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2018-2019 Exchange Rate Forecasts For Brazilian Real, Russian Ruble And Indian Rupee To Gain Vs. The US Dollar
2018-2019 Exchange Rate Forecasts For Brazilian Real, Russian Ruble And Indian Rupee To Gain Vs. The US Dollar
Risk appetite returned on Friday, as stocks rose and wobbly FX markets took a breather. The US Dollar exchange rates eased too as the Euro and pound sterling gained with EM FX.
Lloyds are forecasting the Brazilian Real (USD/BRL), Russian Ruble (USD/RUB) and Indian Rupee (USD/INR) to make slight gains against the USD heading into the end of this year, but are somewhat concerned about all the tail risks they see for these risk-sensitive currencies.
Lloyds exchange rate forecasts for Brazilian Real, Indian Rupee and Russian Ruble in 2018
US Dollar (USD) exchange rates weaken vs. majors on Friday
The close of last week proved to provide some temporary respite for many currencies against the US Dollar, as the DXY (Dollar Index) shed half a percent as the Euro, British Pound, Australian Dollar and Japanese Yen all made gains against the US exchange rate. Of these currency pairs, Euro to Dollar (EUR/USD) has the greatest weighting and thus also helped to drag the Pound to Dollar (GBP/USD) exchange rate higher, helping to push Cable back into the mid 1.27s and the Euro into the mid 1.14s. Emerging markets also found some reprieve as stocks rose, but the Turkish Lira did not join them, rising 3% as fears over further US sanctions were evident. In their monthly forecast for August, analysts at Lloyds noted their views on some of the major emerging market currencies. The first of these forecasts is a rather cloudy opinion on the Brazilian Real which sees a lot of rather concerning dynamics in the marketplace for the BRL, as the article indicates,
“USD/BRL Brazil’s current political economy provides little hope for the prospects of the real. Political uncertainty is likely to dominate prospects for the currency, both ahead and post the elections in October.” Rub Usd Exchange
The situation in Brazil is clearly volatile, and there appears to be little hope for calm as Lloyds note the extraordinary case in which the most popular candidate is in prison for corruption and the candidate for the main liberal party is not going to be allowed to run,
“The highest polling candidate for President is currently in prison on charges of corruption. The Workers Party of Brazil chose Luis Inacio Lula da Silva to represent them but he is unlikely to be allowed to run. Unfortunately, Lula’s appointment is just the tip of the iceberg in terms of political issues.”
Lloyds also note that recent decisions to increase government spending are a concern, given how there were efforts made to curtail this. Ultimately this all creates a rather shaky outlook, but does not prompt the UK bank to get too negative with its forecast, rather it is mainly cautious but does seem some opportunity for the BRL to make a comeback if October’s elections provide some clarity,
“Economic activity, even in the best light, has been mixed. Given this backdrop, should political uncertainty fade after October, some retracement of the year-to-date losses against the US dollar are expected, but prospects for the real remain uncertain.”
Ruble (RUB) exchange rates should rise as Russian assigned investment grade status
The Russian Ruble was battered recently by US sanctions, which seemed to blindside rather one-directional bullish positioning in the RUB, and sent it crashing as USD/RUB approached 70.000 once more. Lloyds note that the meeting between Trump and Putin did not really provide much clarity for ongoing relations, and as such, it is the weakness in Crude Oil and a dovish central bank which appears to be their main focus,
“The sharp drop in crude oil prices has further hurt the rouble. Equally, the continued dovish outlook in terms of Russian interest rates has helped to anchor the Russian rouble at weaker levels.”
Lloyds are quite optimistic, seeing the Ruble strengthening for the rest of this year, largely due to the stronger state of its economy. While stable the Ruble has provided some definite carry appeal and the opportunity for yield has clearly not been lost on many investors as elsewhere inflation has largely destroyed carry trades in the emerging market space, However, it does note some serious tail risks for this optimism,
“Russia’s economy is in a very different place than it was when it suffered sharp devaluations in 2014 and 2016. All three major sovereign credit rating agencies now assign it investment grade status. The biggest risk to the currency’s value, in our opinion, is if the US were to put sanctions on Russian debt securities.”
Indian Rupee (INR) exchange rates under pressure as deficit widens
One of the latest EM currencies to hit a record low against the USD is the Indian Rupee. Due in part to the wobble in risk sentiment, and certainly not helped by the collapse in the Turkish Lira, USD/INR has been trading at or close to these historic levels for some time. Lloyds note in particular in their report that India is facing some of the same scrutiny that China faces over trade practices and this is a concern,
“China may have grabbed the bulk of the spotlight in terms of headlines, but the US is also reviewing its trade relationship with India. There is an ongoing review of India’s preferential tariff status worth 12% of its good exports to the US.”
Lloyds also note that the Indian economy has faced more than just global trade angst, Rub Usd Exchange ,
“Other factors could also mean the Indian rupee is unable to gain significant ground against the US dollar despite two consecutive interest rate hikes from the RBI. Above all of this, there is growing danger the poor health of India’s banking sector could weigh on economic growth going forward”
Thus three forecasts that see the potential for a little retracement in the Dollar, but not really much upside in the three currencies economic situations. It remains to be seen if Trump will back off on trade wars, or if global growth will resume and risk appetite will return. With many in the investment space calling the EM trade rather tired, it seems the yield in the Dollar will continue to be attractive for now.
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