By Vivek Mishra and Vuyani Ndaba
BENGALURU/JOHANNESBURG (Reuters) – Emerging market currencies will struggle to recover this year, under pressure from the U.S. Federal Reserve in no hurry to cut rates and some crucial national election results, a Reuters poll shows among currency analysts.
Limited by a strong dollar this year, almost all emerging market currencies were forecast to weaken over the next three to six months, or at best trade within a range, the May 31 to June 4 survey found among more than 50 currency strategists.
Emerging market assets rose slightly after weak US data suggested the Fed could cut rates as early as September, which could ease dollar pressure. This global theme remains critical for emerging markets amid a host of key elections.
However, US policymakers remain tight-lipped on the exact timing of the policy easing and any bull run for emerging market currencies that this could trigger is not on the horizon.
“Most emerging market currencies have stabilized over the past month, but we think many currencies will remain under pressure until U.S. yields fall,” said Ruben Gargallo Abargues, assistant economist at Capital Economics.
“We continue to think the dollar will continue to lead for several more months until inflation pressures subside and the Fed moves toward rate cuts.”
With elections in India, South Africa and Mexico in recent days, emerging markets are expected to remain volatile in the near term as investors analyze what these results mean for future economic reforms.
The Indian rupee, Korean won and South African rand will trade within tight ranges over the next three to six months, while the Russian ruble is expected to fall by more than 5%.
Mexico witnessed the historic rise of Claudia Sheinbaum as the country’s first female president, while South Africa’s African National Congress suffered its worst electoral setback in three decades.
The Mexican peso closed Tuesday at its weakest against the dollar since November, after the country’s ruling party appeared poised for a supermajority in Congress that left the market fearing constitutional changes and fewer checks and balances.
However, Barclays analyst Erick Martinez expected the impact to be short-lived.
“Eventually the dust will settle, markets will crunch numbers and determine what is feasible and what is not, and they will start trading global factors again, especially given the strong ties between the Mexican and U.S. economies,” he said in a note.
In South Africa, investors are waiting to find out which of the wide range of parties – from Marxists to free market advocates – the ANC can choose as potential coalition partners.
For other stories from Reuters’ June currency survey, click here
(This story has been refiled to remove redundant material)
