Wednesday, May 25

Strong dollar dents FX; Russian rouble firms despite flagging of rate cuts


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Russia’s rouble firmed on Monday,

despite the central bank flagging more interest rate cuts, and

outperformed broader emerging market peers which succumbed to

rising US Treasury yields and the dollar.

The rouble firmed to around 78 a dollar in

Moscow as well as offshore trading. {RU/RUB}

Russian Central Bank Governor Elvira Nabiullina on Monday

flagged a further cut in interest rates and said it would take

two years to rein back inflation to its 4% target. Nabiullina

raised the bank’s key interest rate to 20% from 9.5% on Feb. 28,

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four days after Russian forces entered Ukraine, but trimmed it

to 17% on April 8.

Fluctuations in the rouble are artificially limited by

capital controls that Russia imposed in late February to guard

the currency from a slide after the West imposed severe

sanctions over Moscow’s invasion of Ukraine.

This week the rouble is expected to trade within the range

of 79-82 to the dollar and 84-87 to the euro,

Rosbank analysts said in a note.

The broader emerging markets currencies index

hit three-week lows, down 0.14%, on track for

its eight session in the red in 10, as the dollar hovered

at near two-year highs.

Expectations of aggressive monetary policy tightening by the

US Federal Reserve this year to tame surging inflation have

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US bond lifted yields and the dollar this year, pressing

riskier assets.

China’s yuan edged up on stronger-than-expected

economic growth, while most other Asian currencies weakened.

South Africa’s rand lost 0.5%, and while most Latin

American currencies were flat, Argentina’s peso fell 0.7%

despite heavy controls.

Argentine monthly inflation climbed to 6.7% in March, data

showed last week, taking annual inflation to 55.1%, above

estimates. Argentina’s benchmark interest rate is set to be

hiked by 250 basis points to 47%, a central bank source told

Reuters on Wednesday.

Brazil’s real rose 0.4% with investors keeping an eye

on the 2023 budget guideline bill. Data on Monday showed

inflation in April rose more than in March, keeping up

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expectations for monetary tightening for longer. Central bank

employees continue to be on strike over calls for salary

increases, hampering the release of economic indicators.

Moody’s on Monday joined S&P and Fitch in downgrading Sri

Lanka further into junk and said it expects foreign inflows to

remain subdued. It gave a “stable” outlook, saying losses

private sector creditors would face in debt restructuring are

likely to be consistent with its current rating.

Key Latin American stock indexes and currencies at 1429 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1106.85 -0.54

MSCI LatAm 2597.86 0.35

Brazil Bovespa 115397.25 -0.68

Mexico IPC 54440.93 0.5

Chile IPSA 4924.25 0.14

Argentina MerVal 92600.90 1.713

Colombia COLCAP 1616.07 0.06

Currencies Latest Daily %

change

Brazil real 4.6753 0.43

Mexico peso 19.9430 -0.01

Chile peso 816.3 -0.22

Colombia peso 3719 0.00

Peru sol 3.73 0.08

Argentina peso 113.6800 -0.62

(interbank)

(Reporting by Susan Mathew in Bengaluru; Editing by Nick

Macfie)

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