Back
16 Mar 2015
USD to continue making cycle highs against most EM FX – BBH
FXStreet (Barcelona) - With the medium-term USD bull trend expected to remain intact due to the expected rate hike by Fed and the purchases by ECB and BoJ, the Brown Brothers Harriman Team, views that most EM currencies will fall to Dollar’s rise.
Key Quotes
“EM assets are starting the week off on a calmer footing than last week. However, this is likely to prove temporary as the fundamental backdrop for EM remains negative.”
“The FOMC meeting on Wednesday will be key for EM. Dropping “patience” from its forward guidance while downplaying the need for an immediate hike could feed into a dollar correction (a bit of buy the rumor, sell the fact perhaps).”
“However, the medium-term dollar bull trend will remain intact – the Fed will hike rates this year even as the ECB and BOJ continue to pursue their asset purchases. The dollar is likely to continue making cycle and sometimes all-time highs against most EM currencies in the coming days, weeks, and months.”
“Also weighing on EM will be the resumption of the commodity bear trend. WTI oil is making new lows for the cycle after a brief respite, helped by a very negative IEA report last Friday that focused on high US output and lack of storage capacity in the US. Slow Chinese growth has also weighed on iron ore prices.”
“We continue to expect Asia to hold up relatively well in the current negative environment, with Latam likely to fare the worst and EMEA somewhere in between. Idiosyncratic risks in Brazil and Turkey are likely to keep these countries in the underperforming camp.”
Key Quotes
“EM assets are starting the week off on a calmer footing than last week. However, this is likely to prove temporary as the fundamental backdrop for EM remains negative.”
“The FOMC meeting on Wednesday will be key for EM. Dropping “patience” from its forward guidance while downplaying the need for an immediate hike could feed into a dollar correction (a bit of buy the rumor, sell the fact perhaps).”
“However, the medium-term dollar bull trend will remain intact – the Fed will hike rates this year even as the ECB and BOJ continue to pursue their asset purchases. The dollar is likely to continue making cycle and sometimes all-time highs against most EM currencies in the coming days, weeks, and months.”
“Also weighing on EM will be the resumption of the commodity bear trend. WTI oil is making new lows for the cycle after a brief respite, helped by a very negative IEA report last Friday that focused on high US output and lack of storage capacity in the US. Slow Chinese growth has also weighed on iron ore prices.”
“We continue to expect Asia to hold up relatively well in the current negative environment, with Latam likely to fare the worst and EMEA somewhere in between. Idiosyncratic risks in Brazil and Turkey are likely to keep these countries in the underperforming camp.”