New emerging markets FX report - with forecasts up until the end of 2016

Enrique Díaz-Álvarez02/Apr/2015Currency Updates

In line with our previous forecast, the key theme in world currency trading continues to be the steady appreciation of the US Dollar. Recent positive data from the US and hawkish commentary from Fed officials has led markets to bring forward their expectations for Federal Reserve hikes, in line with our expectations for a June increase. This repricing has in turn led to a very sharp Dollar rally against just about every major world currency, whether G10 or emerging market. However, three major themes have emerged:

  • While certain major currencies, such as BRL, TRY or ZAR, have sold off precipitously against the US Dollar, it is notable that they have remained nearly stable when measured against the Euro. What we are witnessing so far is therefore a repricing of US rates and growth expectations against all currencies, rather than an emerging market crisis.
  • Asian currencies in general are performing very well, holding their own against the Dollar and rallying against the Euro. This decoupling offers further evidence that we are not witnessing a generalised flight from risk emerging market asset classes, but rather a series of repricing of specific currencies against the US Dollar.
  • The massive drop in oil prices has divided the emerging market universe into winners (oil importing countries such as South Africa and India) and losers (exporters such as Russia and Nigeria). Our revised forecasts pay close attention to this dichotomy.

The US Dollar has reached and exceeded our targets against most emerging market currencies. We are therefore revising our forecasts for the greenback selectively higher against most EM currencies, especially in those cases where the economy is particularly dependent on exports to the Eurozone (for example South Africa, Turkey, and to a lesser extent Brazil).

Download the full report

Which includes forecasts of emerging market currencies up until the end of 2016



Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.