By Prabha Natarajan
Some emerging-market currencies surged more than 2% on the day as
investors' view of the world took a rosier hue.
Strong U.S. nonfarm payroll data from the U.S. set the ground for a
pop in emerging-market currencies that began during London trading
hours after investors digested comments from European Central Bank
President Mario Draghi. Market participants now say that they believe
the ECB did disappoint by not acting immediately, but that the bank's
indication it might support short-dated sovereign debt has taken away
the risk of a selloff in these bonds, especially debt issued by Spain
and Italy.
Emerging-market currencies, suddenly, are back in favor as investors
are trying to avoid the dollar and euro with their myriad unresolved
issues and are feeling confident enough to venture beyond safe-haven
purchases.
The dollar has given up a month's worth of gains against the South
African rand and is trading at ZAR8.1291, down 2.6% on the day and
back to rates last hit on July 19.
"It's all about QE (quantitative easing)," said Jose Wynne, currency
strategist with Barclays.
The strong jobs report raises concerns about whether the Federal
Reserve will indeed launch another round of easing, he said. Some
analysts, however, see both the improved jobs picture in the U.S. and
the backstop support of ECB as reasons to allocate funds, once again,
to risky assets.
Nomura, for instance, recommends going long the Polish zloty, while
HSBC recommends, in addition to the zloty, a slew of emerging-market
currencies that it says are resilient.
Emerging European currencies such as the zloty and the Hungarian
forint were on an ascent during the day's trading. The euro scaled
back to 276.54 forint, a level last seen Sept. 8, 2011, as investors
used the currency as a proxy to express their views on emerging
Europe.
The euro also fell below PLZ4.0625 for the first time since Aug. 8 of
2011. Investors view Poland as a fundamentally strong economy, which
has weathered the malaise in neighboring economies rather well.
The Turkish lira, meanwhile, strengthened past 1.7760 to the dollar,
buoyed by slightly better-than-forecast consumer price index data.
Turkey's inflation rose 9.07% in July compared with the same period
last year, but was lower than the 9.1% projected by economists. The
Turkish central bank expects an inflation rate of 6.2% by year-end.
Meanwhile, Latin American currencies, especially those with strong
ties to the U.S., strengthened.
Going long the Mexican peso is one way to express investor confidence
after the strong U.S. report, Mr. Wynne said. The Mexican economy is
seen benefiting from stronger growth in its northern neighbor. The
dollar has dropped to MXN13.1361, down 1.64% on the day, for the first
time in three weeks.
Other currencies such as the Brazilian real and the Chilean and
Colombian pesos also benefited.
Write to Prabha Natarajan at prabha.natarajan@dowjones.com
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(END) Dow Jones Newswires
August 03, 2012 13:10 ET (17:10 GMT)
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