Emerging market currencies deepened
losses on Thursday as better-than-than expected U.S.
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manufacturing data bolstered the dollar, which is already
benefiting from bets of more aggressive monetary policy
tightening by the Federal Reserve this month.
After logging their third straight month in the red on
Wednesday, MSCI’s index of EM currencies slipped
0.5% on Thursday, hitting its lowest in nearly two years.
Despite the Fed’s tightening, U.S. manufacturing grew
steadily in August as employment and new orders rebounded, data
showed. As traders bet that the Fed will deliver its third 75
basis points hike of the year in September, the dollar has
“An environment of tighter global liquidity for longer will
be a testing one for emerging market assets,” said Alejo
Czerwonko, chief investment officer EM Americas at UBS Global
“Most countries are up for the challenge, though …
Colombia, Chile, South Africa, and to a lesser extent the
Philippines and Thailand exhibit some vulnerabilities.”
Brazil’s real, which rose earlier in the
session after data showed economic growth rose more than
expected in the second quarter, reversed gains to fall nearly
1%as the dollar gained momentum.
The pace of growth in Brazil will be difficult to sustain in
the coming quarter as higher domestic interest rates will weigh
on output, said Jared Lou, portfolio manager, EM debt at William
Blair Investment Management.
“Additionally, debt-to-GDP ratios near 78% and inflation
over 10% in July limit policy flexibility.”
Chile’s peso was flat after falling 1% earlier in the
session as the price of copper – the country’s biggest export
revenue item – slipped amid worries about China demand.
Data on Thursday showed the rate of growth in Chile’s
economic activity slowed in July from June. Still Chile’s
central bank is seen hiking by 75 basis points this month to
rein in inflation.
Investors also looked ahead at Chileans voting on a new
constitution over the weekend, with support dwindling in recent
weeks for the new document and polls showing voters are more
likely to reject the new text.
“Even if the constitution is rejected, it is clear that
Chile is moving towards a larger role for the state in the
economy. That’s likely to entail larger budget deficits and a
rising public debt ratio,” said Kimberley Sperrfechter,
assistant emerging markets economist at Capital Economics.
In Mexico, the peso fell 0.2%. A central bank poll
showed private sector analysts see the peso ending the year at
20.70, stronger than an earlier forecast of 20.82, but weaker
than the 20.22 it is currently trading at.
Mexico’s central bank on Wednesday said it is not wed to
hiking interest rates in line with the Fed. The Mexican monetary
authority had raised its key interest rate by 75 basis points in
Key Latin American stock indexes and currencies at 1853 GMT:
Stock indexes Latest Daily %
MSCI Emerging Markets 974.74 -1.95
MSCI LatAm 2118.87 -0.35
Brazil Bovespa 110023.13 0.46
Mexico IPC 45471.09 1.23
Chile IPSA 5409.30 -0.58
Argentina MerVal 137191.30 0.698
Colombia COLCAP 1224.21 -0.34
Currencies Latest Daily %
Brazil real 5.2296 -0.57
Mexico peso 20.1840 -0.24
Chile peso 895.9 0.07
Colombia peso 4480.95 -1.29
Peru sol 3.8625 -0.30
Argentina peso (interbank) 139.0200 -0.21
Argentina peso (parallel) 281 3.20
(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;
editing by Jonathan Oatis)