EM currency rally hinges on lira and peso


Developing nation currencies climb for a third week
Newsfeed21 Oct 2019
Photo credit: AFP Photo


Market news selected by the DBS Chief Investment Office


Emerging Markets (EM) currencies are winning fans again as the dollar wobbles, but their resilience will be tested during what is shaping up to be a pivotal week.

Turkey’s central bank will make an interest rate decision on Thursday (24 October), two days after a US-brokered truce in northern Syria is due to expire. Estimates range from a hold to a cut of as much as 225 bps. Argentina’s presidential election takes place next Sunday, two-and-half months after leftist challenger Alberto Fernandez shocked investors by beating incumbent Mauricio Macri in a primary vote. More twists in the Brexit saga and slowing economic growth in China will complicate the picture.

Developing nation currencies climbed for a third week as the dollar slumped to the lowest level since July on Friday (18 October). Traders are mostly convinced the Federal Reserve will deliver its third straight rate cut this month. Carry-trade returns for EM funded by short positions in the US currency climbed above their 100-day and 200-day moving averages on Friday, suggesting further gains may be in store.

Indonesia, Russia, and Chile will probably ease monetary policy this week (ending 25 October). And US-China tensions appear to be on the mend. The Asian nation’s top trade negotiator suggested on Saturday that talks with the US are progressing and both sides are working toward a partial deal. EM bonds saw fresh inflows of about USD349m in the week through 16 October, citing Emerging Portfolio Fund Research Global data. – Bloomberg News.

On Friday, the US Dollar Index (DXY) decreased 0.33% to 97.282. The pound traded 0.72% higher at USD1.2984, the euro added 0.38% to USD1.1167, and the Japanese yen strengthened 0.19% to 108.45 per dollar.


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