Emerging Currencies Gain Third Month Led by Ruble on Oil Rebound

LAGOS, Nigeria, Capital Markets in Africa — Russia’s ruble and the South African rand rallied, leading emerging-market currencies toward a third month of gains, as an advance in Brent crude towards $50 a barrel boosted the outlook for energy producers.

The MSCI Emerging Markets Currency Index rose to a nine-month high on Friday following a 0.8 percent advance in April. The ruble extended the best start to a year on record as Russia’s central bank left borrowing costs on hold, while bonds gained as policy makers signaled they may restart interest-rate cuts at an upcoming meeting. The rand and Mexican peso rose at least 0.6 percent. A gauge of emerging-market technology companies retreated, sending stocks toward a weekly loss.

Developing-nation currencies have been boosted by a more than 70 percent rebound in oil prices from a January low as signs from the Federal Reserve that it will raise U.S. interest rates gradually boosted demand for riskier assets. The interest-rate policy was supported on Thursday by Commerce Department data showing U.S. GDP growth slowed to an annualized 0.5 percent in the first quarter from 1.4 percent in the previous three months.

“The lack of hints for a June rate hike has been supportive,” said Guillaume Tresca, a senior emerging market-strategist at Credit Agricole CIB in Paris. “The rally has been a catch-up after a sharp selloff and we need a new catalyst to have a proper extension.”

The MSCI currency gauge, which tracks exchange rates of 25 developing nations, increased less than 0.1 percent by 12 p.m. in London. The MSCI Emerging Markets Index of equities fell 0.5 percent, trimming a monthly advance to 0.4 percent.

Currencies
The ruble strengthened 0.9 percent, extending a monthly advance to 4.5 percent. The Bank of Russia held its key rate at 11 percent on Friday in line with economists’ forecasts. The currency’s 15 percent rally in 2016 marks the best start to a year on record.

South Africa’s rand advanced 0.8 percent, extending a monthly gain to 7 percent. The Mexican peso climbed 0.7 percent on Friday. China’s yuanweakened 0.06 percent to 6.4816 per dollar after the central bank raised the reference rate by 0.6 percent, the biggest increase since scrapping its currency peg in 2005.

Stocks
Six out of 10 industry groups in the MSCI Emerging Markets Index declined, led by technology shares. HCL Technologies Ltd. slid 6.2 percent to a 15-month low in Mumbai after Morgan Stanley cut the stock’s rating. Radiant Opto-Electronics Corp. fell 6.3 percent in Taipei, where Advanced Semiconductor Engineering Inc.dropped 5.8 percent.

Polish shares retreated 0.6 percent, extending a weekly loss to 2.9 percent, the most since the five days ending Jan. 8. Hungarian stocks climbed 0.5 percent, while Russia’s equity benchmark was set for the biggest monthly advance since February 2015.

Bonds
Russian government bonds stayed higher after the rate cut, with the yield on 10-year sovereign bonds declining seven basis points to 9.03 percent. The central bank said it may resume easing soon as policy makers await government decisions on budget spending and seek to avoid stoking inflation expectations.

The rate on similar-maturity Turkish debt retreated four basis points to 9.25 percent. The premium investors demand to own emerging-market sovereign debt rather than Treasuries narrowed two basis point to 386 basis points, according to JPMorgan Chase & Co. indexes.

Source: Bloomberg Business News