Out of 56 market strategists and analysts polled by Reuters, 22 said currencies from key emerging markets are at risk of modestly weakening as safe havens remain popular
Emerging market currencies will struggle over the next three months against the stronger dollar as tensions between the US and China over the coronavirus pandemic mount, according to a Reuters poll of FX strategists.
22 of 56 market strategists and analysts polled May 4-6 said currencies from key emerging markets – most of which export raw materials to China – are at risk of modestly weakening in the next three months as safe havens remain popular.
Sixteen said they would hover around current levels.
Many poll respondents said there would be higher FX volatility ahead.
Even though the pandemic has subsided in China for now, a possible resumption of the U.S.-China trade war will nudge Beijing’s authorities to keep a tight leash on its partly managed yuan currency, the poll suggested.
After weakening to a one-month low on Wednesday, the most actively traded emerging market currency is forecast at 7.05 per dollar in three months, around where it was on Wednesday, strengthening to 7.01 in six months.
The yuan is then forecast to appreciate about 2% to 6.95 per dollar by this time next year.
But Rabobank’s Every, like some other analysts, said the investor optimism that has built up in recent weeks seemed premature.
The battered Indian rupee is not expected to recoup its recent losses over the coming year but is predicted to gain about 2% from 75.88 per dollar it was trading at on Wednesday.
South Africa’s rand, underpinned by higher interest rates but highly volatile, will likely make modest gains this year but bring returns of almost 10%, tightening to 16.80 per dollar in 12 months from around 18.50 presently.