News24
18 Jan 2021, 00:42 GMT+10
A stronger U.S. dollar is proving to be an early test for emerging-market currencies on the eve of Joe Biden's inauguration.
The greenback gained over the last two weeks, buoyed by the president-elect's proposal for a $1.9 trillion stimulus package. Most developing-nation currencies have slumped in that span, and history suggests further pain may be in store.
MSCI Inc.'s gauge of emerging-market currencies ended 2020 with its biggest quarterly advance in a decade as optimism over the distribution of Covid-19 vaccines bolstered risk appetite. Now, the backdrop of rising cases, renewed lockdowns and vaccine concerns threatens to reverse those flows.
"If vaccines prove less effective than we expect and [the] global economy stumbles, the 'safe haven' dollar would likely appreciate," Goldman Sachs Group Inc. strategists including Zach Pandl wrote in a report.
Still, the strategists "expect broad dollar weakness" this year as exposures to risk assets and upside in commodity prices can outweigh the potential drag from higher U.S. rates.
One currency of interest to investors is the Turkish lira, which has climbed since hitting a record low in November. On Thursday, the central bank is expected to keep the nation's one-week repo rate at 17%.
"The lira has rallied and reserves are stabilizing, providing no reason to raise rates further," according to Bloomberg Economics. "Still, inflation accelerated in December, limiting the scope for rate cuts."
Policy makers in Malaysia, South Africa and Brazil will also decide on their borrowing costs this week.
Meantime, Biden's return to the White House on Wednesday will carry particular significance for traders who follow relations between the world's two largest economies. On Friday, the Trump administration announced it would sanction six officials from China and Hong Kong in a parting shot to Beijing.
Central banks decide
Turkey's central bank will probably leave its benchmark rate unchanged, according to the median estimate of 21 economists surveyed by Bloomberg
South Africa's central bank will probably leave its policy rate on hold at 3.5% on Thursday, according to 15 out of 16 economists in a Bloomberg survey
More data
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