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Emerging markets currencies most relevant variables: USD and risk appetite – Rabobank

FXStreet (Córdoba) - Analysts from Rabobank analyzed the main reasons behind the most influential factors on Emerging market currencies.

Key Quotes:

“We found that the two most relevant market variables for emerging market currencies are: 1) The overall environment for the US dollar (as proxied by the DXY index) and 2) Risk appetite / expectations about the perspectives for growth (as proxied by the MSCI EM equity index).”

“Moreover, we found that overall volatility and risk appetite are also key for most of the EM currencies in our sample.”

“In terms of third place, the commodity price indices figured heavily.”

“We also found that currencies from the CEE region are more sensitive to pressure coming from DXY – this might seem somewhat counterintuitive as one would expect currencies in that region to be more focused on EUR but remember that EUR features so heavily in the DXY USD index (57.6%). It is also worth noting that, as one would expect, CEE currencies are less sensitive to commodities prices than countries in Latam and Asia.”

“Growth perspectives are more relevant for Asian and LatAm FX (…) with strong relationships to equities and commodities.”

“We expect USD to remain well supported next year while the rest of the G10 continues to unofficially engage in Currency Wars. EM currencies are likely to remain vulnerable in 2016 and subject to bouts of high volatility.”

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