 2.5 2.3

Policy rate

Next meeting


End-2015

Hungarian Central Bank (MNB)1.35

25 Aug 2015

1.35

Danske Forward

19-Aug 310.0

+3M 310.0 310.4

+6M 310.0 310.6

+12M 305.0 311.9

Danske Forward

19-Aug 280.46

+3M 292.45 279.02

+6M 287.04 278.67

+12M 277.27 278.43

EUR/HUF

USD/HUF



Baltics

After a dip in Q1 15, growth has rebounded in all three Baltic states. On a q/q basis GDP in Q2 15 grew by 0.8% in Estonia, 1.2% in Latvia, and 0.8% in Lithuania. Y/y growth was respectively 1.9%, 2.9% and 1.3%. Considering the continuous negative effects of the recession in Russia, the Baltic economies are demonstrating a fairly resilient adjustment to the external environment.

Foreign demand

The key factor behind the latest dynamics in GDP growth in all three countries continues to be the contraction in exports to Russia. In the case of Estonia, exports to Russia dropped by a whopping 50% in Q1 15 (y/y) only to moderate somewhat to -36% in Q2 15.

Latvia has shown the strongest resilience to the recession in Russia with the y/y fall in exports to Russia diminishing to 15% in Q2 15 from close to 30% in Q1 15. For Lithuania the fall amounted to 32% y/y in Q2 15, but considering the greater significance of Russia as an export market, the effect on total exports and GDP growth was most pronounced in Lithuania among the Baltics. Russia remained Lithuania’s most important trading partner in H1 15, although its share has fallen to 13% from 21% a year earlier.

Total Estonian exports in Q2 15 contracted by 1%, Latvian exports grew by 3%, while Lithuanian exports experienced a 4% y/y contraction.

Retail trade, production and investment

Retail trade in Q2 15 remained strongest in Estonia, with y/y growth reaching 7.3% (growth in retail trade stood at a healthy 5.3% in both Latvia and Lithuania).

Industrial output expanded most in Latvia (5.5% as opposed to -1.9% in Estonia and 4.7% in Lithuania). In addition to the resumption of production in the biggest metallurgical factory in the country, Liepajas Metalurgs, in April, other industries, such as furniture and electronics, also registered significant gains.

Economic sentiment continues to be depressed in Estonia, balancing at around -4% since the beginning of the year and giving little hope for improvement in investment growth, which has been in negative territory since mid 2014.

Investment growth was negative for three consecutive quarters in Latvia as well, but improving sentiment should raise the average growth figure to 1.2% in 2015. Positive economic sentiment in Lithuania (averaging +3.1% in 2015) was reflected in investment, which expanded by close to 8% in Q1 15. Despite expecting the rate to have moderated somewhat in Q2 15, we expect investment in Lithuania to grow by 5.8% in 2015.

Wages and employment

The situation in the labour market continues to improve in all three countries. Unemployment in Q2 15 was 6.5% in Estonia, 9.8% in Latvia, and 9.4% in Lithuania. If compared to the same period in 2014, Lithuania recorded the biggest decrease (-1.8% compared to -0.5% in Estonia and -0.9% in Latvia).

Wages are rising fast in all three countries but growth is strongest in Latvia, suggesting the sharpest skills mismatch among the Baltics. Wages are expected to have maintained solid growth into Q2 15 and are forecast to average 5.1% in Estonia, 5.8% in Latvia, and 4.6% in Lithuania in 2015.

Estonia

Credit rating: S&P: AA- (stable)

Currency: EUR since 1 Jan 2011

Source: Macrobond Financial, Danske Bank Markets estimates

Latvia

Credit rating: S&P: A- (stable)

Currency: EUR since 1 Jan 2014


Lithuania

Credit rating: S&P: A- (stable)

Currency: EUR as of 1 Jan 2015


2014 2015 2016 2017

GDP (% y/y) 2.1 2.2 2.9 3.1

CPI (% y/y) 0.5 0.3 1.7 2.0


Fixed investments (% y/y) -2.8 -1.4 3.5 3.8

Exports (% y/y) 2.6 2.5 4.2 4.6

Trade balance (% of GDP) 1.3 1.6 1.6 1.0

Unemployment (%) 7.4 6.6 6.3 6.0

2014 2015 2016 2017

GDP (% y/y) 2.4 2.6 3.2 3.4

CPI (% y/y) 0.7 0.7 1.9 2.3



Exports (% y/y) 2.2 3.1 3.6 4.8

Trade balance (% of GDP) -2.9 -2.0 -2.1 -2.3

Unemployment (%) 10.8 9.7 9.2 8.8

2014 2015 2016 2017

GDP (% y/y) 2.9 2.5 3.2 3.4

CPI (% y/y) 0.3 -0.2 1.8 2.2



Exports (% y/y) 3.4 1.8 5.2 5.4

Trade balance (% of GDP) 1.1 -1.2 -1.2 -1.4

Unemployment (%) 10.7 8.6 8.2 7.9



Russia Macro outlook

The Russian economy has entered recession due to the weak oil price, the lagging effects of aggressive monetary policy, accelerated inflation, increased capital costs and falling investment amidst the challenging geopolitical situation. The official data, which already includes Crimea, reveals that H1 15 GDP shrank 3.4% y/y. The June demand data showed that the economy is nearing the bottom; in our view, it will reach it in Q3.

Fixed investment growth remained in negative territory for the 18th month in a row in June, falling 7.1% y/y. The softer monetary policy has not had an effect on the real economy yet. We expect fixed investment to fall 10% y/y in 2015 and residential construction to shrink in H2 15 on a fall in real incomes, the volatile RUB and high interest rates.

In July 2015 Russia issued its first inflation-linked securities, selling RUB75bn of 8y CPI linkers OFZ-IN at 91% of nominal. Demand approached RUB200bn and more than 25% of it was from foreign investors despite the challenging geopolitical environment. Given the premium offered, the real yield at issuance (3.84% pa) exceeded that offered by other emerging market issuers, which should drive up the price of linkers.

Unemployment remains low, falling to 5.4% in June, from 5.6% a month earlier. We expect it to reach 6.0% in 2015. The devalued RUB is protecting public sector jobs better than in the previous crisis. We see upside risk to our forecast as the RUB’s average rate has remained stronger than our fair value (69 to the USD) at an average oil price of around USD54/bl.

FX and monetary policy outlook

The CBR does not look too concerned about the continued weakening of the rouble. Given the feeble oil price in roubles, spot has lingered recently at levels that are challenging for the budget and the Russian economy. The central bank’s bigger concern has been the rouble’s volatility. This was seen in the latest key rate decision on 31 July. The CBR delivered a 50bp cut as we expected, slowing the rate of decline from the 100bp cuts it implemented previously this year.

The CBR reiterated its CPI forecast for June 2016, stating that annual inflation will fall under 7% and reach the 4% target in 2017. In July CPI had climbed slightly on increased tariffs to 15.6 y/y. We view the CBR’s call on inflation as extremely dovish, supporting the further easing of monetary policy.

The current macroeconomic situation is not making the rouble’s long-term prospects any brighter. Despite the ongoing slowdown in consumer price inflation and the strong current account, the Russian economy continues to shrink. We expect the rouble’s moderate weakening to continue. Any strengthening would pose significant risks to the budget as fewer and fewer roubles are being received due to the low energy prices.

Risk factors

We continue to believe that a sharp decline in the oil price remains the major risk. We base our macro forecasts on the average Brent price in 2015 of USD57/bl. Escalation of the geopolitical situation in Ukraine is another downside risk to our forecasts.

RUB

Credit rating:

S&P: BB+ (negative)

Currency regime:

Free float since 10 November 2014

Inflation target:

4% in 2017 (December-on-

December basis, ±1.5pp)

Macro forecasts

Source: CBR, Rosstat, Bloomberg, Macrobond

Financial, Danske Bank Markets estimates



FX forecasts


2013 2014 2015E 2016E

Real GDP (% y/y) 1,3 0,6 -6,2 0,5

Private consumption, real (% y/y) 5,0 1,3 -6,0 0,9

Fixed investments, real (% y/y) 1,4 -2,0 -10,0 -3,0

Exports in USD (% y/y) -0,8 -4,9 -34,0 9,0

Imports in USD (% y/y) 1,6 -9,8 -44,0 -2,0Brent oil price (USD, average) 108,7 99,5 57,0 60,0

Brent oil price (% y/y) -2,7 -8,5 -42,7 5,3MosPrime 3 months rate (% average) 7,0 10,5 15,0 8,5

M1 (RUB, trn) 7,7 8,3 8,8 9,3CBR's intl reserves (USD, average) 516 464 340 410Ruble versus US dollar (% y/y) -2,6 -21,3 -69,0 5,0

CPI (% Dec/Dec) 6,5 11,4 10,0 7,2

Unemployment (%) 5,5 5,2 6,0 5,8

Budget balance (% of GDP) -0,5 0,9 -3,3 -1,0

Current account (% of GDP) 1,6 3,2 3,5 3,9

Policy rate

Next meeting

Next change - 150 bp Q3 2015

End-2015

11 Sep 2015

11.00

Bank of Russia (CBR)

8.50

Danske Forward

19-Aug 72.77

+3M 74.20 75.92

+6M 77.76 78.40

+12M 77.00 82.44

Danske Forward

19-Aug 65.83

+3M 70.00 68.25

+6M 72.00 70.34

+12M 70.00 73.60

EUR/RUB

USD/RUB



Ukraine Macro outlook

Preliminary GDP growth data showed that the recession has reached the bottom: the economy contracted 14.7% y/y in Q2 15 versus a 17.2% y/y fall a quarter earlier. The economic situation remains weak on high inflation, diving private consumption and plunging industrial production, as the geopolitical situation in eastern Ukraine is uncertain and weighing overwhelmingly on the economy. Yet, the base effect has affected the Q2 15 figures. Therefore, we expect GDP to fall by 8.5% y/y in 2015.

The dive in private consumption continues due to the volatile UAH and falling purchasing power on increased tariffs. Inflation slowed to 55.3% y/y in July, from 57.5% y/y a month earlier, as economic activity is shrinking.

The country is facing a significant challenge to restructure its almost USD23bn in debt. Finance Minister Natalie Jaresko stated that the country wants a 40% cut in principal, which has been strongly opposed by its private creditors. After several talks between the creditors and Ukraine’s Ministry of Finance, no deal has been agreed. We exclude any haircut higher than 5% being accepted by the group of creditors.

There have been no signs of de-escalation in eastern Ukraine this summer. Both sides continue to blame each other for violations of the Minsk agreement.


The UAH continues to fluctuate around 22.00 against the USD as tight capital controls are limiting access to FX for economic agents while the IMF has approved a USD1.7bn disbursement.

On 4 March, the National Bank of Ukraine tightened monetary policy, hiking its policy rate to 30% – the world’s highest – from 19.5%. As inflation is slowing due to the stable UAH, we do not exclude a symbolic cut by the central bank.

Risk factors

Escalation of the geopolitical situation and a sovereign default by the country are the major economic risks in the current environment, in our view.

Private consumption freefall continues Industrial and agricultural production


UAH

Credit rating:

S&P: CC (negative)

Currency regime:

Managed peg versus USD

FX forecasts


Markets

Danske Forward

19-Aug 23.51

+3M 30.74 N/A

+6M 35.64 N/A

+12M 44.00 N/A

Danske Forward

19-Aug 21.26

+3M 29.00 N/A

+6M 33.00 N/A

+12M 40.00 N/A

USD/UAH

EUR/UAH



Kazakhstan Macro outlook

GDP growth slowed to 1.7% y/y in Q2 15 from 2.3% y/y a quarter earlier as the lower oil price weighed on the economy and energy sector in particular, while the pegged KZT remains too strong for exporting industries. We cut our growth forecast for 2015 to 1.0% y/y from 1.2% y/y as the oil price is continuing to fall and showing no signs of recovery, and as high rates are weighing on fixed investments.

Consumer price growth remained low at 3.9% y/y in July, as the peg restrained price growth, food price growth eased and economic activity slowed. However, we expect price growth to reaccelerate, as we expect a 30% devaluation of the KZT in H2 15.

The political situation remains stable as president Nursultan Nazarbayev has announced a large reform programme aiming to make the state more efficient and reduce state functions by making the public sector more transparent and introducing international practices in local courts.


The Kazakhstan’s tenge have lost around 25% in the days after the National Bank of Kazakhstan (NBK) first announced that they had widened the daily trading on 18 August band and then on 19 August announced they are moving to a floating currency regime. The NBK has previously stated its intention to move to a floating exchange rate but the timing has clearly been influenced by global events. The devaluation of KZT should be seen as a response to the depreciation of the CNY last week and the recent collapse in oil prices and RUB. We expect that the KZT will continue to depreciate versus the USD but the speed of depreciation will slow. The NBK has retained the option to intervene and is likely to be keen to maintain some stability in USD/KZT near-term. Note that NBK has around USD 29bn in FX reserves which is roughly around 10 months of imports. Hence, the central bank is well placed to mitigate excessive KZT devaluation. We did expect a devaluation but the speed and timing have taken us by surprise and hence we have adjusted our FX forecasts accordingly.

Following the devaluation, Prime Minister Karim Massimov reportedly said that the central bank will pursue an inflation targeting framework without providing more detail. This statement is in line with recent signals from the NBK that it plan to move to an inflation targeting framework.

Risk factors

The low oil price is the major risk to the Kazakh economy currently, in our view. Russia’s recession in 2015 is set to inflict extra pressure. Political risk has receded due to Nazarbayev’s victory in the elections. In the long run, we see upside risks to the current forecasts for USD/KZT due to uncertainty whether the announced reforms will be properly implemented and the KZT devalued.

KZT

Credit rating:

S&P: BBB (negative)

Currency regime:

Corridor versus USD

FX forecasts

Source: Bloomberg, Danske Bank Markets

Danske Forward

20-Aug 280.00

+3M 275.60 N/A

+6M 302.40 N/A

+12M 330.00 N/A

Danske Forward

20-Aug 252.00

+3M 260.00 N/A

+6M 280.00 N/A

+12M 300.00 N/A

EUR/KZT

USD/KZT

https://www.cia.gov/library/publications/the-world-factbook/flags/flagtemplate_kz.html



Turkey Macro outlook

Turkey's economic disappointed during Q2 15, as fixed investment shrank, export orders were weak and production figures did not inspire. The slowdown continued while private consumption continued to expand. We expect the economy to grow 2.8% y/y in 2015 while seeing considerable downside risks for our growth forecast as political uncertainty may restrain investment activity further.

The country has been running for two months without a government and new elections in 90 days are probable.


Despite decelerating inflation (6.8% y/y in July from 7.2% y/y a month earlier), the Turkish central bank kept its policy rate unchanged at 7.5% in July. The lira's sudden drop on political uncertainty and its weak prospects on the Fed's tightening are adding pressure for an emergency hike.

Since the beginning of 2015 lira sentiment continues to be more politically than fundamentally driven with it worsening the most in early August as the prime minister declared he is not excluding an early elections. The current account deficit continues to shrink owing to the low oil price. We expect the lira to stabilise in 3M but to strengthen in the longer run as Fed hikes are priced in.

Risk factors

New elections and Turkey's cross-border military operations could fuel further political uncertainty. The strengthening of the US dollar and a Fed rate hike are clear risks to the TRY versus the dollar, as appetite for emerging market assets is decreasing. A rising oil price would put renewed pressure on the current account. Unexpected central bank rate hikes to curb inflation and support the lira would also be a risk.

Turkey�s GDP growth Current account deficit narrows


TRY

Credit rating:

S&P: BB+ (negative)

Currency regime:

Free-float (freely convertible)

Inflation target:

5.0% year-end 2014

Macro forecasts


Interest rate forecasts


FX forecasts


Markets

2013 2014 2015 2016 2017

GDP (% y/y) 4.2 2.9 2.8 3.6 3.8

GDP deflator (% y/y) 6.2 8.5 5.4 5.7 5.7

CPI (% y/y) 7.5 8.9 4.9 5.7 5.9

Private consumption (% y/y) 5.1 1.3 3.3 3.4 3.5

Fixed investments (% y/y) 3.8 -1.0 2.2 3.4 3.5

Unemployment (%) 7.4 10.4 9.5 9.5 9.5

Current account (% of GDP) -7.9 -5.7 -5.0 -5.5 -5.5

Policy rate

Next meeting


End-2015

C.B. of the Republic of Turkey (TCMB)

7.50

22 Sep 2015

7.50

Danske Forward

19-Aug 3.25

+3M 3.10 3.34

+6M 3.02 3.44

+12M 2.97 3.63

Danske Forward

19-Aug 2.94

+3M 2.92 3.00

+6M 2.80 3.09

+12M 2.70 3.24

EUR/TRY

USD/TRY



South Africa Macro outlook

GDP growth has improved in early 2015 as the negative impact from widespread strikes in 2014 has started to wane. In Q1 15, GDP growth accelerated to 2.1% y/y from just 1.3% y/y in Q4 14. However, lower commodity prices continue to weigh on the mining-dependent South African economy, and we expect GDP growth to lose momentum again in the coming quarters. While we expect GDP growth to improve to more than 2% in 2015 and 2016 from just 1.5% in 2014, it is nonetheless subdued from a historical perspective.

Inflation increased in July to 4.7% y/y from 4.5% y/y in June and we expect it to increase further in the coming months as the impact from the large drop in crude oil prices last year starts to wane. Hence, there is an increasing risk that inflation could exceed the 6% upper limit of the South African Reserve Bank (SARB)’s inflation target range.

South Africa has a weak external position with the current account deficit close to 5% of GDP. Foreign direct investment in the mining industry has also dried up which weakens the external position further.


In 2014, the SARB emphasised that South Africa was in the process of interest rate normalisation (i.e. higher interest rates) to deal with inflation rates towards the upper end of the inflation target of 3-6%. In 2015 inflation eased temporarily due to the impact of the lower oil prices, but underlying inflationary pressures persist and inflation is increasing again.

For these reasons, the SARB stated recently that ‘monetary policy in South Africa remains in a tightening cycle’ and in July increased its leading interest rate by 25bp to 6.0%. We expect the SARB to hike by once more by 25bp before year-end.

FX outlook

Given South Africa’s external imbalances , ZAR remains extremely vulnerable in the current environment of lower commodity prices, imminent Fed tightening and general negative sentiment towards emerging markets. Hence, we expect the ZAR to weaken further and the depreciation pressure to be particularly intense in the coming months.

Vulnerable external position SARB hikes again in July


FX forecasts


Markets

ZAR

Credit rating:

S&P: BBB- (stable)

Currency regime:


Inflation target:

3%-6%



Macro forecasts


Danske Forward

19-Aug 14.31

+3M 14.27 14.51

+6M 14.72 14.77

+12M 15.07 15.35

Danske Forward

19-Aug 12.95

+3M 13.46 13.05

+6M 13.63 13.26

+12M 13.70 13.70

EUR/ZAR

USD/ZAR

Policy rate

Next meeting

Next change + 25 bp Q4 2015

End-2015

South African Reserve Bank (SARB)

6.00

23 Sep 2015

6.25

2014 2015 2016 2017

GDP (% y/y) 1.5 2.1 2.3 2.5

GDP deflator (% y/y) 5.8 5.9 6.7 6.7

CPI (% y/y) 5.8 6.1 4.0 6.4


Fixed investments (% y/y) -0.4 2.0 2.2 2.2

Unemployment (%) 24.3 26.5 26.9 27.0

Current account (% of GDP) -5.8 -5.4 -5.0 -5.0



Brazil Macro outlook

Growth in Brazil has slowed markedly as the commodity boom has faded and weakened the outlook for investment demand from the commodity-dependent industries. The lower crude oil price is on balance only slightly negative for Brazil but the plunge in prices for iron ore and soya beans hurts Brazil substantially. Because of weak public finances and weak external balances fiscal and monetary policy have also been tightened and worsened the slowdown in growth. Fiscal policy has so far mainly been tightened by cutting subsidies and increasing administered prices.

We expect GDP to contract by close to 2% in 2015 on the back of tighter fiscal and monetary policy and weak investment demand in commodity-dependent industries. We forecast a moderate recovery in H2 15, but compared to recent boom years the outlook for growth will remain subdued as long as commodity prices do not recover.

IPCA inflation increased again to 9.6% in July from 8.9% y/y in June as a weaker BRL continued to add to inflationary pressure. Inflation far exceeded the 6.5% upper limit of the central bank’s target band for inflation.


In late July, the Brazilian central bank (BCB) raised its leading Selic rate for the eighth time by 50bp to 14.25%, but at the same time signalled that it has probably finished hiking. The BCB turned substantially more hawkish after the presidential election in October last year. Overall, Brazil’s fiscal and monetary policy has shifted to a conventional austerity programme with a focus on containing inflation and the public budget deficit. At the moment, it looks like the BCB has finished hiking and will probably start easing at some stage in 2016, albeit Fed tightening is likely to limit the bank’s room for manoeuvre.

FX outlook

The BRL has continued to weaken in the wake of the recent plunge in commodity prices and with the first Fed hike expected later this year, it is too soon to call the bottom for the currency for several reasons. (1) Lower commodity prices will continue to weigh in the short run, albeit there are signs they have bottomed out. (2) Brazil is one of the more sensitive emerging markets to US interest rate hikes due to its weak external balances and the large share of foreign investors holding Brazilian bonds. (3) Increasing political uncertainty makes it difficult for President Rousseff and her government to implement austerity measures. (4) While we expect Brazil to retain its investment grade rating, there is a rising risk it could be lost as it is becoming increasingly difficult to push austerity measures through parliament.

External balance deteriorating Inflation expected to peak soon


Basic balance% of GDP % of GDP

C ur rent accountFDI

Portfol io i nvestm ent

Total

- 6

- 4

- 2

0

2

4

6

8

-6

-4

-2

0

2

4

6

8

20 06 2 008 2 01 0 2 01 2 20 14

BRL

Credit rating:

S&P: BBB- (negative)

Currency regime:

Free float (non-convertible)

Inflation target:

4.5% +/- 2% points

Interest rate forecasts


FX forecasts


Markets

Policy rate

Next meeting

Next change Unchaged 2015

End-2015

02 Sep 2015

14.25

Central Bank of Brazil (BCB)14.25

Danske Forward

19-Aug 3.86

+3M 3.88 3.99

+6M 4.00 4.11

+12M 4.29 4.33

Danske Forward

19-Aug 3.50

+3M 3.66 3.59

+6M 3.70 3.68

+12M 3.90 3.87

EUR/BRL

USD/BRL



China Macro outlook

GDP growth stayed at the government’s targeted 7.0% y/y in Q2 but weak data suggests that it is poised to drop below it in Q3 15. Weak credit growth and domestic investment demand, particularly housing construction, were the main sources of the weakness. The negative impact from the stock market turmoil in June and July is likely to be modest because the stock market is still relatively small. More importantly, there are signs of recovery in the housing market, suggesting some recovery in growth in late 2015. Beyond 2015, an unavoidable structural slowdown in growth will continue, in our view.

Despite the sharp appreciation of the CNY, China’s external balances remain healthy and the current account surplus is set to increase to around 3% of GDP due to large terms of trade gains from lower commodity prices. In our view, China still has the policy tools and flexibility to avoid a hard landing despite the substantial credit growth in recent years.


The People’s Bank of China (PBoC) currently has a clear easing bias and has cut its leading interest rates three times by 25bp since October last year. We expect another cut of 25bp on Q3. China’s new exchange rate regime and the substantial intervention in the FX market to stabilise the exchange rate is likely to force the PBoC to cut its reserve requirement ratio by at least 200bp in coming quarters to offset the negative impact on liquidity from intervention in the FX market.

FX outlook

China’s new more market-based exchange rate system is an important step towards a floating exchange rate in our view, albeit the PBoC will continue to manage the exchange rate tightly in the short run through intervention in the FX market. The most important implication is that the link to the USD will now be weaker and the exchange rate more dependent on growth and monetary policy. Fundamentally, the CNY has not become overvalued, in our view. However, relative monetary policy and further liberalisation of the capital account suggest the CNY should continue to depreciate against the USD over the next year and we should get used to more two-way volatility in the USD/CNY exchange rate. We expect the CNY to be included in the SDR in connection with the IMF’s review of the SDR weights this autumn. Ahead of the review, in our view the PBoC will attempt to act like a responsible stakeholder in the global financial system and limit the depreciation of the CNY.

China moves towards more market-based exchange rate system

Housing market has started to recover


CNY

Credit rating:

S&P: AA- (stable)

Currency regime:

Crawling USD peg

Inflation target:

3.5% for 2014



FX forecasts


Markets

Policy rate

Next meeting

Next change - 25 bp Q3 2015

End-2015

Not announced

People's Bank of China (PBOC)4.85

4.60

Danske Forward

19-Aug 7.07

+3M 6.84 7.16

+6M 7.18 7.22

+12M 7.37 7.34

Danske Forward

19-Aug 6.40

+3M 6.45 6.44

+6M 6.65 6.48

+12M 6.70 6.55

EUR/CNY

USD/CNY



India Macro outlook

India is well placed for a cyclical recovery in 2015 and 2016 as (1) India is benefiting substantially from the lower oil price, (2) improving external and domestic balances have left room to ease both fiscal and monetary policy and (3) India has a relatively strong government that at least to some degree has sped up structural economic reforms. India’s GDP growth is likely to be above 7% in the coming years and exceed China’s growth.

The general election last year gave the main opposition party BJP an outright majority in the Lower House. Hence, compared with the past two decades India has a relatively strong government with substantial political room to accelerate economic reforms.

India’s current account deficit has declined markedly to about 2% of GDP and should decline further due to the recent sharp decline in the crude oil price. Due to the sharp improvement in the current account we no longer regard India as among the ‘fragile’ emerging markets.


Reserve Bank of India (RBI) has moved from targeting wholesales prices to targeting consumer price inflation within 4% +/-2%. It is a gradual adjustment and for end-2015 the target is 6%. Inflation has declined much faster than expected, partly due to the lower oil price, and this has left room for RBI to start cutting interest rates. So far RBI has cut its leading interest rate three times by 25bp since December but at its June meeting RBI signalled that it would be reluctant to cut further. With the Fed expected to start hiking in H2 15, it will be more difficult for RBI to continue to cut rates and we expect RBI to be on hold, albeit the risk is mainly that the leading interest rate could be cut further.

FX outlook

In line with other emerging market currencies, the INR will remain under pressure against the USD in our view, but it is no longer one of the fragile emerging market currencies. The main reasons are (1) a marked improvement in the current account in the wake of the drop in the crude oil price, (2) possible acceleration in economic reforms under a strong new BJP-led government, (3) a credible/hawkish central bank and (4) gradual cyclical recovery domestically. In H2 15, gradual monetary tightening in the US and continued depreciation of the CNY should start to weigh on the INR. However, because the Indian money and bond markets are relatively closed, India should also be less sensitive to higher interest rates in the US than other emerging markets.

Stronger external balances FX reserves continue to increase


Markets


Markets

INR

Credit rating:

S&P: BBB- (stable)

Currency regime:

Free float

Inflation target:

5% medium term



FX forecasts

Source: Macrobond Financial, Danske Bank Markets

Policy rate

Next meeting


End-2015

29 Sep 2015

7.25

Reserve Bank of India (RBI)

7.25

Danske Forward

19-Aug 72.16

+3M 71.63 73.07

+6M 73.69 74.35

+12M 76.13 77.07

Danske Forward

19-Aug 65.28

+3M 67.58 65.69

+6M 68.23 66.72

+12M 69.21 68.80

USD/INR

EUR/INR



FX hedging

End of CNY appreciation

China’s new exchange-rate policy has two main implications for Nordic and euro-based corporates. Firstly, the link to the USD has weakened and the exchange rate has become more dependent on growth and monetary policy in China. Over the medium term USD/CNY will become a lot more volatile, and corporates should begin to consider CNY as an independent currency and not as a USD proxy. Secondly, corporates should shift their focus to USD/CNH DFs to hedge CNY risks rather than USD/CNY NDFs, as the two curves will converge and liquidity in USD/CNY NDFs will gradually disappear.

The change in fixing methodology implies that USD/CNY fixing will in principle be market determined, while the PBoC is likely to remain visible in the spot market via continued FX intervention. In our view, China is not aiming for a major competitive devaluation. However, relative monetary policy between China and the US suggests that the CNY will continue to depreciate. We expect it to depreciate by close to 5% against USD in the next 12M. In the short run, however, we expect the PBoC to keep the CNY in a tight grip ahead of the IMF’s decision on SDR this autumn. Hence, we only expect it to depreciate slightly on a 1M and 3M horizon.

Given our call for a lower EUR/USD in the coming one to three months, driven by the beginning of a Fed hiking cycle, we expect EUR/CNY to drop back towards 6.84 in 3M as the correlation between USD and CNY will remain high in the near-term. Further out, we expect the euro to stabilise and eventually reverse some of its losses, supported by improved inflation and the growth outlook for the euro zone. We expect this, together with further CNY underperformance, to lead to a sharp reversal in EUR/CNY. We target 7.37 in 12M.

Hedge CNY (CNH) short-term income via seagulls

We expect EUR/CNH to trade lower in coming months in the wake of a further rally in USD (we target EUR/USD at 1.06 in 3M) and we recommend EUR- and DKK-based corporates hedge the coming three months’ CNY receivables via seagull structures, which offer some profit potential in the event of CNY appreciation (we target EUR/CNY at 6.84 in 3M). A seagull structure does not fully hedge against a further significant CNY depreciation but the strategy provides a buffer, which makes the seagull structure favourable relative to not being hedged in the event of further increase in EUR/CNY and EUR/CNH.

We recommend utilising a possible rally in USD to lock-in CNH income longer term.

Hedge CNY (CNH) long-term expenses via risk reversals

Given our V-shape forecast profile for EUR/CNY, we recommend EUR- and DKK-based corporates to hedge CNY payables via EUR/CNH FX forwards in the coming six months. However, we also advise clients to utilise recent CNY depreciation to start building up hedges for the coming years.

For the longer term, we recommend hedging CNY payables via risk reversals, which have become more attractive following the past month’s sharp increase in EUR call premiums. The risk reversals also benefit from the positive carry in CNH.

EUR/CNY forecast


Forward curves to converge


EUR/CHN risk reversals have increased sharply


3M 6M 12M

DB forecast 6.84 7.18 7.37

Forward 7.12 7.18 7.30

Cons. Forecast 6.70 6.64 6.55

6.00

6.50

7.00

7.50

8.00

8.50

9.00

Mar/14 Sep/14 Mar/15 Sep/15 Mar/16

EUR/CNY ForecastForward Consensus

6.20

6.25

6.30

6.35

6.40

6.45

6.50

6.55

6.60

6.65

6.70

0 0.2 0.4 0.6 0.8 1

Offshore non-deliverable forward (NDF)

USD /CNY forwards( 18. August, 2015 )

Year forward

Onshore deliverable forward

Offshore deliverable (CNH)



Danske Bank Markets hedging recommendations: EMEA

Currency Instrument

Forecast Income Expenses

PLN

We recommend hedging short-term (0-3M) PLN income via forwards. Longer term, we recommend hedging via knock-in forwards.

We recommend hedging PLN expenses via risk reversals.

Price indicators

Currency Instrument Forecast Income Expenses

RUB

We recommend hedging RUB income via FX forwards.

Hedge RUB expenses via knock-in forwards.

Price indicators


HUF

We recommend hedging HUF income via knock-in forwards. Alternatively, consider hedging via seagull structures.

We recommend hedging HUF-expenses via risk reversals.

Price indicators

Currency Instrument


CZK

We recommend hedging CZK income via knock-in forwards.

We recommend hedging CZK expenses via a risk reversal strategy.

Price indicators


3M 6M 12M

DB forecast 4.25 4.15 4.15

Forward 4.18 4.20 4.24


3.90

4.00

4.10

4.20

4.30


EUR/PLN ForecastForward Consensus

implied volatility

risk reversal (PLN seller)

forward rate (PLN seller)

cheap neutral expensive

3M 6M 12M

DB forecast 74.20 77.76 77.00

Forward 75.29 77.72 82.37

Cons. Forecast 66.53 64.56 63.24

30.0

40.0

50.0

60.0

70.0

80.0

90.0


EUR/RUB ForecastForward Consensus

implied volatility

risk reversal (RUB seller)

forward rate (RUB seller)


3M 6M 12M

DB forecast 310.00 310.00 305.00

Forward 309.75 310.17 311.79

Cons. Forecast 311.24 307.58 306.63

280

290

300

310

320

330


EUR/HUF ForecastForward Consensus

implied volatility

risk reversal (HUF seller)

forward rate (HUF seller)


3M 6M 12M

DB forecast 27.10 27.10 27.10

Forward 27.00 26.96 26.91

Cons. Forecast 27.28 27.19 26.92

25.0

26.0

27.0

28.0


EUR/CZK ForecastForward Consensus

implied volatility

risk reversal (CZK seller)

forward rate (CZK seller)




Danske Bank Markets hedging recommendations: other emerging markets

Currency Instrument


CNH

We recommend hedging the coming three months� CNY receivables via seagull structures, which offer some profit potential in the event of CNY appreciation.

We recommend hedging CNH expenses via FX forwards.

For the longer term, we recommend hedging CNY payables via risk reversals, which have become more attractive following the past month�s sharp increase in EUR call premiums.

Price indicators


MXN

Hedge MXN income via knock-in forwards. Consider a window barrier instead of a European knock-in barrier in order to capitalise on the relatively high implied volatility.

We recommend hedging MXN expenses via FX forwards.

Price indicators

Currency Instrument


ZAR

Hedge ZAR income via knock-in forwards. Consider a window barrier instead of a European knock-in barrier in order to capitalise on the relatively high implied volatility.

We recommend hedging ZAR expenses via FX forwards in the coming six months. Longer term, we recommend hedging via risk reversals.

Price indicators


TRY

Hedge TRY income via knock-in forwards. Consider a window barrier instead of a European knock-in barrier in order to capitalise on the relatively high implied volatility.

We recommend hedging TRY expenses via FX forwards.

Price indicators


3M 6M 12M

DB forecast 6.84 7.18 7.37

Forward 7.14 7.20 7.32


6.00

6.50

7.00

7.50

8.00

8.50

9.00


EUR/CNH ForecastForward Consensus

implied volatility

risk reversal (CNH seller)

forward rate (CNH seller)


3M 6M 12M

DB forecast 17.70 18.14 18.60

Forward 18.30 18.47 18.85

Cons. Forecast 17.18 16.77 16.29

15.0

16.0

17.0

18.0

19.0


EUR/MXN ForecastForward Consensus

implied volatility

risk reversal (MXN seller)

forward rate (MXN seller)


3M 6M 12M

DB forecast 14.27 14.72 15.07

Forward 14.49 14.76 15.32

Cons. Forecast 13.73 13.56 13.64

12.0

13.0

14.0

15.0


EUR/ZAR ForecastForward Consensus

implied volatility

risk reversal (ZAR seller)

forward rate (ZAR seller)


3M 6M 12M

DB forecast 3.10 3.02 2.97

Forward 3.29 3.39 3.58


2.25

2.50

2.75

3.00

3.25

3.50


EUR/TRY ForecastForward Consensus

implied volatility

risk reversal (TRY seller)

forward rate (TRY seller)




FX forecasts

Core � major


Wider CEE


CIS


Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward

19-Aug 1.11 746.3 948.5 921.4

+3M 1.06 1.11 745.5 745.7 940.0 945.8 890.0 924.5

+6M 1.08 1.11 745.5 745.0 930.0 943.4 870.0 926.7

+12M 1.10 1.12 745.5 744.3 900.0 943.4 850.0 931.0

19-Aug 1.11 675.1 858.0 833.5

+3M 1.06 1.11 703.3 670.3 886.8 850.2 839.6 831.0

+6M 1.08 1.11 690.3 668.5 861.1 846.5 805.6 831.6

+12M 1.10 1.12 677.7 664.4 818.2 842.2 772.7 831.1

19-Aug 137.4 124.3 5.43 6.90 6.71

+3M 130.0 137.5 128.0 123.7 5.73 5.42 7.23 6.88 6.85 6.72

+6M 133.6 137.5 130.0 123.4 5.58 5.42 6.96 6.86 6.51 6.74

+12M 139.7 137.4 130.0 122.8 5.34 5.42 6.44 6.86 6.08 6.77

NOK

EUR

USD

JPY

EUR USD DKK SEK


19-Aug 4.18 3.78 178.7 227.2 220.7

+3M 4.25 4.19 4.01 3.76 175.4 178.1 221.2 225.9 209.4 220.8

+6M 4.15 4.20 3.84 3.77 179.6 177.3 224.1 224.5 209.6 220.5

+12M 4.15 4.24 3.77 3.78 179.6 175.7 216.9 222.7 204.8 219.8

19-Aug 310.0 280.5 2.41 3.06 2.97

+3M 310.0 310.4 292.5 279.0 2.40 2.40 3.03 3.05 2.87 2.98

+6M 310.0 310.6 287.0 278.7 2.40 2.40 3.00 3.04 2.81 2.98

+12M 305.0 311.9 277.3 278.4 2.44 2.39 2.95 3.02 2.79 2.99

19-Aug 27.02 24.44 27.62 35.10 34.10

+3M 27.10 26.96 25.57 24.23 27.51 27.66 34.69 35.09 32.84 34.29

+6M 27.10 26.89 25.09 24.13 27.51 27.70 34.32 35.08 32.10 34.46

+12M 27.10 26.83 24.64 23.95 27.51 27.74 33.21 35.16 31.37 34.70

19-Aug 4.43 4.01 168.4 214.0 207.8

+3M 4.45 4.43 4.20 3.99 167.5 168.2 211.2 213.3 200.0 208.5

+6M 4.40 4.45 4.07 3.99 169.4 167.5 211.4 212.1 197.7 208.4

+12M 4.40 4.49 4.00 4.00 169.4 165.9 204.5 210.3 193.2 207.6

HUF

CZK

RON

PLN

EUR USD DKK SEK NOK


19-Aug 72.77 65.83 10.26 13.03 12.66

+3M 74.20 75.92 70.00 68.25 10.05 9.82 12.67 12.46 11.99 12.18

+6M 77.76 78.40 72.00 70.34 9.59 9.50 11.96 12.03 11.19 11.82

+12M 77.00 82.44 70.00 73.60 9.68 9.03 11.69 11.44 11.04 11.29

19-Aug 23.51 21.26 31.8 40.4 39.2

+3M 30.74 N/A 29.00 N/A 24.3 N/A 30.6 N/A 29.0 N/A

+6M 35.64 N/A 33.00 N/A 20.9 N/A 26.1 N/A 24.4 N/A

+12M 44.00 N/A 40.00 N/A 16.9 N/A 20.5 N/A 19.3 N/A

20-Aug 280.0 252.0 2.67 3.39 3.29

+3M 275.60 N/A 260.0 N/A 2.7 N/A 3.4 N/A 3.2 N/A

+6M 302.40 N/A 280.0 N/A 2.5 N/A 3.1 N/A 2.9 N/A

+12M 330.00 N/A 300.0 N/A 2.3 N/A 2.7 N/A 2.6 N/A

DKK SEK

RUB

NOK

UAH

KZT

EUR USD



MEA


Latin America



19-Aug 3.25 2.94 229.8 292.0 283.7

+3M 3.10 3.34 2.92 3.00 240.5 223.3 303.2 283.2 287.1 276.8

+6M 3.02 3.44 2.80 3.09 246.9 216.6 307.9 274.3 288.1 269.5

+12M 2.97 3.63 2.70 3.24 251.0 204.9 303.0 259.7 286.2 256.3

19-Aug 14.31 12.95 52.1 66.3 64.4

+3M 14.27 14.51 13.46 13.05 52.3 51.4 65.9 65.2 62.4 63.7

+6M 14.72 14.77 13.63 13.26 50.6 50.4 63.2 63.9 59.1 62.7

+12M 15.07 15.35 13.70 13.70 49.5 48.5 59.7 61.5 56.4 60.7

19-Aug 4.28 3.87 174.4 221.6 215.3

+3M 3.98 4.29 3.75 3.85 187.5 173.9 236.5 220.6 223.9 215.6

+6M 4.05 4.29 3.75 3.85 184.1 173.8 229.6 220.1 214.8 216.2

+12M 4.13 4.28 3.75 3.82 180.7 174.0 218.2 220.6 206.1 217.7

19-Aug 8.66 7.83 86.2 109.6 106.4

+3M 8.30 N/A 7.83 N/A 89.8 N/A 113.3 N/A 107.2 N/A

+6M 8.46 N/A 7.83 N/A 88.2 N/A 110.0 N/A 102.9 N/A

+12M 8.61 N/A 7.83 N/A 86.6 N/A 104.5 N/A 98.7 N/A

DKK NOKUSDEUR

ZAR

EGP

ILS

TRY

SEK


19-Aug 3.86 3.50 193.1 245.4 238.4

+3M 3.88 3.99 3.66 3.59 192.2 186.8 242.3 237.0 229.4 231.6

+6M 4.00 4.11 3.70 3.68 186.6 181.4 232.7 229.8 217.7 225.7

+12M 4.29 4.33 3.90 3.87 173.8 171.8 209.8 217.8 198.1 214.9

19-Aug 18.27 16.53 40.85 51.91 50.43

+3M 17.70 18.53 16.70 16.65 42.11 40.25 53.10 51.05 50.28 49.90

+6M 18.14 18.69 16.80 16.77 41.09 39.86 51.26 50.47 47.95 49.58

+12M 18.60 19.07 16.91 17.02 40.08 39.04 48.38 49.48 45.70 48.83

19-Aug 10.22 9.24 73.04 92.82 90.17

+3M 10.60 13.31 10.00 9.68 57.35 56.03 72.31 71.07 86.92 69.47

+6M 12.42 15.75 11.50 11.46 48.54 47.31 60.55 59.90 74.18 58.85

+12M 16.06 19.93 14.60 14.51 36.55 37.34 44.13 47.32 57.37 46.70

SEK

MXN

BRL

ARS

NOKEUR USD DKK



Emerging markets Asia



19-Aug 7.07 6.40 105.6 134.1 130.3

+3M 6.84 7.16 6.45 6.44 109.0 104.1 137.5 132.0 130.2 129.1

+6M 7.18 7.22 6.65 6.48 103.8 103.1 129.5 130.6 121.1 128.3

+12M 7.37 7.34 6.70 6.55 101.2 101.4 122.1 128.5 115.3 126.8

19-Aug 1310 1185 0.57 0.72 0.70

+3M 1301 1313 1227 1181 0.57 0.57 0.72 0.72 0.68 0.70

+6M 1339 1317 1240 1182 0.56 0.57 0.69 0.72 0.65 0.70

+12M 1373 1324 1248 1182 0.54 0.56 0.66 0.71 0.62 0.70

19-Aug 39.3 35.6 19.0 24.1 23.4

+3M 39.0 40.1 36.8 36.0 19.1 18.6 24.1 23.6 22.8 23.1

+6M 40.0 40.5 37.1 36.4 18.6 18.4 23.2 23.3 21.7 22.9

+12M 41.0 41.1 37.3 36.7 18.2 18.1 21.9 23.0 20.7 22.7

19-Aug 1.55 1.40 481 611 593

+3M 1.54 1.56 1.45 1.40 485 478 612 606 579 592

+6M 1.58 1.57 1.47 1.40 471 476 587 603 549 592

+12M 1.62 1.58 1.47 1.41 460 472 555 598 525 591

19-Aug 8.57 7.75 87.1 110.6 107.5

+3M 8.23 8.63 7.76 7.75 90.6 86.5 114.3 109.7 108.2 107.2

+6M 8.38 8.64 7.76 7.75 89.0 86.2 111.0 109.2 103.8 107.2

+12M 8.55 8.69 7.77 7.76 87.2 85.7 105.3 108.6 99.5 107.1

19-Aug 4.53 4.11 164.8 209.4 203.4

+3M 4.54 4.60 4.28 4.13 164.3 162.2 207.2 205.8 196.2 201.1

+6M 4.65 4.63 4.31 4.16 160.2 160.8 199.8 203.6 186.9 200.0

+12M 4.79 4.71 4.35 4.21 155.8 158.0 188.1 200.3 177.6 197.6

19-Aug 51.1 46.3 14.59 18.55 18.02

+3M 50.83 N/A 47.95 N/A 14.67 N/A 18.49 N/A 17.51 N/A

+6M 52.54 N/A 48.65 N/A 14.19 N/A 17.70 N/A 16.56 N/A

+12M 53.77 N/A 48.88 N/A 13.87 N/A 16.74 N/A 15.81 N/A

19-Aug 15283 13843 0.049 0.062 0.060

+3M 15199 15554 14339 13981 0.049 0.048 0.062 0.061 0.059 0.059

+6M 15933 15905 14753 14271 0.047 0.047 0.058 0.059 0.055 0.058

+12M 16380 16642 14891 14856 0.046 0.045 0.055 0.057 0.052 0.056

19-Aug 72.16 65.28 10.34 13.14 12.77

+3M 71.63 73.07 67.58 65.69 10.41 10.20 13.12 12.94 12.42 12.65

+6M 73.69 74.35 68.23 66.72 10.12 10.02 12.62 12.69 11.81 12.46

+12M 76.13 77.07 69.21 68.80 9.79 9.66 11.82 12.24 11.16 12.08

19-Aug 35.94 32.51 20.77 26.39 25.64

+3M 35.32 36.41 33.32 32.73 21.11 20.48 26.61 25.98 25.20 25.39

+6M 36.44 36.43 33.74 32.69 20.46 20.45 25.52 25.89 23.88 25.44

+12M 37.37 36.60 33.97 32.67 19.95 20.34 24.09 25.78 22.75 25.44

MYR

EUR USD DKK SEK NOK

TWD

INR

CNY

KRW

IDR

THB

SGD

HKD

PHP



Forecasts vs forwards

3M � base currency EUR 3M � base currency USD

Source: Macrobond Financial, Danske Bank Markets Source: Macrobond Financial, Danske Bank Markets





-2.0-1.00.01.02.03.04.05.06.07.08.0

ILS

TR

Y

CN

Y

MX

N

TW

D

BR

L

IDR

RU

B

INR

ZA

R

SG

D

MY

R

KR

W

HU

F

RO

N

CZ

K

PL

N

%

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

ILS

TR

Y

CN

Y

MX

N

TW

D

BR

L

IDR

RU

B

INR

ZA

R

SG

D

MY

R

KR

W

HU

F

RO

N

CZ

K

PL

N

%

-4.0-2.00.02.04.06.08.0

10.012.014.0

TR

Y

ILS

MX

N

BR

L

PL

N

RO

N

INR

RU

B

CN

Y

ZA

R

HU

F

TW

D

IDR

MY

R

CZ

K

SG

D

KR

W

%

-6.0-4.0-2.00.02.04.06.08.0

10.012.0

TR

Y

ILS

MX

N

BR

L

PL

N

RO

N

INR

RU

B

CN

Y

ZA

R

HU

F

TW

D

IDR

MY

R

CZ

K

SG

D

KR

W

%

-5.0

0.0

5.0

10.0

15.0

20.0T

RY

RU

B

ILS

MX

N

HU

F

PL

N

RO

N

ZA

R

IDR

INR

BR

L

CN

Y

CZ

K

MY

R

TW

D

SG

D

KR

W

%

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

TR

Y

RU

B

ILS

MX

N

HU

F

PL

N

RO

N

ZA

R

IDR

INR

BR

L

CN

Y

CZ

K

MY

R

TW

D

SG

D

KR

W

%



Monetary policy calendar

Calendar

Source: Various sources, Danske Bank Markets

20 August 2015

Wider CEE

PLN 1.50 - 50 bp Mar, 2015 - Unchanged 2015 02 September 2015 1.50

HUF 1.35 - 15 bp July, 2015 - Unchanged 2015 25 August 2015 1.35

CZK 0.05 - 20 bp Nov, 2012 - Unchanged 2015 24 September 2015 0.05

RON 1.75 - 25 bp May, 2015 - 25 bp H2 2015 30 September 2015 1.50

TRY 7.50 -25 bp Feb, 2015 - Unchanged 2015 22 September 2015 7.50

CIS

RUB 11.00 -50bp July, 2015 - 150 bp Q3 2015 11 September 2015 8.50

MEA

ILS 0.10 - 15 bp March, 2014 - Unchanged, 2015 24 August 2015 0.10

ZAR 6.00 +25 bp July, 2014 + 25 bp Q4 2015 23 September 2015 6.25

LATAM

BRL 14.25 + 50 bp Jul, 2015 - Unchaged 2015 02 September 2015 14.25

MXN 3.00 - 50 bp June, 2014 + 25 bp Q4 2015 21 September 2015 3.25

EM Asia

CNY 4.85 - 25 bp Jun, 2015 - 25 bp Q3 2015 Not announced 4.60

KRW 1.50 - 25 bp Jun, 2015 - Unchanged 2015 11 September 2015 1.50

THB 1.50 - 25 bp April, 2015 - Unchanged 2015 16 September 2015 1.50

HKD 0.50 - 100 bp Dec, 2008 + 25 bp Q3 2015 Not announced 1.00

MYR 3.25 + 25 bp Jul, 2014 + 25 bp Q4 2015 11 September 2015 3.50

PHP 4.00 +25 bp Sep, 2014 + 25 bp Q4 2015 24 September 2015 4.25

IDR 7.50 - 25 bp Feb, 2015 - Unchanged 2015 17 September 2015 7.50

INR 7.25 - 25 bp Jun, 2015 - Unchanged 2015 29 September 2015 7.25

TWD 1.88 +12.5 bp Jun, 2011 + 12.5 bp Q4 2015 24 September 2015 2.00

Year-end 2015 (%)

Next MeetingPolicy Rate (%) Latest Change Next Change



Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The authors of this research report are Thomas Harr (Global Head of FICC Research), Flemming Jegbjærg Nielsen (Senior Analyst), Morten Helt (Senior Analyst), Vladimir Miklashevsky (Analyst) and Rokas Grajauskas (Analyst).

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