Head of Macroeconomic Research
Summary: In this edition, we focus on USD liquidity and the consequences for the RUB.
Contrary to what has happened in the past, the latest Fed easing coupled with ECB QE hasn’t had a positive effect on EM currencies. Over the past ten days, only three of the main EM currencies posted a positive performance against the USD: the INR, the PHP and the TRY. The Russian ruble limited losses with a drop of only 0.50%.
This counter-performance mostly results from over-positioning. Looking for yields in an abnormally low interest rate environment, investors have massively placed their funds in EM countries over the past ten years. In this context, easing in top tier economies isn’t the EM-positive trigger it used to be.
On the top of that, we expect that USD shortage will increase downward pressure on EM currencies in the coming months.
In the chart below, we have plotted the evolution of excess dollars in the US banking system, which serves as a proxy for USD liquidity, and the cross USDRUB (reversed). As of now, dollar shortage already stands at $445bn, and we estimate that it may reach an annualized peak comprised between $800-900bn in the coming months due to the expected ramp up of USD Treasury bill issuance.
As you can see, there is a strong negative correlation between USD shortage and the RUB (and other EM currencies). We consider the combination of negative risk sentiment towards EM, lower USD liquidity and, to a lesser extent, trade war will be negative for the RUB and will push the cross USD/RUB around 66.0 by the end of year. The evolution of oil prices, which has mitigated the impact of negative risk sentiment in the past, should play a limited role in the short term as oil remains in a range-bound market.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)