Emerging market currencies ride a roller coaster: Reuters survey

© Reuters. On January 4, 2016, a staff member counted 100 RMB banknotes at a branch of a foreign bank in Beijing. REUTERS/Kim Kyung-Hoon/Files

Authors: Vuyani Ndaba and Vivek Mishra

Reuters Johannesburg/Bangalore-A Reuters survey found that short-term volatility in emerging market currencies will persist because the timing of the exit from the US stimulus plan is uncertain and investors support currencies with greater potential for strengthening.

In a survey conducted on August 2-4, the prospects for range-bound volatility of emerging market currencies against the US dollar were mixed, depending on which central bank has already begun to raise interest rates or is likely to raise interest rates.

The South African rand is expected to fall by about 1% to 14.4 per dollar in six months, while the Brazilian real is expected to rise by 2% to 5.1 per dollar, and the Russian ruble is expected to rise by 1.2% to 72.0 per dollar in the same time period.

“On a tactical basis, it has been made clear in recent weeks that as long as monetary policy support continues, the money of usurers…can withstand hawkish shocks from the United States,” said Zak Pander, co-director of the Federal Reserve. Goldman Sachs (NYSE:)’s foreign exchange strategy.

The Central Bank of Brazil positioned itself as a high-yield option after raising interest rates, which has raised concerns about further interest rate hikes in the future.

“Overall, the combination of deep value, high spreads and sustained support from a rapid rise cycle may mean that the real may outperform its typical’beta’ in the safe-haven price action this summer,” Pender added.

Reuters polls about, and prospects: https://fingfx.thomsonreuters.com/gfx/polling/gdvzyrazkpw/EM%20FX%20graphics.PNG

When asked what are the main drivers of EMFX in the next three months, 37 out of 59 respondents indicated the development of monetary policy, and 18 indicated the spread of new variants of the coronavirus.

The interest rate hike cycle in South Africa is expected to begin in early 2022, a little later than other central banks such as Russia, which raised interest rates by 100 basis points to 6.5% last month, and more rate hikes are expected.

Reuters poll on the outlook for emerging market currencies: https://fingfx.thomsonreuters.com/gfx/polling/movanmoxjpa/EM%20FX%20August%202021%20(1).png

For low-yielding currencies such as the Korean Won and the Thai Baht, it is expected that they will rise in the short term, and the increase will exceed 4% in 12 months. This is a sign that it is beneficial to lower-risk currencies.

Investors are short on the renminbi for the first time since April, as the Chinese regulator’s crackdown on private companies has made the market uneasy.

The renminbi fell for the second consecutive month in July and is expected to trade within a narrow range within 12 months as the slowdown in economic recovery and concerns about the increase in domestic COVID-19 cases have damaged the tightly controlled currency.

“The Politburo is now implying that China will’set its own agenda’ on future economic policies. This means that even if the United States takes steps to cut and raise interest rates, Beijing will continue to further relax its fiscal and monetary policies — and direct specific targets for it. The industry you want,” said Michael Every, global strategist at Rabobank.

“This may mean that the downward pressure on the renminbi will increase significantly in the future-if recent history can be used as a reference, this may trigger the White House’s policy response to trade.”

The Turkish lira is the worst-performing emerging market currency so far in 2021, because it was after President Tayyip Erdogan intervened in monetary policy and fired a hawkish governor earlier this year. It will fall another 11% next year to 9.4/USD for 12 months.

The Indian rupee fell to its lowest level in three months in July last year and is expected to depreciate by 1.3% to 75.1/ U.S. dollar in one year.

“We expect most emerging market currencies to fall against the U.S. dollar, especially those economies that rely on commodity exports and/or weak balance sheets, which makes them vulnerable to rising Treasury yields,” Capital Markets Economics Said the scientist Jonathan Peterson.

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