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Emerging Currencies Enjoy Best Week in 4 Years on Growth Outlook - BLOOMBERG

JUNE 05, 2020

By June 5, 2020, 6:12 AM GMT+1 

  • EM FX volatility gauge drops to lowest level in three months
  • Investors are looking beyond Friday’s payrolls data: ANZ’s Goh       

Emerging-market currencies are powering toward their best week in more than four years as optimism that global economies are getting over the coronavirus shock reaches a new height.

The MSCI Emerging Markets Currency Index has jumped 1.5% over the past five days as a drop in haven demand pushes down the dollar and the prospect of further central bank support outweighs concerns over worsening virus outbreaks in countries such as Brazil and Mexico. Investors also appear to be discounting current disappointing economic data, including expectations for heavy job losses in Friday’s U.S. payroll report.

“The focus is on the future, and this is where markets are expecting things to start improving,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “Bad data like non-farm payrolls is already anticipated by markets. Things can’t get any worse than April’s 20 million job loss.”

Developing-nation currencies are also strengthening as a gauge of their volatility has dropped for six consecutive weeks, falling to the lowest level in almost three months. Indonesia’s rupiah is leading gains this week, strengthening more than 5%, while the Chilean peso, Brazilian real and South African rand have all risen more than 4%.

Some strategists see further gains in the medium term, though they caution the rally may slow in coming weeks.

“The flush dollar liquidity conditions should drive financial market flows away from the U.S. and back towards EM and other markets,” said Eddie Cheung, an emerging-markets strategist at Credit Agricole SA in Hong Kong.


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