POLL-Emerging market currencies to gain as U.S. Fed nears endgame

By Vivek Mishra

BENGALURU, April 5 (Reuters) – Most emerging market currencies are forecast to drift higher over the coming year as investors fret less about financial stability and snap up riskier assets, according to a Reuters poll of analysts who largely upgraded forecasts from last month.

While most of the currencies are seen gaining over the next 12 months, the March 31-April 4 poll of 60 foreign exchange analysts predicted volatility in the near term, and that only South Korea’s won and the Thai baht would recoup 2022 losses.

Emerging market (EM) assets have benefited from their exposure to commodities, which have held strong against a weaker U.S. dollar after the Federal Reserve signalled last month it was close to pausing an historically aggressive tightening cycle.

“With the global economy showing more resilience and the Fed slowing its pace of tightening, we believe EM currencies can outperform relative to G10 peer currencies this year,” wrote Nick Bennenbroek, international economist at Wells Fargo.

“Attractive real yields should result in market participants accumulating exposure to developing currencies, while our assumption for contained banking sector stresses should lead to improved risk appetite.”

While most EM currencies are up against the greenback so far this year, the South Korean won, Russian rouble, South African rand and Turkish lira are down.

For emerging markets more broadly, much still depends on the global path for interest rates, largely led by the Fed in the near term.

“Unless the Fed sounds overly dovish, this implies a bias for USD upside versus EMFX,” noted Mitul Kotecha, head of emerging markets strategy at TD Securities.

The Chinese yuan CNY=, Indian rupee INR=, Indonesian rupiah IDR=, Singapore dollar SGD=, and Vietnamese dong VND= are expected to gain 0.5-3% in a year, while the Philippine peso is forecast to weaken about 1%.

Russia’s rouble RUB= is set for a 3% gain to 77.0 per dollar in the next six months, supported mainly by higher oil prices.

The South African rand ZAR=, down about 5% so far this year, is expected to gain about 2% to 17.5/$ in the next 12 months.

Turkey’s lira TRY=, the worst performing EM currency last year with a 29% drop, is set to fall about another 15% to 22.5 per dollar in a year. Turkish presidential and parliamentary elections scheduled for May 14 are adding to uncertainty.

Reuters Poll – Emerging market foreign exchange forecasts

(Reporting by Vivek Mishra; Polling by Veronica Khongwir and Devayani Sathyan; Editing by Ross Finley and Mark Potter)

((Vivek.Mishra@thomsonreuters.com))

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