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EM currency rally hinges on Turkey and Argentina

More twists in the Brexit saga and slowing economic growth in China complicate the picture.

Bloomberg|
Oct 21, 2019, 08.23 AM IST
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emerging-market currencies
Turkey’s central bank will make an interest-rate decision on Thursday, two days after a US-brokered truce in northern Syria is due to expire.
Emerging-market currencies are winning fans again as the dollar wobbles, but their resilience will be tested during what’s shaping up to be a pivotal week.

Turkey’s central bank will make an interest-rate decision on Thursday, two days after a US-brokered truce in northern Syria is due to expire. Estimates range from a hold to a cut of as much as 225 basis points. Argentina’s presidential election takes place next Sunday, two-and-half months after leftist challenger Alberto Fernandez shocked investors by beating incumbent Mauricio Macri in a primary vote. More twists in the Brexit saga and slowing economic growth in China complicate the picture.

Developing-nation currencies climbed for a third week as the dollar slumped to the lowest level since July on Friday. Traders are mostly convinced the Federal Reserve will deliver its third straight rate cut this month. Carry-trade returns for eight emerging markets funded by short positions in the US currency climbed above their 100-day and 200-day moving averages on Friday, suggesting further gains may be in store.

“I am seeing increasing signs of EM bottoming and relative outperformance, backed by a dial down of trade tensions and significant easing of monetary policy,” said Sydney-based Nader Naeimi, AMP Capital Investors Ltd.’s head of dynamic markets.

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