Emerging currencies recover slightly against weaker dollar

SOME major emerging currencies took a breather yesterday after a bruising few days, but many smaller ones were still suffering, while stocks hit fresh multi-year lows on reverberations from the weakening yuan.

Russia’s rouble ended six straight days of losses to gain 0.2 percent against the dollar, while the rand matched those gains following the rout across emerging market currencies sparked by China’s yuan devaluation last Tuesday.

A weaker dollar provided some support, as the greenback snapped a four-day winning streak, with investors jittery before US inflation data and minutes of the Federal Reserve’s last policy review.

Investors are still fretting over the health of the world’s second largest economy as China shares went on a wild ride, tumbling more than 5 percent before soaring again to close higher after state-backed buyers rushed into the market.

“Despite drastic measures – by Chinese policymakers – to support the market there may not be an escape from fundamentals: weak earnings, bleak outlook and still high valuations,” Rabobank’s Piotr Matys wrote in a note to clients, adding weakness in the Shanghai Composite index translated into pressure on commodity currencies.

“The prospect of a further drop in the Shanghai Composite Index does not bode well for the rouble and the South African rand.”

The Turkish lira weakened for the fifth straight day after prime minister Ahmet Davutoglu on Tuesday formally ended attempts to form a new government, raising the prospect of a fractious interim administration and a fresh election.

Smaller currencies were still reeling as domestic woes compounded the rout in emerging assets.

The Thai baht hit a six-year low in the wake of Monday’s bomb blast, Vietnam devalued the dong for the third time this year to boost its exports while policy makers in oil producing Kazakhstan let the tenge slip almost 5 percent to the top end of the band, fuelling expectations of an imminent devaluation.

MSCI’s broadest emerging market stocks benchmark slipped 0.4 percent, extending its losses for a fourth day to hit its lowest level since October 2011.