“In the past few weeks investors’ attention has been increasingly gripped by the capital flowing out of Emerging Markets,” Jane Foley, Rabobank Senior FX Strategist, notes.
Key quotes
“The ARS and the TRY have clearly been in the eye of the storm plunging 50% and 42% vs. the USD in the year to date. The sensitivity of other EM currencies to negative sentiment is explained by their various domestic fundamentals; a few such as the MXN are still holding on to year to date gains vs. the USD. It is important to note that after a strong start to the year, the current downtrend in the MSCI EM equity index has been in place since March/April time.”
“For many EM currencies, the higher cost of USD funding and/or concerns about the impact on world growth from the US/China trade war have been the key elements behind this year’s capital outflow. The USD has been the main beneficiary and we expect that the greenback will remain well supported on a 6 to 9 month view. We expect EUR/USD to bottom around the 1.12 area before heading higher in H2 next year.”
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