Higher rates set to protect emerging market currencies from Fed taper

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The shift in global inflation expectations from transitory to sticky will spare emerging market currencies a sell-off in the next few months as central banks consider or deliver near-term interest rate hikes, a Reuters poll of strategists found.

While several remain under intense pressure, many emerging market currencies are likely to mark a stronger final quarter of 2021 - as they have in previous years - especially the South African rand, Russian rouble and Thai baht.

According to the Oct. 1-6 Reuters poll, the South African rand and Mexican peso were expected to firm around 3% in six months to 14.90/$ and 20.225/$ while the Russian rouble will gain over 2% to 71.52/$. "Despite a slowing China, commodity prices tailwinds are still robust for many EM exporters. Local markets in EM have not seen the spate of capital inflows that occurred in the lead up to the taper tantrum," he wrote, referring to the last time the Fed cut back on its previous asset purchase programme in 2013.China's yuan was one of few currencies that finished subsequent quarters strongly after that episode.

 

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