Emerging market currencies started the week on a firmer footing on Monday, with the high-yielding South African rand leading gains as the dollar weakened on growing bets of a more accommodative stance from the US Federal Reserve this week.
The reserve currency of the world slipped against a basket of currencies, with focus shifting to a two-day Fed meeting starting on Tuesday. Expectations are that policymakers may begin laying the groundwork for more action in September or the fourth quarter.
Analysts note that the move in the dollar may not be a clear signal of a “risk-on” mood as worsening ties between the United States and China, and surging coronavirus cases continue to dominate headlines.
Concerns over renewed restrictions to curb the spread of the coronavirus in parts of Asia also kept risk in check, with Beijing battling the most aggressive resurgence in months, Australia recording a record daily rise in cases and Vietnam locking down the city of Danang.
“The dollar seems to have lost the title ‘King’, at least for now, as it continues to be dragged lower despite all the negative news which used to attract inflows from global investors,” said Hussein Sayed, chief market strategist at FXTM.
“Plunging risk appetite is no longer translated into a strong dollar, otherwise the tit-for-tat closures of the Chinese and US consulates which sent global equities lower last week should have driven inflows into the Greenback. This didn’t happen.”
South Africa’s rand rose 0.5% against the dollar, gaining the most among its emerging market peers, with investors focusing on a slew of economic data this week, including consumer price inflation on Wednesday and trade data on Friday.
Turkey’s lira also firmed after data showed business confidence among Turkish manufacturers rose to 100.7 points in July compared to 92.6 points in June. A score of 100 or more denotes optimism while a number below the 100 mark designates pessimism.
Russia’s rouble edged higher, even as the Bank of Russia on Friday cut its benchmark interest rate by 25 basis points to a record low of 4.25%. Analysts say the cut was by a lesser margin than expected.
Currencies in central and eastern European countries, including Hungary, Poland, Romania and the Czech Republic, were mostly flat against the euro.
The MSCI’s emerging market equity index added 0.6%, Turkish stocks rising 0.7% and Russian stocks gaining 0.8%.