Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

EM currencies have broadly lagged the rally in commodities this year, but there are signs that this may be changing for at least two of the oil currencies. The Russian ruble has been weighed down by the sanction risk and FX interventions to meet the fiscal rule. The Colombian peso, meanwhile, suffered on the back of the deteriorating fiscal balance and anti-government protests earlier this year. More recently, however, the correlation of both currencies with oil has picked up, leading to them outperforming the broad EM FX universe. If oil prices stay at a high level, it bodes well for both currencies.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

EM currencies have broadly lagged the rally in commodities this year, but there are signs that this may be changing for at least two of the oil currencies. The Russian ruble has been weighed down by the sanction risk and FX interventions to meet the fiscal rule. The Colombian peso, meanwhile, suffered on the back of the deteriorating fiscal balance and anti-government protests earlier this year. More recently, however, the correlation of both currencies with oil has picked up, leading to them outperforming the broad EM FX universe. If oil prices stay at a high level, it bodes well for both currencies.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Russian Ruble and Colombian Peso Finally Benefiting from the Oil Rally

Following the hawkish surprise at the last meeting, the Chilean central bank is likely to raise the pace of tightening even further at the MPC meeting tomorrow. Inflation has been rising steadily as the recovery picked up strongly on the back of the strong fiscal and monetary stimulus. More worrisome for the central bank is that long-term inflation expectations have deteriorated. The currency depreciation meanwhile has picked up pace as political uncertainty has risen, adding to inflationary risks. The central bank is thus likely to raise rates very aggressively to anchor inflation expectations and the currency in our view and is possibly evaluating a currency intervention program. Our bullish recommendations on the currency have taken a hit lately.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

Following the hawkish surprise at the last meeting, the Chilean central bank is likely to raise the pace of tightening even further at the MPC meeting tomorrow. Inflation has been rising steadily as the recovery picked up strongly on the back of the strong fiscal and monetary stimulus. More worrisome for the central bank is that long-term inflation expectations have deteriorated. The currency depreciation meanwhile has picked up pace as political uncertainty has risen, adding to inflationary risks. The central bank is thus likely to raise rates very aggressively to anchor inflation expectations and the currency in our view and is possibly evaluating a currency intervention program. Our bullish recommendations on the currency have taken a hit lately.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Chilean Central Bank Is Set to Deliver Another Hawkish Surprise

With the US dollar appreciating on rising risk aversion, it is important to see which EM currencies are more vulnerable and which are less if the dollar strengthening continues. To do so, we look at the systematic risk or beta of each EM currency and how it has evolved. We find that the beta has increased for Central European currencies and Asian currencies with the exception of the Indonesian rupiah and the Indian rupee. It has also increased for the Turkish lira but has dropped for the Mexican peso and the Russian ruble, providing us with a template of which currencies to go long or short.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

With the US dollar appreciating on rising risk aversion, it is important to see which EM currencies are more vulnerable and which are less if the dollar strengthening continues. To do so, we look at the systematic risk or beta of each EM currency and how it has evolved. We find that the beta has increased for Central European currencies and Asian currencies with the exception of the Indonesian rupiah and the Indian rupee. It has also increased for the Turkish lira but has dropped for the Mexican peso and the Russian ruble, providing us with a template of which currencies to go long or short.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: How Have the Sensitivities of EM FX to US Dollar Evolved?

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Two trends that are becoming clearer in these markets is the rise in yields and the rise in energy prices.Together they spell out a ‘reflationary’ stance which is inter-related to the market preparing for Fed tapering asset purchases. This is further supported by the recent move higher in US breakevens which are now set to trend up. While these may appear to be positive developments and signs of markets moving in the right direction, they do not come without risks.

Two trends that are becoming clearer in these markets is the rise in yields and the rise in energy prices.Together they spell out a ‘reflationary’ stance which is inter-related to the market preparing for Fed tapering asset purchases. This is further supported by the recent move higher in US breakevens which are now set to trend up. While these may appear to be positive developments and signs of markets moving in the right direction, they do not come without risks.

With the dollar strengthening this month, EM currencies have suffered, which is reminiscent of a similar episode in Q1. However, there is greater differentiation this time around, both on a regional basis as well as at the country level. We go over the outliers to identify the reasons they did not react entirely based on their respective betas. If there is no explanation for the deviation, then the idiosyncratic behavior is likely not justified and may represent a trading opportunity.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

With the dollar strengthening this month, EM currencies have suffered, which is reminiscent of a similar episode in Q1. However, there is greater differentiation this time around, both on a regional basis as well as at the country level. We go over the outliers to identify the reasons they did not react entirely based on their respective betas. If there is no explanation for the deviation, then the idiosyncratic behavior is likely not justified and may represent a trading opportunity.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Winners and Losers in EM FX Amidst Dollar Strengthening

Indonesia

The Indonesian rupiah is the official currency of the Republic of Indonesia. 

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FX Dashboard: Russian Ruble and Colombian Peso Finally Benefiting from the Oil Rally

After lagging the rally in oil since the start of the pandemic, the Russian ruble and the Colombian peso have started to correlate better with oil...

Gautam Jain, PhD, CFA

FX Dashboard: Chilean Central Bank Is Set to Deliver Another Hawkish Surprise

Following the substantial deterioration of long-term inflation expectations along with the sharp currency depreciation, we expect the central bank...

Gautam Jain, PhD, CFA

FX Dashboard: How Have the Sensitivities of EM FX to US Dollar Evolved?

We look at the systematic risk or beta of each EM currency to the US dollar and how it has evolved to identify currencies that are more or less...

Gautam Jain, PhD, CFA

Bonds & FX: Navigating Another Taper

As US yield rise with higher energy prices, we attempt to provide clarification in FX markets where some emerging markets are at risk of suffering...

Shyam Devani

FX Dashboard: Winners and Losers in EM FX Amidst Dollar Strengthening

In the latest bout of dollar strengthening, we go over the outperformers and underperformers among EM currencies to identify potential trading...

Gautam Jain, PhD, CFA

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