How Low Can They Go? Emerging-Market Currencies Near a Key Level
(Bloomberg) -- Emerging-market currencies, pummeled in the second quarter by a strong U.S. dollar, are closing in on a key resistance level whose rupture could open the way to further declines.
The MSCI Emerging Markets Currency Index has hovered near 1,628.25 since completing its 5.5 percent swoon in the period, barely budging between 1,615 and 1,630. That stability suggests the gauge is testing the Fibonacci projection level of 1,619 that served as a floor in late September, late October and mid-November. If that barrier is breached, the next resistance would be at around 1,580 -- meaning a further 2.5 percent drop.
While each currency in the basket that makes up the gauge has its own technical levels and idiosyncratic drivers, the benchmark's move suggests the asset class is at a key technical juncture. Adding weight to the theory are expectations the dollar will strengthen anew as U.S. interest rates rise, reducing demand for risky assets such as emerging markets.
“A major driver of EM year-to-date has been the strengthening dollar, and since it seemed to stabilize in late June, we have seen a more constructive environment for EM assets,” said James Syme, an emerging-market specialist who helps oversee London-based JO Hambro Capital. Going forward, though, recent U.S. economic data has been strong and the Federal Reserve is on course to shrink its balance sheet -- signs of a stronger dollar, Syme said.
Half of the 24 emerging-market currencies tracked by Bloomberg have strengthened since the end of June, led by some of the worst casualties of the second-quarter carnage including the Brazilian real, Mexico's peso and the South African rand.
MSCI's currency gauge has dropped 3.5 percent so far this year and fell 0.5 percent on the week.
--With assistance from Giulia Morpurgo and Alex Nicholson.
To contact the reporter on this story: Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net
To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Alec D.B. McCabe
©2018 Bloomberg L.P.
-
A New Samvat Wishlist: Inclusive Prosperity And Human Development
India has strengthened its economic foundations through infrastructure, digital access and enterprise. Its next growth chapter must deepen productivity, create better livelihoods and widen participation in prosperity.
-
Love, Sex Aur Dhokha: The Audacious Plot To Spy On Jensen Huang
A Taipei dinner, a Singapore chip buyer and a suspected Chinese asset: inside the alleged spy operation that got close to NVIDIA's Jensen Huang.
-
Ten Things I Learnt This Samvat
Patience can be a trap. Cheap stocks can stay cheap. Leverage can wipe you out. What did Samvat 2082 teach us? Niraj Shah writes on 10 lessons from the year gone by.
-
Talking Points This Week: Tech Nerves, FII Buying, And A Faraway Banking Shock
The global markets are not shining this Diwali. The exception in the large markets is, India.
-
Midterm Rally Lasted A Day. The Hard Reality Of A Divided US May Last Two Years | Opinion
Between a contested AI boom, a debt ceiling that arrives in 2027 and a president with every incentive to act alone, the next two years may prove more volatile than the first day's rally suggests.
-
Blue Wave Will Derail the AI Trade but Won't Dismantle the AI Era | Unhedged Position
The Democrats' sweep of the US Congress will see politics collide with economic forces both over the long and short term.
-
It's Time To Take The GST Council's Bet On Trust Global
Payment records can prove India's services exports, and clear, proportionate rules can bring foreign digital sellers into the tax net.
-
Opinion | India at 38: From Innovation Overperformer to Innovation Powerhouse
India now has 453 VC-backed deep science startups, 18 of them late-stage, after 117 percent growth since 2020. Laurus Labs, at USD 9.3 billion, is the most valuable deep science company in any middle-income economy outside China.
-
Navigating Energy Crossroads: S Jaishankar's Call For Diversified Supply Chains At G20 Ministerial Meeting
As geopolitical fault lines continue to test maritime trade routes and commodity flows, Jaishankar's message remains pertinent: true economic resilience requires open markets, protected transit lines, and a genuine commitment to multilateral cooperation rather than coercion.
