EM FX looks to USD – Danske Bank

The EM FX space should remain focused on the USD-dynamics when comes to determining the price action, noted Aila Mihr, Analyst at Danske Bank.

Key Quotes

“EM currencies continue to be challenged by higher US rates, tighter US liquidity and a stronger USD in general, but we stress that the sell-off in both FX and fixed income EM markets remains fairly contained, i.e. the pressure is confined to the more vulnerable EMs with idiosyncratic problems like Turkey (big external imbalance, uncertain economic policy direction, and high oil importer), Brazil (political uncertainty amid fiscal sustainability problems), Argentina (weak policy framework around the central bank and strong unions) and Mexico (political uncertainty and NAFTA uncertainty)”.

“The EM sphere will likely continue to be see headwinds in coming months but in the absence of meltdown in any one country and provided that the trade issue settles well, we think the broad EM will weather the shock, due partly to generally sound fundamentals and as both the ECB and Bank of Japan are staying supportive for the foreseeable future”.