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Analysts at Rabobank point out that the September provided more evidence to prove the importance of idiosyncratic factors for various EM currencies.

Key Quotes

“The battered Turkish lira outperformed its EM peers on the back of growing market optimism that the worst is perhaps over after the central bank raised interest rates significantly. A new economic program envisages fiscal tightening and a far more balanced growth over the mid-term horizon. Meanwhile, prevailing market concerns that Argentina may not avoid a full-scale financial and economic crisis continued to weigh on the peso, which lost almost 11% of its value in September.”

“Looking more broadly at the EM space, we are not convinced that the respite witnessed last month will prove sustainable in Q4. One could argue that the markets have become accustomed to the trade war between the US and China. But, we are concerned that tensions may escalate further in the coming months triggering another sell-off in EM.”

“The price action in the Dollar Index also does not inspire confidence in EM. After bottoming around 94 level, the DXY Index has regained upside traction surging above the downside trendline from the year-to-date high. From the perspective of technical analysis, this is a bullish signal that does not bode well for EM. It’s difficult to expect sentiment towards EM to improve markedly, especially in case of EM bonds, at the time when the US 10-year is trading well above the psychological barrier of 3.00%.”