(Bloomberg) — Emerging-market currencies rose to a record high as bets on a Federal Reserve interest rate hike cooled, spurring demand for risk assets.
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A gauge tracking emerging-market currencies advanced as much as 0.2% to 1,906.98 on Monday, touching an all-time high, while a similar gauge for equities climbed as much as 0.6%. Gains were supported by a weaker dollar as softer US data reduced expectations for Fed tightening.
“Emerging-market currencies are supported today, primarily driven by softer dollar and continued risk recovery in equities,” said Wee Khoon Chong, senior Asia Pacific market strategist at BNY. “We are seeing a strong rebound of foreign inflows into EM especially Asia.”
US swaps are now fully pricing a 25-basis-point Fed rate hike by January, a shift from a week ago when markets had priced the move by year-end, as weaker-than-expected US retail sales prompted traders to pare hawkish bets. The Bloomberg Dollar Spot Index fell 0.2% Monday, heading for a third straight day of losses.
“Asian currencies look to be riding the tailwinds of softer US data last week and the softer USD tone into the start of this week,” said Galvin Chia, an emerging Asia strategist at Société Générale. “The lack of geopolitical headlines over the weekend and Brent prices below $90 have also likely helped, compounded by what seems to be late stages of quieter summertime markets.”
–With assistance from Matthew Burgess.
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