EM FX: Monetary policy divergence in the CEE – Rabobank

The South African rand was leading losses amongst its CEEMEA peers at the beginning of another week of trading amid rising concerns about new FX wars, explains Piotr Matys, EM FX Strategist at Rabobank.

Key Quotes

“Recent comments from US Treasury Secretary Mnuchin spurred market speculation that the current US administration might be less committed to the strong USD policy that has been in place since the 1990s. While President Trump claimed that Mnuchin’s remarks were taken out of context, the damage has been done.” 

“Yesterday Bloomberg reported on market speculation that the Swiss National Bank (SNB) intervened to slow down the pace of CHF’s appreciation. We also heard from Japan’s FX chief Masatsugu Asakawa who admitted that Japanese officials are monitoring the FX markets closely for any “speculative moves” and “checking what is behind FX market moves.” 

“Any fresh signals that would indicate renewed tensions amongst G20 over the FX would weight on the CEEMEA currencies. To recall, the G20 countries reportedly agreed at the beginning of 2016 to refrain from a competitive currency devaluation. The accord contributed to improvement in global sentiment and allowed the CEEMEAs to stabilise following the sell-off in 2015 driven by rising concerns about China and a weaker yuan.”