Emerging markets currencies under pressure – Nordea Markets

Emerging markets currencies have sold off massively this year with ARS and TRY in the lead, points out the research team at Nordea Markets.

Key Quotes

“Domestic politics, trade war rumblings and US sanctions, a stronger USD, and the Fed's balance-sheet reductions make for a fairly bleak outlook in EM FX.”

“We note that, as many of the risks are political, forecasts are more uncertain than usual, but are generally changing to a more negative view on EM FX.”

“CNY: weak, but not too weak: The Chinese yuan will likely face continued pressure in the coming months as the trade war with the US persists. We do not expect Beijing to devalue the yuan at present, as this is associated with larger costs than benefits.”

“RUB: victim of US relations

The RUB will likely remain extremely vulnerable to the sanctions rhetoric from the US in the run-up to the November mid-term elections. We still do not see the approval of sanctions in their toughest form as our base case scenario but a certain tightening of sanctions is very likely.”

“PLN: More headwinds

Lukewarm market sentiment keeps pressuring the zloty. Combined with rising political risks and a dovish NBP, the PLN could face more headwinds.”