Emerging-Market Currencies Climb as Ruble Jumps With Crude Oil

(Bloomberg) -- The rally in crude oil to the highest level since July 2015 lifted currencies of producers from Russia to Colombia. Chinese assets tumbled.

Traders pushed up the value of currencies in developing nations as crude surged after Saudi Arabia signaled it’s ready to cut output more than earlier agreed and non-OPEC countries including Russia pledged to pump less next year. The outlook for central-bank policy is also on investors’ radar, with the market pricing in 100 percent odds of a rate hike by the Federal Reserve this week, and a two-in-three chance of additional tightening by June.

• The MSCI Emerging Markets Currency Index rose 0.3 percent, erasing earlier losses
• Russia’s ruble led gains while Colombia’s peso climbed toward a one-month high
• Brazil’s real also joined the rally, shrugging off an earlier decline that was propelled by political concern
• The MSCI Emerging Markets Index of stocks extended a two-day decline
• The Shanghai Composite Index sank 2.5 percent, the yuan fell toward an eight-year low, while government bonds tumbled
• Analysts had a long list of reasons for the synchronized selloff in China, from President-elect Donald Trump’s questioning of the decades-old One China policy, to a regulatory crackdown to insurers’ stock investments, higher money market rates and concern that property prices are poised to fall
• Investors added more than $1 billion to exchange-traded funds that buy emerging market stocks and bonds last week after declining in four of the past five weeks

Analysts:

• “The OPEC news helped curb the losses in Asian shares today as energy companies were up,” said Jingyi Pan, market strategist at IG Asia in Singapore. “Overall, sentiment is cautious ahead of the Fed.”
• Local currency bonds in emerging markets are showing value compared with their equivalent dollar debt on the prospect that central banks in these nations will further ease monetary policy, according to JPMorgan Asset Management
• Selling pressures for EM currencies will likely continue amid a rising DM rate environment, Brown Brothers Harriman strategists led by Marc Chandler and Win Thin write in note

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net, Dana El Baltaji in Dubai at delbaltaji@bloomberg.net.

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net.