Tepid dollar, strong oil aid some emerging currencies

Oil prices climb toward last week’s seven-year highs.
Image: Jason Alden/Bloomberg

A softer dollar lifted some emerging market currencies on Wednesday, with Russia’s rouble leading gains on the back of strong oil prices, although Turkey’s lira remained under pressure.

The rouble strengthened around 0.7% to hover near its highest level in almost two weeks, and was on track for its best week since December 2020.

While oil prices aided the currency, geopolitical tension over Ukraine remained in focus. Russian President Vladimir Putin accused the West of deliberately creating a scenario designed to lure it into war and ignoring Russia’s security concerns over Ukraine, after Moscow and Washington held talks.

Russian stocks inched higher for a seventh straight session, its longest daily winning streak since January last year, with the market taking some heart from ongoing diplomatic talks. Russian dollar-denominated sovereign bonds also strengthened, with the longer-dated issues adding more than 2 cents in the dollar, Tradeweb data showed.

“Ongoing negotiations and the potential for a peace pact would see sentiment around Russian assets dramatically improve and would likely result in an aggressive retracement in USDRUB to December’s range,” wrote analysts at Monex Europe in a note.

Other oil currencies like the Mexican peso also booked gains.

Oil prices climbed toward last week’s seven-year highs on strong demand and tight supplies, though markets were also awaiting an OPEC+ meeting later in the day, with the group expected to likely stick to existing policies of moderate output increases.

Currencies elsewhere struggled to make much headway despite the dollar index slipping for a third consecutive session after St. Louis Fed President James Bullard, a noted hawk, said he would argue for rate rises in March, May and June, but did not favour a 50-basis point hike, which the market was expecting.

Turkey’s lira slipped 0.5%, bringing its loss to 0.9% so far this year, with investors awaiting key inflation data due on Thursday.

Turkey’s inflation in January is expected to have surged to 20-year highs. President Tayyip Erdogan’s push to further cut interest rates at a time of rising cost pressures have weighed on the lira, which suffered a 44% tumble last year.

The South African rand eased 0.2% as local risks resurfaced as South African utility Eskom announced scheduled power cuts from Wednesday until Monday.

Read: Load shedding: Back from Wednesday 11h00

Most currencies in Central Europe gained against the euro with Hungary’s forint, the Polish zloty and Czech crown up between 0.1% and 0.4%. The focus is now on the Czech National Bank’s policy decision on Thursday where expectations are for a more than 50 basis point hike.

MSCI’s index of emerging market stocks rose 0.1%, its third straight day of gains with eyes on key central bank policies from the UK, Eurozone due this week as investors look to judge the pace of policy tightening.

Brazil’s central bank is expected to hike rates as much as 150 bps later in the day.

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