Yahoo Finance Latin American Currencies Post Biggest Weekly Loss Across EM
(Bloomberg) -- Latin American currencies led losses in emerging markets this week on a mix of lower commodity prices and political turbulence in some of the region’s major markets.
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The Colombian peso underperformed peers, weighed down by weakening oil prices, followed by the Brazilian real and the Mexican peso, which are tangled in domestic political risks. Overall, Latin American currencies have been among the worst performing globally during a month when those from other regions largely appreciated against the US dollar, BBVA strategists led by Alejandro Cuadrado wrote in a report on Friday.
The broader MSCI emerging-market currency index posted its fifth consecutive weekly gain, aided by economic data supporting the case for US rate cuts in September. On Friday, a fresh print of the Fed’s preferred measure of underlying inflation reinforced the current outlook. Traders will now be turning to jobs data next week for more clues on the pace of monetary easing.
“If the report points to soft landing, we could see a recovery in Latam FX,” said Erick Martínez Magana, a strategist at Barclays Plc. “But if the report shows that July weakness was not a one-off, we could see a risk off in markets.”
The Brazilian real was particularly volatile on Friday, jumping briefly at the open after the central bank announced a currency intervention of $1.5 billion and then weakening as much as 1.1% following the publication of budget data that came in far worse than expected. It picked up in the afternoon, following comments by central bank governor Roberto Campos Neto about Brazil’s possible cycle of monetary tightening being gradual.
“Authorities have been sending the correct signals by pausing the cycle and shifting to a more hawkish stance. But I think the market is waiting for hikes to materialize alongside clarity on the fiscal side before turning more constructive the BRL,” Martínez said.
Emerging stocks rebounded on Friday but still broke a three-week winning streak, as Asian tech companies took their cue from a US selloff following Nvidia Corp. results.
On the credit side, emerging-market sovereign dollar bonds are heading for their biggest monthly gains of the year, driven by expectations that US interest-rate cuts will boost inflows into riskier assets. A gauge of developing dollar bonds gained 2.6% so far in August, the most since last December, according to data compiled by Bloomberg. The index has risen for the past four months.
“There is still a strong case for EM credit,” Trang Nguyen, global head of emerging-market credit strategy at BNP Paribas, said on Bloomberg TV on Friday. “With Fed cuts, that means that inflows will probably come back.”
Emerging-markets are seeing more cash from investors. Hard-currency bond funds saw small inflows this week after six weeks of outflows, according a Barclays Plc research note on Friday. In equities, funds registered the largest inflow in five weeks, Bank of America said, citing EPFR Global data.
In Friday’s trading, bonds from China, Colombia and Egypt were among the top performers.
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