Emerging Market Currencies Strengthen Amid Iran Negotiations

Most emerging market currencies outside Asia saw gains as optimism surrounding a potential resolution in the Middle East led to a decline in oil prices, enhancing risk appetite.

The rand emerged as the top performer, spurred by South African central bank Governor Lesetja Kganyago’s commitment to return the inflation rate to the 3% target. Both the Hungarian forint and the Mexican peso also appreciated.

“Diplomatic initiatives aimed at reducing tensions in the Middle East have improved market outlook,” remarked Piotr Matys, a strategist at In Touch Capital Markets.

He highlighted Kganyago’s remarks as supportive for the rand. Last week, South Africa increased borrowing costs by 25 basis points to 7%, marking the first rate hike in three years due to rising inflationary pressures following the onset of the Iran conflict.

In Asia, China’s yuan reached its highest level in nearly four years against a basket of trading-partner currencies. The MSCI EM currency index dipped 0.2%.

Meanwhile, Zambia’s 2053 dollar bond, which the government is attempting to repurchase, rose to trade around 81 cents on the dollar. This represents a post-restructuring high and suggests a greater value than the current cash offer. A faction of bondholders is opposing the government’s buyback proposal.

On the equities front, stocks advanced for a third consecutive day, buoyed by a rally in Asian technology shares. The MSCI index climbed 0.9% on Tuesday, leading to a three-day overall increase of 3.7%.

“Political discourse related to the Iran conflict continues to create volatility in the markets,” noted Elias Haddad at Brown Brothers Harriman & Co. “The strength of EMEA currencies likely reflects the retreat in crude oil prices.”

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