Bloomberg
(Bloomberg) -- A stronger U.S. dollar is proving to be an early test for emerging-market currencies on the eve of Joe Biden’s inauguration.The greenback gained over the last two weeks, buoyed by the president-elect’s proposal for a $1.9 trillion stimulus package. Most developing-nation currencies have slumped in that span, and history suggests further pain may be in store.MSCI Inc.’s gauge of emerging-market currencies ended 2020 with its biggest quarterly advance in a decade as optimism over the distribution of Covid-19 vaccines bolstered risk appetite. Now, the backdrop of rising cases, renewed lockdowns and vaccine concerns threatens to reverse those flows.“If vaccines prove less effective than we expect and [the] global economy stumbles, the ‘safe haven’ dollar would likely appreciate,” Goldman Sachs Group Inc. strategists including Zach Pandl wrote in a report.Listen: EM Weekly Podcast: Dollar’s Path; China GDP; Biden InaugurationStill, the strategists “expect broad dollar weakness” this year as exposures to risk assets and upside in commodity prices can outweigh the potential drag from higher U.S. rates.One currency of interest to investors is the Turkish lira, which has climbed since hitting a record low in November. On Thursday, the central bank is expected to keep the nation’s one-week repo rate at 17%.“The lira has rallied and reserves are stabilizing, providing no reason to raise rates further,” according to Bloomberg Economics. “Still, inflation accelerated in December, limiting the scope for rate cuts.”Policy makers in Malaysia, South Africa and Brazil will also decide on their borrowing costs this week.Meantime, Biden’s return to the White House on Wednesday will carry particular significance for traders who follow relations between the world’s two largest economies. On Friday, the Trump administration announced it would sanction six officials from China and Hong Kong in a parting shot to Beijing.Central Banks DecideTurkey’s central bank will probably leave its benchmark rate unchanged, according to the median estimate of 21 economists surveyed by BloombergTwo economists predict an increase of 50 basis points, while two forecast a hike by a percentage pointThe Monetary Policy Committee led by Governor Naci Agbal boosted the one-week repo rate to 17% from 15% last month, bolstering credibility with investors after he pledged to tighten policy when needed to keep prices in checkSouth Africa’s central bank will probably leave its policy rate on hold at 3.5% on Thursday, according to 15 out of 16 economists in a Bloomberg surveyOne predicted a reduction by 25 basis pointsThe second wave of the coronavirus pandemic, renewed lockdown restrictions and the return of power cuts will likely stall a recovery in an economy that contracted 8% in 2020, according to central bank forecasts. Even so, the central bank signaled at its previous policy meeting that it’s reluctant to lower borrowing costs further after cutting the repurchase rate five times last year by a total of three percentage pointsBank Negara Malaysia is expected to keep its benchmark rate on hold Wednesday, according to a median estimate of economists surveyed by BloombergBloomberg Economics argues that the central bank can afford to stand pat after 125 basis points of easing last year. Oil prices are also recovering, and Malaysia’s key trading partner, China, remains on the mend, it saidStill, it looks like a close decision, with 11 out of the 23 economists in the Bloomberg survey expecting a 25-basis-point cut after Malaysia was placed under renewed lockdown, and in part because of Malaysia’s persistently low inflation readingsMalaysia’s December year-over-year CPI is expected to remain deeply negative on FridayThe rate decision comes after Malaysia’s king declared a nationwide state of emergency for the first time in more than half a century, suspending parliament in a move that allows embattled Prime Minister Muhyiddin Yassin to avoid facing an election until the pandemic is over.Bank Indonesia is expected to hold policy rates unchanged on ThursdayThe central bank didn’t signal that more cuts were imminent at its previous meeting in December, and may be concerned about the risk of higher U.S. yields putting the rupiah under pressureOne economist in a Bloomberg survey expects a 25 basis-point cut, perhaps because inflation has remained below target for seven months straightREAD Reflation Flashes Red for Indonesia, Malaysia Debt: SEAsia RatesChina’s one-year loan prime rate -- the reference rate for bank loans to companies -- will likely remain at 3.85% in January, according to Bloomberg EconomicsBrazil’s central bank is expected to hold the key rate at an all-time low on Wednesday, while traders look for signs of more hawkish language after policy makers warned that inflation pressures could persist into the new yearKey Chinese DataChina’s economic data was probably enough to restore China’s outperformance narrative. Fourth-quarter GDP and industrial production nummbers both beat expectations in year-over-year terms. However, retail sales and fixed asset investment numbers both fell short.December currency settlement data from SAFE are due on Friday. This was previously scheduled for last week. It will be interesting to see if the hitherto low exporter-conversion rates have started to increase, as one would expect given the yuan’s steady trend of appreciation in second half 2020Ongoing Chinese official resistance to appreciation will also be monitored by traders after higher than expected yuan fixes and reports of state banks buying dollarsThe yuan edged lower last week and the offshore rate is a little weaker than onshore, suggesting that China has somewhat tamed appreciation expectations in the short-termMore DataTaiwanese export orders for December are expected to show a further 27% year-over-year increase on WednesdayThe Taiwan dollar remained little changed last week. The authorities are stepping up their efforts to use moral persuasion to prevent currency appreciation, Reuters reported last weekSouth Korea’s 20-day January export data are due on ThursdayThese figures will likely highlight continued resilience in external demand at the start of 2021The Korean won was the worst-performing currency in emerging Asia last week as higher U.S. yields caused a pull-back in Asia’s strongest currency in second half 2020That said, a Bloomberg study suggests that the won should be relatively impervious unless the increase in U.S. yields picks upThe Philippines reports December trade figures on Thursday, while Thailand’s December trade numbers will be released on FridaySouth Africa’s CPI inflation rate probably fell to 3.1% in December, from 3.2% the previous month, a report may show Wednesday, according to the median forecast in a Bloomberg surveyOn Tuesday, Russia’s central bank may publish preliminary 4Q data on the current-account balance, while the federal statistics service releases its consumer confidence index for the same quarterThe Finance Ministry may report its December budget balance data on Wednesday or ThursdayInflation in Poland probably slowed in December to 3.7% from 4.3%, a report may show Monday, according to the median estimate in a Bloomberg surveyThat would give the central bank room to reduce borrowing costs as it tries to weaken the zlotyA reading of Colombia’s November retail sale figures, economic activity index and industrial production on Monday will probably show more signs of recovering activity, while remaining below pre-pandemic levelsBrazil’s economic activity data published on Monday will probably show a small gain in NovemberMexican unemployment data, to be released on Thursday, will be monitored for signs of how high Covid infection rates are impacting jobsInflation for the first half of January, meantime, will probably be relatively stable, according to Bloomberg EconomicsFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
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