EM-FX steady as Russian offensive slows, rouble bounces

The MSCI’s index for emerging market currencies was 0.1% higher for the first time in three days.
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Emerging market currencies edged higher on Tuesday, including the Russian rouble as Russia’s offensive in Ukraine continued at a slower pace, and fears of global inflation weighed down stocks in the developing world.

The MSCI’s index for emerging market currencies was 0.1% higher for the first time in three days.

Russia opened “humanitarian corridors” to allow civilians to be evacuated from Ukrainian cities including Cherhihiv, Sumy, Kharkiv, Mariupol, as well as Kyiv, Interfax cited the Russian defence ministry saying.

“Yesterday, we had seen that there might be a ban on imports of Russian oil from various Western countries. The US Congress is still trying to go ahead, but it now seems less sure that something like that will happen,” said Franziska Palmas, market economist at Capital Economics.

The rouble strengthened about 7% to 125 against the dollar on the interbank rate by 0915 GMT, rising for the first time in four days. Local markets remained shut for a public holiday, with currency trading set to resume on Wednesday.

The MSCI’s EM stocks index slipped 1.4% amid worries about a recent rally in oil and other commodity prices, which are expected to add to the global inflationary pulse.

US data this week expected to show its consumer price index climbed a stratospheric 7.9% on a year-on-year basis in February, up from 7.5% in January.

Emerging market assets, especially those in regions such as Latin America, are seen benefiting from surging commodity and oil prices and relatively quiet domestic political noise, with currencies propped up by a cycle of interest rate hikes that preceded developed markets. The MSCI’s Latam stocks index is up 11.8% this year, while its currencies counterpart gained 6.3%.

“Emerging markets excluding Russia and the EMs in Europe, which have been particularly hard hit given the exposure to Russia… have held up better than expected,” Palmas added.

EM stocks are down about 10% this year, faring better than the S&P 500 .SPX and the all-country index, which have fallen about 12% and 13% respectively. EM currencies have slipped 1.7% compared to a fall of 2.3% in its global peer.

South Africa’s rand 0.3% as traders awaited the release of domestic economic growth numbers later in the day.

The Polish zloty slipped 0.1% to 4.98 against the euro after hitting a record low of 5 on Monday, ahead of the central bank’s announcement of its interest rate decision. Analysts polled by Reuters expect a 50-basis-point hike.

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