8–9
NZD – The RBNZ is expected to hike rates again in July, but
thereafter the outcome of subsequent meetings is likely to be
data dependent.
In our view, most of the good news for the NZD is priced in,
thereby limiting further upside for the currency. In addition,
the decline in dairy prices is worrying. See chart. Indeed, dairy
prices are now about 30% below their levels in February and
ANZ analysts have lowered their milk price forecasts for 20142015. The drop in milk prices, coupled with higher interest rates
and a high proportion of short term debt is expected to hurt
discretionary spending.
This backdrop is likely to weigh on the NZD. In particular, the
currency looks vulnerable against the GBP as the BoE looks set
to start tightening monetary conditions.
Average auction milk prices
5,000
4,500
4,000
3,500
3,000
2 Jul 2013
INR – We see the INR staying close to current levels on a 6-12
month horizon. A slow and genuine recovery seems to be falling
in place in India. April’s industrial production growth jumped to
+3.4%yoy from -0.5% in the previous month. Manufacturing and
services PMIs have also improved in recent months. While CPI
inflation moderated from 8.6% to 8.28%yoy, we would still need
a favourable monsoon rainfall to help keep inflation contained.
Therefore while rate cuts cannot be entirely ruled out, it may be a
little premature to view them as a given.
That said, if oil prices were to move higher on the back of
geopolitical tensions, we could see some volatilities in the INR in
the near term. After all, the Indian economy is highly dependent
on imported oil and runs the third largest oil deficit (as a % of
GDP) in Asia.
5,500
2 Jan 2013
IDR – Indonesia’s current account deficit widened to 3.5% of GDP
in 2Q14 and the trade balance could remain volatile as imports
and activity pick up post the presidential elections. This could
increase the vulnerability of the currency should US bond yields
and market volatility head higher. At the point of writing, there
is still uncertainty surrounding the outcome of the presidential
elections, which could weigh on the IDR in the near term.
7 Jan 2014
1 Jul 2014
Whole milk powder prices (US$/MT)
Source: GlobalDairyPrices. ANZ Wealth Asia. July 2014.
A firmer USD and elevated oil prices would keep most Asian
currencies relatively subdued.
CNY – Relative to its regional peers, we are not as wary of
the RMB in the event of an oil spike, given China’s lower
reliance on imported oil. At the same time, there have been
further signs of a rebound in the Chinese economy. China’s
official manufacturing PMI edged up from 50.8 in May to a
7-month high of 51.0 in June. Encouragingly, a pick-up was
seen in the output, new orders as well as the new export
orders components. As such, we expect the RMB to resume its
appreciation over the next 6-12 months.
SGD – We maintain our view that the SGD will weaken towards
1.29 against the USD by year end. This is partly premised on
our belief that the USD will strengthen over the second half of
the year, on the back of an improving US economy and higher
US yields. In addition, with our leading indicators suggesting
that Singapore’s growth could moderate going forward, lower
foreign investor demand for Singapore assets should also result
in a weaker SGD. Accordingly, industrial production contracted
2.5%yoy in May, and we expect output to be flat for the rest of
the year, as Singapore’s semiconductor production declines.
TWD – The CBC held policy rate at 1.875% as expected in
June as low inflation continues to permit the central bank
to be accommodative. In our view, Taiwan’s political risk
has heightened as the municipal elections will be held in
November. Any worsening of cross-strait relationship could
increase economic uncertainty and affect business sentiment.
With this in mind, the CBC is likely to keep the policy rate on
hold throughout 2014.
Nevertheless, the global recovery is expected to continue to
support Taiwan’s exports, helping the economy to grow by
3.1% in 2014, higher than last year’s 2.1%. Therefore, we believe
that the policy rate direction is biased towards a hike, which we
have pencilled in for 1Q15.
The report is published by ANZ Wealth Asia. All charts and tables are individually sourced. “ANZ analysts” refer to investment professionals within the ANZ CIO Office, ANZ Economics & Markets
Research and ANZ Wealth Asia. For more information, please contact your ANZ Relationship Manager.