EMERGING MARKETS-Currencies weighed down by inflation nerves

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* 1330 GMT . Pay attention to US CPI data

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* Inflation in sugar factory at 26-year high

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Nov 10 (Businesshala) – Emerging market currencies traded mixed on Wednesday as investors awaited US inflation data that could affect the Federal Reserve’s accommodative policy stance, and as inflation rose in China weighed on sentiment. Was.

China’s factory gate inflation hit a 26-year high in October and consumer price growth also accelerated, mainly due to rising energy costs due to a lack of coal resources.

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MSCI’s emerging market currencies index was flat, with investors now awaiting US inflation data, which is expected to show a jump of 5.8%, the highest in three decades.

While most Asian currencies held their ground, the Turkish lira fell 0.7% and the South African rand 0.4%. The drop in the rand came a day after state utility Eskom said the risk of a power outage would remain until 4,000 to 6,000 megawatts of capacity was added to the grid.

“I don’t think the US CPI is adding any more to the pressure on EM currencies currently facing as expectations are already on to jump from previous levels, but if inflation breaks the 6% level today we will certainly be able to do so.” will see ripple effects in the FX and bond markets from the EM space,” said Simon Harvey, a senior FX analyst at Monex Europe.

Such high levels of inflation could boost US bond yields, and raise the stakes of the Federal Reserve raising rates at its upcoming policy meetings.

High developed market rates increase the debt burden and trigger capital outflows from foreign institutions invested in emerging markets. It also reduces the interest rate differential which makes EM currencies attractive for carry trades.

“This is a case in which currency is more sensitive to yield moves and which central banks are not moving according to inflationary patterns such as the rand and lira, with the rise in sugar prices naturally adding some pressure to the EM space. Has been,” Harvey said.

Meanwhile, Russia’s ruble suffered 0.5% due to rising oil prices. The currency is also seen to be getting support from the auction of OFZ bonds of the Finance Ministry.

The dollar index edged higher against major rivals after weakening over the past three days.

EM shares erased early losses, up 0.2% on gains in some tech stocks in Hong Kong and Taiwan. Most of the stock markets outside Asia also rose.

Fears of a transition from China’s troubled property sector remained with China Evergrande Group on Wednesday due to an offshore bond payment, while developer Fantasia Holdings fell as much as 50% after it said there was no guarantee it would meet its financial obligations. will be able to complete.

For a graphic on emerging market FX performance in 2021, see tmsnrt.rs/2egbfVh Look for a graphic on MSCI’s emerging index performance in 2021 tmsnrt.rs/2OusNdX

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Reporting by Shashank Nair and Susan Mathew in Bengaluru; Editing by Subhranshu Sahu

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