Currencies 3 MIN READ

Weak China data, steady dollar put EM FX on pace for weekly losses

July 15, 2022By Reuters

July 15 (Reuters) – Emerging market currencies were on pace for their sixth consecutive week of losses on Friday as worries over a potential global economic downturn as well as faster US interest rate hikes dented the appeal for riskier assets.

China brought the gloom on Friday, with the yuan marking its biggest weekly decline since mid-May as a much weaker-than-expected economic growth data raised doubts about this year’s growth target.

“China is one of Asia’s key growth powerhouses,” said Danni Hewson financial analyst at AJ Bell. “This doesn’t bode well as recession fears grow in many parts of the world, and it could fuel speculation that China’s commodities appetite may wane if economic activity is stalling.”

The offshore yuan was down a touch, while stock markets were also hit by property developers and financial stocks following homebuyers’ threats to stop mortgage payments on unfinished apartments.

Among other currencies, the Indian rupee hit a fresh record low at 79.95 per dollar before easing a bit.

The South African rand, the Turkish lira slipped as the dollar held at a two-week high with traders flirting with the prospect of a 100-basis-point rate hike by the Federal Reserve later this month.

The MSCI’s EM currencies index slipped 0.2%, with analysts forecasting more weakness despite aggressive rate hikes across EM economies to quell soaring inflation.

“The bottom in EM can only occur when the Fed needs to shift the focus to avoiding a deeper recession. Only then EM central banks will have room to move to a more accommodative stance,” Bofa strategists David Hauner and David Beker wrote in a note.

The Polish zloty firmed 0.2% versus the euro, moving further away from four-month lows, as a central bank member said Poland’s main rate would be raised at its next rate-setting meeting in September. nL8N2YW0W1

Russia’s rouble, firmed towards 58 against the dollar and the euro, supported by the beginning of a favorable tax period. Export-focused companies usually step up conversion of their forex revenues to meet local liabilities.

Sri Lankan dollar bonds, were still at record lows as the speaker of Sri Lanka’s parliament formally accepted President Gotabaya Rajapaksa’s resignation after he fled to Singapore amid an uprising brought about by his country’s worst economic crisis in seven decades.

(Reporting by Sruthi Shankar and Susan Mathew in Bengaluru; Editing by Vinay Dwivedi)

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