FXStreet (Edinburgh) – Christin Tuxen, Senior Analyst at Danske Bank, sees the heavy tone still prevailing in the EM FX space.
Key Quotes
“Notably, CNY depreciation is only the tip of the iceberg for emerging markets”.
“The commodity-price collapse has driven the plunge in emerging market FX over the past three months. The next driver is likely to be higher US rates”.
“We see current-account deficit currencies such as the ZAR and BRL as particularly vulnerable to higher USD funding costs. In addition, we believe downside risks to oil prices will put further pressure on the RUB”.
“The CNY depreciation and renewed pressure on oil prices and the RUB triggered the large devaluation of the Kazakh tenge (KZT) over the past few days and we think there is room for it to fall further”.
“The CEE currencies are set to be largely shielded from the commodity collapse and CNY depreciation. Hungary and the Czech Republic have solid external balances and growth prospects are improving in Poland”.
“Also, the CEE currencies have a negative, albeit small, correlation to CNY. Hence, over both the short and medium term, we expect CEE currencies to outperform and Asia to underperform, with Latin America in between”.
(Market News Provided by FXstreet)