Emerging markets currencies winners after QE3
The Federal Reserve’s decision to go ahead with the third round of quantitative easing has boosted some emerging markets currencies
The Fed gave a bullish signal for some currencies in emerging markets with its QE3 program, and the Russian ruble (RUB) and Polish zloty (PLN) are among those that stand to benefit the most, according to Benoit Anne, head of emerging markets strategy at Societe Generale.
The Central Bank of Russia raised interest rates by 0.25 percentage points last week, in line with expectations, and this has been supportive of the ruble, he wrote in a market note, adding: we expect the CBR to continue drawing out a gradual hiking cycle.
Some leading indicators in Russia remained reasonably strong despite a slip in manufacturing PMI in August, with the Rosstat business survey, electricity consumption and railway cargo shipments data all pointing to a decent pace of activity.
Oil output edged up to 1% in August on a year-on-year basis and the decline in natural gas output eased to 1.9% from 6.9% in July.
In Poland, aside from the fundamental backdrop which we think is still quite robust, we believe that the fixed income market is too optimistic in its expectations and that the National Bank of Poland should under-deliver rate cuts relative to market expectations, Anne said.
In Asia, the Indian rupee (INR) outperformed the currencies of other countries in the region by a large margin after the Feds announcement, strengthening by 2.5% since last Wednesday, also buoyed by the Indian governments launching of crucial investment reforms in the retail and airline sectors.
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In Latin America, the Mexican peso (MXN) trades at a six-month high versus the dollar and Anne warned that the potential for further appreciation may be limited.
Societe Generale turned much more bullish on risky assets in EM FX after all those green lights for risk from both the ECB and the Fed, he wrote.
The Israeli shekel (ILS) should continue to catch up as long as the regional security situation does not deteriorate and even the South African rand (ZAR) may have room for catching up, once the dust has settled locally.
In Asia, currencies like the Indonesian rupee or the South Korean won (KRW) will continue to perform in the period ahead, Anne added.The losers are the defensive currencies, such as the Turkish lira (TRY), Brazilian real (BRL) and low-risk currencies in Asia, he said.