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Positive Bounce in CNY Stabilizes EM FX Market

  • We saw that sharp CNY depreciation since the middle of April had strongly weighed on most EM currencies (particularly 'risk on' ZAR).
  • EM FX portfolio managers generally reassess their risk when CNY depreciates sharply following the August 2015 episode (CNY 'devaluation) that generated a market shock (SP500 down 10% following that event).
  • This week, the positive bounce on the CNY (and CNH) led to a stabilization in the EM FX market, with ZAR, Latam and CEE FX regaining some momentum after a sharp consolidation.
  • BRL is the best performing currency this week (excl. RUB), up by 3% against the USD, followed by PLN (+2.4%) and ZAR (+2.1%).
  • TRY is the weakest performing currency among the EM world, mostly driven by the recent political divergence and 'dovish' CRBT.

Source: Bloomberg

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