It was a busy week for financial markets; one in which central banks disappointed, entire countries were in crisis, new leaders were elected, commodities thrived and Trump reimposed sanctions on Iran.
With that said, emerging market currencies were erratic last week, and generally lost value, none more so than the Argentine peso which fell on Friday to yet another record low, this time to 24.0 to the dollar.
The peso has been under intense pressure for many months as a result of various economic problems. After Argentina’s central bank failed to prop up the currency two weeks ago via a 40 percent interest rate and after significant market interventions, Mauricio Macri’s government bit the bullet on Thursday and went to the IMF to seek the financing necessary to avert a full-blown financial crisis. The IMF said it would like a rapid conclusion to discussions and this allowed the peso to recover during the final session of the week to levels near 23.0 – still 5 percent lower over the five days.
Consider also the Turkish lira which, like the Argentine peso, fell to a record low of 4.37 to the dollar on Wednesday.
There was some relief among lira traders towards the end of the week after President Erdogan ordered an urgent meeting of the government’s economic administration to discuss the faltering currency.
The outcome of the meeting is unknown since the press release that followed it gave little away, leaving analysts disappointed, but the meeting itself was sufficient to discourage bets against the currency, at least for now. The lira recovered before the week was out to 4.305, down 2 percent.
With the onshore market closed due to a national holiday, traders looked on Friday to the ringgit’s 1-month non-deliverable forward, which traded at levels around 4.045 per dollar – an improvement on Thursday’s post-election extreme of 4.16 but still nearly 3 percent weaker than values one week earlier in the low 3.9s.
Of the major emerging market currencies, among the best performers was the Russian ruble. The ruble has stabilized since its post-sanctions plunge on April 9th-10th and it gained another percent against the dollar last week, strengthening to 61.8. Supporting the ruble was oil’s rally to long-term highs above $71 per barrel.
Speaking on the ruble on Friday, economist David Goldman said that at current levels it remained cheap and was worth buying. The market “vastly overreacted” to the latest US sanctions, Goldman believes, as these will be flouted by European states and are unlikely to last.
The Chinese yuan also gained, strengthening by 0.4 percent to 6.33 per dollar. The median estimate of analysts polled by Reuters this month places the yuan at 6.37 in three months’ time and at 6.36 at this time next year.
The week’s best performing emerging market currency was the South African rand, which gained 1.7 percent to 12.279. Reasons for the rand’s outperformance are unclear.
On Friday, just one day after the Bangko Sentral ng Pilipinas raised interest rates for the first time since 2014, the Philippine peso had its worst day since February. The BSP hiked by 25 basis points to 3.25 percent, as expected, but attention quickly turned back towards inflation which, when elevated, typically weighs on the peso.
Concern among investors was heightened two weeks ago after April’s annualized inflation figures for the Philippines were announced. The data showed core inflation rising for the fourth consecutive month to a 9-year high of 5 percent – twice its level from the start of 2017. Headline inflation also climbed to a long-term high of 4.5 percent. As fears for inflation were reignited on Friday, the Philippine peso tumbled against the dollar to 52.38 and within striking distance of an 11-year low.
“One rate hike will not be sufficient” to curb inflation in the Philippines, said ANZ economist Shashank Mendrita on Friday. Most analysts expect, or hope, for at least one more hike this year.