Emerging Market Preview: The Week Ahead

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

Israel's central bank holds a 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's 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's central bank holds a 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's central bank holds a 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.

The Czech central bank holds a 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's central bank holds a 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.