JOHANNESBURG/BENGALURU- Short-term volatility in emerging markets currencies will linger as the jury is still out on the timing of US stimulus tapering and as investors support currencies with greater potential for strength, a Reuters poll found.
In an Aug. 2-4 survey, the outlook for emerging market currencies was mixed against a range-bound dollar, depending on which central bank has begun raising interest rates or has potential for hikes.
The South African rand was expected to weaken about 1 percent to 14.4/$ in six months while the Brazilian real was forecast to gain 2 percent to 5.1/$ and the Russian rouble to make 1.2 percent gains to 72.0/$ in the same time frame.
“On a tactical basis, recent weeks have made clear that the currencies of high-carry hikers…have been able to weather hawkish shocks from the US, as long as monetary policy support continues,” noted Zach Pandl, co-head of foreign exchange strategy for Goldman Sachs.
Brazil’s central bank has positioned itself as a high yield choice after delivering interest rate hikes, and raised the spectre of further increases ahead.
“Overall, the combination of deep value, high carry, and continued support from a rapid hiking cycle may mean that the real can outperform its typical ‘betas’ during bouts of risk-off price action this summer,” Pandl added.
When asked what would be the top driver of EMFX in the next three months, 37 of 59 respondents said monetary policy developments and 18 said the spread of new variants of the coronavirus. – Reuters
