Currencies stabilise, rouble lags EMEA peers this week

PUBLISHED: Fri, 09 Jul 2021 11:12:44 GMT
Ambar Warrick
Reuters
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July 9 (Reuters) – Most emerging market currencies took respite from a falling dollar on Friday but were set for weekly losses as concerns over the fast-spreading COVID-19 Delta variant and a tech crackdown in China dented appetite for risk-driven assets.

MSCI’s index of emerging market currencies traded flat after tumbling 0.8% since Monday’s close. The index is also set to lose 0.5% this week.

The index of emerging market stocks was also unchanged, but was set to fall 2.9% this week as growing virus infections in Asia and a rout in Chinese technology stocks weighed.

Baidu, Alibaba and Tencent, the three largest Chinese tech companies, were set to lose between 5% to 10% this week on fears of more regulatory scrutiny, after the Chinese government’s shock crackdown on ridesharing app Didi Global.

The dollar held just below three-month highs, having benefited from safe-haven demand this week as increasing fears of a slowdown in growth spurred a rush for safety. Yield spreads between emerging market and developed world debt also widened.

Rising inflation and mixed economic readings in major emerging market economies have somewhat dampened optimism over a post-COVID recovery this year, despite a strong start to 2021.

“Growth dynamics are turning against EM for the second half of the year as illustrated by both consensus economic forecasts, diverging PMIs, greater fiscal consolidation and potentially the Delta variant which has scope to disrupt EM economies more than highly vaccinated developed market peers,” Deutsche Bank wrote in a recent note.

Russia’s rouble, which rose about 0.1%, was set to be the worst performing currency in the Europe, Middle East, and Africa (EMEA) region this week, after wild swings in the oil market.

Oil prices had marked volatile sessions before settling lower through the week, after OPEC talks over increasing production later this year collapsed.

The rouble has some of the highest exposure to oil among emerging market currencies, along with Brazil’s real and the Mexican and Colombian pesos.

Turkey’s lira fared much better than its emerging market peers this week, and was set to end largely flat. Still, the currency is the worst performing emerging market unit this year, with a near-17% loss.

In central Europe, Hungary’s forint and the Czech crown bounced back from their respective two-month lows to the euro, while the Polish zloty was flat after the central bank held interest rates on Thursday, as expected.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh

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For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

(Reporting by Ambar Warrick; Editing by Emelia Sithole-Matarise)

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