Best Q2 in 7 years for EM currencies

REUTERS: Most emerging market currencies firmed against the dollar on Wednesday, on track to record gains for June and the second quarter, with traders eyeing US jobs data due later this week for clues on economic recovery and the Federal Reserve’s stance.

Turkey’s lira added 0.6% and South Africa’s rand climbed 0.4%. The rand was set to post its first monthly fall in five, down 4% in June so far to be one of the worst EM performers this month.

Private-sector credit in South Africa contracted 0.42% year on year in May from a contraction of 1.76% in April, central bank data showed on Wednesday.

MSCI’s index of EM currencies was set for the weakest month since March, but the strongest second-quarter since 2014.

EM currencies are better placed to handle possible rate hikes and any tapering by the Fed, compared with the crisis in 2013, Commerzbank analyst Thu Lan Nguyen said, as many countries such as Brazil, Mexico, Russia, and Turkey have already started raising local interest rates this year.

“But that does not mean that the currencies are out of the woods yet. A majority of them may be in a better position fundamentally... but we urge caution as the improvement is likely to be largely due to weaker demand as a result of the pandemic.”

Belarusian bonds were flat after the United States on Tuesday banned ticket sales for air travel to and from Belarus, after Minsk forced a Ryanair flight to land and arrested a dissident journalist aboard. Belarus and its President Alexander Lukashenko have faced heavy criticism over the incident, prompting sanctions from the European Union.

The Belarusian rouble was up 0.3% against the dollar, set for its best quarter since the same time last year.

Looking ahead for emerging markets, several of which look to revenue from tourism, the picture looked bleak with a United Nations study on Wednesday showing that international tourism arrivals are set to stagnate this year, causing up to $2.4 trillion in losses.

The sector is not expected to rebound fully until 2023, the study said.

Among equities, an index of EM stocks fell as a strong handover from Wall Street faded as investors looked toward US jobs data on Friday. The index was on course to mark its fifth straight quarter of gains, up more than 4%.

But the gains were a far cry from 17.3% in the same period last year when shares rallied on hopes of reopening gains after a pandemic-driven steep fall in March.