(Bloomberg) — Currencies from the developing world hovered near record highs on Thursday, benefiting from renewed interest in carry trades, though gains were capped by the absence of concrete new developments in US-Iran peace talks.
Most Read from Bloomberg
MSCI’s emerging currency Index edged 0.1% higher as of 12 p.m. in London, having touched a new record peak earlier in the session. The gauge is on track for its sixth straight week of gains against the dollar, powered by oil’s decline from recent highs and signs the Federal Reserve under its new boss Kevin Warsh is in no hurry to raise interest rates.
That’s led to a resurgence of the “Sell America” trade that some investors reckon could get fresh impetus after US monthly jobs data on Friday. The dollar has slid 0.2% this week, extending last week’s 1.3% drop.
The Fed will hold rates steady at its next meeting, a stance which will “debase the dollar” and support carry trades in emerging-market currencies, according to Luis Costa, head of emerging markets strategy at Citigroup Inc.
“The carry magnet is still there,” he told Bloomberg TV, predicting Brazil, Mexico and Colombia to be the biggest beneficiaries.
Citi is also buying currencies of oil importers such as Egypt, Turkey and central European nations, Costa said, adding that “when markets start to feel better about the Strait of Hormuz, flows and deals, they actually buy the sensitive parts.”
Thursday’s biggest currency gainer was the South Korean won which hit the strongest level since October as exporters converted dollar earnings into the local currency. Other Asian currencies, including Thailand’s baht and Taiwan’s dollar, also strengthened with gains of 0.4% and 0.2% respectively.
On stock markets, MSCI’s emerging equity gauge slid 1.6% extending its weak start to August. Results from US tech firms Sandisk Corp. and Western Digital Corp. disappointed investors, pressuring Asian markets
In other corners of the market, Malaysia’s central bank sees an increasing adoption of the country’s Islamic benchmark rate ahead of its mandatory adoption next year. Later in the day, Mexico’s central bank is expected to keep rates unchanged for a second straight meeting while Czech policymakers are also seen holding rates steady.
