Maybank FX Annual Outlook 2016

Juggling Policy Divergence, RMB Adjustments and Trade Downshift

§  Divergence (Policy and Asset Prices); Global Trade downshift; and Potential yuan adjustments will be key themes in 2016.

§  Pace of Fed tightening is a key FX focus in 2016. In an environment of a global trade downshift, as long as growth between G7 and EM does not diverge too much and too fast, EM will be in a comfortable position. Concerns about yuan adjustments in 2016 could also continue to add to currency volatility. There is downside risk for EM if growth fails to pick up with the risk of worsening debt sustainability a possibility affecting EM FX.    

       

§  Expect USD to be supported. EUR and JPY to stay soft as risk sentiments remains supported. USD/AXJs to see further upside for currencies with signs of weak domestic demand, lower fiscal capacity and potential idiosyncratic risks.