Emerging Market Currencies Fall As Traders Await Waller Remarks
Emerging market stocks and currencies fell on uncertainty over the pace of Federal Reserve rate cuts and China’s currency management.
(Bloomberg) -- Most emerging market currencies weakened Wednesday as traders rebalanced their portfolios before the end of the quarter and markets awaited remarks from Federal Reserve officials.
The MSCI index for developing world currencies dropped as much as 0.3%, led lower by South Korea’s won, Indonesia’s Rupiah and Thailand’s baht.
The Mexican peso bucked the trend, outperforming developing nation peers as a mix of high rates, low volatility and ample liquidity pushed the currency to its highest level since 2015. South Africa’s rand also advanced after the country’s central bank kept interest rates at a 15-year high, forecasting inflation would return to the midpoint of the target range later than expected.
Traders will switch their attention to comments by Fed Governor Christopher Waller at the economic club of New York after the market close today, looking for any clues on the path for US interest rates. The market is also cautious ahead of Friday’s release of the Fed’s preferred inflation gauge.
“Should Waller sound hawkish, Latin American currencies are likely to display returns against the dollar based on their ‘quality,’” said Simon Harvey, head of FX analysis at Monex Europe.
Money managers seeking to navigate the complexities of China’s foreign-exchange management system are finding visibility getting increasingly cloudy. Since last Friday, authorities have flipped backward and forward with their favorite tool for guiding expectations — the yuan’s daily reference rate, which pins the currency to a level around which it’s allowed to deviate just 2%.
The volatility in the yuan has fed through to currencies in Asia and then to the broader emerging-market world in recent days.
Earlier in the day, Japan’s yen fell to its lowest level in about 34 years versus the dollar, only to reverse losses amid speculation that authorities could intervene to support the currency.
The gauge for emerging-market stocks slid with GDS Holdings Ltd. leading losses as the company, which operates dozens of data centers across China’s largest cities, reported a wider loss per share in the fourth quarter than Wall Street expected.
Still, equities remain on track for a second consecutive month of gains on optimism that central banks are likely to cut rates this year.
Elsewhere, Ghana’s dollar bonds posted the best gains in emerging markets as Finance Minister Mohammed Amin Adam said the government will begin talks with international bondholders to restructure about $13 billion of defaulted debt in the coming week.
Sri Lanka’s dollar bonds were also some of the best performers after China said it would “continuously” assist with the South Asian nation’s debt restructuring process.
--With assistance from Selcuk Gokoluk.
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