Brazilian Real Outshines Other Emerging Economies’ Currencies

Between 20th and 22nd June the currencies of developing countries continued to rise against the dollar. However, the rapid growth of last week has slowed.

The clear leader for the period indicated above was the Brazilian real (+2.33%). The Mexican peso rose by almost a full percentage point (0.92%), whilst the South African rand also rose by some margin (0.6%).

The head of Brazil’s lower parliamentary house, Eduardo Cunha (the initiator of the impeachment against former president Rousseff) has had his position of lower house speaker stripped from him by the high court of the country due to corruption charges being brought against him. The news was perceived as positive by the market; a signal that the country may well see an end to the ongoing political infighting and a restoral of stability. Furthermore, inflation during the first half of June rose by just 0.4% YoY whilst there was a rise over the previous fortnight of 0.9%. This has all facilitated a rise in the value of the real against the dollar.

South African consumer inflation data for May came out recently. The CPI rose 6.1% YoY and 0.2% MoM (previous: 0.8% MoM). This was positive news for the rand.

In Mexico there has been a reshuffle amongst the leaders of opposition political parties due to pressure which has come from protests (teacher strikes and demonstrations due to proposed education reforms). This has opened up the road for party powers to conduct direct dialogue with the protestors and bring about reforms to the educational system. We reckon that the market perceived this as positive news and thereby this facilitated a rise in the rate of the peso against the dollar.

In Turkey the central bank took the decision to leave the interest rate unchanged at 7.5%. The data signalises a lack of needing to implement economic stimulus in the country and is seen as positive for the lira.

The business sentiment index from MNI has come out in China. The index is calculated monthly and based on surveys conducted amongst business leaders (private companies listed on the stock market) and reflects business confidence regarding macro-economic stability and the conditions in which business takes place in China. The index saw an increase from 50 to 54.5 points, indicating a rise in business trust in the government’s macro-economic policies. The data has had quite a positive effect on the yuan.

Significant economic data has been in deficit in India over the last two days. A fall in the rate of the rupee against the dollar is linked to the fact that, two days ago, several states in eastern India witnessed torrential rains and mudslides, causing the deaths of almost 100 people. The sombre mood and mourning in the country has been reflected by the nation’s currency rate.

Calendar of future events

Thursday, 23rd June – Mexican inflation data for the first half of June.

Friday, 24th June – Mexican retail sales in April and Brazilian balance of payments in May.

Monday, 27th June – producer price index in May for South Africa.

Forecast

The Brazilian real is likely to be in a 3.35-3.38 corridor against the dollar. The Mexican peso could fluctuate in a 18.4-18.5 per dollar range.

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