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23 Aug 2013
Flash: Further calamity expected for emerging markets – BMO Capital Markets
FXstreet.com (New York) - We foresee more distress in the developing market FX space in the run-up to and during QE tapering, but we’re currently disposed to view recent weakness here as part of the adjustment, notes Greg Anderson at BMO Capital Markets.
Key quotes
“The concurrent buying of the domestic currencies by their respective central banks as more of a smoothing exercise rather than a preventative one. Turkey, Brazil, India, South Africa, and Indonesia, all run sizeable current account deficits, so although policy makers are in for difficult battles ahead, these adjustments triggered by a forthcoming, gradual halt to Fed balance sheet expansion should largely be viewed as a relief over the medium-term, at the risk of sounding a bit masochistic.”
“This may in part explain why recent USD sales on the part of central banks for the purpose of intervention have been sizeable on cumulative basis, although not overly so. Indeed, relative to the size of USD purchases during weak USD periods, recent intervention clips have been at most very modest. Still, a highly important trend has been set in motion here, and it’s not going to break any time soon.”
“The YoY growth rate in Fed custody holdings has only just fallen below the YoY growth rate in total FX reserves, indicating a rising trend of USD sales. The battles ex-China have only just begun.”
Key quotes
“The concurrent buying of the domestic currencies by their respective central banks as more of a smoothing exercise rather than a preventative one. Turkey, Brazil, India, South Africa, and Indonesia, all run sizeable current account deficits, so although policy makers are in for difficult battles ahead, these adjustments triggered by a forthcoming, gradual halt to Fed balance sheet expansion should largely be viewed as a relief over the medium-term, at the risk of sounding a bit masochistic.”
“This may in part explain why recent USD sales on the part of central banks for the purpose of intervention have been sizeable on cumulative basis, although not overly so. Indeed, relative to the size of USD purchases during weak USD periods, recent intervention clips have been at most very modest. Still, a highly important trend has been set in motion here, and it’s not going to break any time soon.”
“The YoY growth rate in Fed custody holdings has only just fallen below the YoY growth rate in total FX reserves, indicating a rising trend of USD sales. The battles ex-China have only just begun.”