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Emerging market currencies gain


10 January 2019

The Dollar tumbled against a basket of major currencies on Wednesday evening, after minutes from the latest FOMC meeting revealed policymakers adopted a more cautious approach towards raising interest rates.

Most policymakers expressed growing concerns over the volatile financial markets, plateauing global growth and ongoing trade tensions. With officials also believing that inflation still remained muted, the central bank could “afford to be patient” about further policy tightening. External and domestic risks have made the future path of interest rate hikes “less clear”, and this may end up fuelling expectation over the Fed taking a pause on rate hikes this year.

Appetite towards the Dollar diminished further following the cautious Fed minutes with prices sinking towards 95.20 as of writing. A solid breakdown and daily close below the 95.00 level could open a clean path towards 94.65 in the near term.

A dovish Fed was good news for emerging market currencies with the Yuan, Ringgit and South African Rand among many others appreciating against the Dollar. Attraction towards EM currencies was boosted further by optimism over US-China trade talks. While the improving market mood is a welcome development for emerging markets, the geopolitical risks weighing on global sentiment remain present. With Brexit related uncertainty, chaos in Washington and lingering growth fears on the mind of many investors, EM currencies remain the crosshairs.

In China, the Yuan jumped on Dollar weakness, improving market mood and trade hopes. With the Yuan influenced by global trade developments, a positive outcome to US-China trade talks is seen pushing the local currency higher. Focusing on the technical picture, the USDCNY is trading marginally below the 6.82 level as of writing. A solid breakout above this point has the potential to trigger an incline towards 6.80.

Gold bulls were back in action on Wednesday evening as Dollar weakness pushed the yellow metal back above $1290. While market optimism over US-China trade talks continues to weigh on the precious metal, dollar weakness and expectations over the Fed taking a pause on rate hikes are likely to keep prices buoyed. With rising geopolitical risks and global growth fears fuelling risk aversion down the road, the outlook for Gold points to further upside. In regards to the technical picture, the precious metal is firmly bullish on the daily charts. A breakout above the $1290 is likely to encourage an incline higher towards the $1300 psychological level.

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