Emerging Market Preview: The Week Ahead

(from my colleagues Dr. Win Thin and Ilan Solot)

Israeli central bank holds policy meeting Monday and is expected to keep rates steady at 1.25%. The central bank is in limbo as the search for a new Governor continues. Interim Governor Flug could move rates if given a compelling reason, but for now. The data suggest a wait and see approach is most advisable. For USD/ILS, support seen just below 3.50, resistance seen near 3.55 and 3.60.

Sometime this week, Brazil central bank will release its quarterly inflation report. Minutes from the August 27/28 meeting suggest a 50 bp hike at the October 8/9 meeting is baked in the cake, but the inflation report may shed some light on the November 26/27 meeting, when we now see a 25 bp hike that is meant to be the top in the cycle – for now at least. For USD/BRL, support seen just below 2.20, resistance seen near 2.25 and 2.30.

Hungary central bank holds policy meeting Tuesday and is expected to cut rates by 20 bp to 3.60%. Officials have said rates are likely to bottom in the 3.0-3.5% area, and so several more cuts appear likely. Some data suggest the recession is ending, but the signs do not point to a robust recovery. For EUR/HUF, support seen near 295, resistance seen near 300 and 305.

Mexico reports mid-September CPI on Tuesday and August trade on Thursday. Minutes released last Friday show the vote was 3-2 in favor of cutting. Minutes were very dovish, and the next meetings are October 25 and December 6. Given how cautious the central bank has been, we think back-to-back cuts are unlikely but that a December cut is on the table if data remain weak in Q3. For USD/MXN, support seen near 12.80 and 12.60, resistance seen near 13.00 and 13.40.

Taiwan central bank holds policy meeting Thursday and is expected to keep rates steady at 1.875%. Right before that decision, Taiwan reports August IP and commercial sales. Earlier in the week, it reports August export orders, expected at 1.3% y/y vs. 0.5% y/y in July, on Tuesday. The economy is sluggish, but we think policymakers will rely on fiscal policy and a weaker currency to boost demand rather than on rate cuts. For USD/TWD, support seen near 29.40, resistance seen near 29.80 and 30.00. 

Czech central bank holds policy meeting Thursday and is expected to keep policy steady. Several central bankers seem thoroughly convinced of the need for further stimulus via a weaker koruna, but we do not think a consensus has been reached yet. The November 7 and December 17 meetings may offer an opportunity to announce a policy change. For EUR/CZK, support seen near 25.60, resistance seen near 26.00 and then 26.20. 

Colombia central bank holds policy meeting Friday and is expected to keep rates steady at 3.25%. This has shifted from earlier calls for a 25 bp cut to 3.0%, as recent data (such as Q2 GDP) have been stronger than expected. Officials seem to be trumpeting that a modest recovery is under way. However, any further peso gains will surely raise concerns for policymakers as USD/COP is already below the desired range of 1900-1950. For USD/COP, support seen near 1880 and 1860, resistance seen near 1900 and 1960.