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According to Piotr Matys, Senior Emerging Markets FX Strategist at Rabobank, the big sell-off in China after the local markets reopened following the extended Lunar New Year holidays had limited impact on the CEEMEA currencies as it was widely anticipated.

Key Quotes:

“We remain of the view that it is too early to abandon a cautious approach towards risky EM assets as there is no sufficient evidence yet (despite various measures being implemented) that the deadly virus has been contained. The death toll now exceeds 360 and total confirmed cases of infection have risen sharply to almost 17,400. It is worth noting that the coronavirus is spreading much faster than the SARS outbreak in 2003. The Philippines confirmed the first dead from the virus outside China. Tension between the US and China may resurface after Beijing accused Washington for “overreacting” to the outbreak.”

“The South African rand and the Russian ruble have been the most affected so far as both currencies suffered from the sharp fall in commodities. The Bloomberg Commodity Index plunged to the lowest level since early 2016 on the back of escalating concerns about a much lower demand from China – at least in Q1.”

“After rising sharply last week, USD/RUB may consolidate its gains at current levels ahead of another leg higher towards the December high at 64.4880 (Figure 2). A sharp pullback below the 63.1057 (an important pivot) would dent the bullish bias.”

“The ruble has not weakened sufficiently for the Bank of Russia to be seriously concerned about potential inflationary consequences. We therefore expect Governor Nabiullina to trim the policy rate by 25bps to 6.00% at the first meeting this year scheduled on Friday.”