Emerging-Market Currencies Rally on Central Banks

Emerging-market currencies including South Africa’s rand and the Turkish lira rose a fourth day on improving growth reports as global central banks keep the economy awash in cheap money.

New Zealand’s dollar dropped after the central bank said it would pause interest-rate increases after raising its official cash rate to 3.5 percent, from 3.25 percent. Australia’s dollar climbed to the highest level in almost two weeks against its U.S. peer as traders pared bets on a cut in interest rates after a jump in inflation. Indonesia’s rupiah jumped the most in two weeks after Joko Widodo was named the nation’s next president. The euro was little changed against the greenback and yen.

Emerging-market currencies “will do well at a time when the data is good but policy makers are highlighting that they’re going to take it slowly,” said Phyllis Papadavid, a senior global-currency strategist at BNP Paribas SA’s corporate and investment-banking unit in London. “We would expect that the dollar would stay resilient and outperform against the yen and the euro on the basis of the better U.S. data we’re seeing.”

A Bloomberg gauge with equal weightings of the dollar’s 20 most-traded emerging-market peers climbed 0.3 percent to 92.8831 at 5 p.m. New York time, the highest since July 10.

The euro closed little changed at $1.3464. It traded at 136.64 yen after touching 136.41 yen, the lowest since Feb. 4. The Japanese currency was at 101.48 per dollar.

Kiwi Slides

The kiwi, named for the image of the flightless bird on the NZ$1 coin, dropped after the Reserve Bank of New Zealand signaled it will hold rates to assess impact of increases and Governor Graeme Wheeler said “the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall.”

The 0.25 percent increase was forecast by 14 of 15 economists in a Bloomberg survey. The currency declined 0.9 percent to 86.20 U.S. cents after touching 86.09, the least since June 12.

The rand strengthened 0.6 percent to 10.5131 per dollar after touching 10.4839, the strongest level since May 30. Turkey’s lira appreciated 0.8 percent to 2.0885 per dollar and reached 2.0865, the strongest since June 11.

Developing-market currencies climbed as 14 of 22 respondents to a Bloomberg News survey this month said China will need to “somewhat” increase stimulus to meet its 2014 expansion goal of 7.5 percent, even after growth accelerated to that pace in the second quarter.

Capital Outflows

Central banks from the U.S., U.K. and Japan have supported their economies with monetary stimulus, while the European Central Bank has joined them in holding borrowing costs at or near record lows.

The Federal Reserve may have scope to keep interest rates at zero for longer than investors anticipate as inflation stays muted and a 2014 slowdown prolongs the labor-market recovery, the International Monetary Fund said as it cut its U.S. growth forecast for this year to 1.7 percent from 2 percent predicted in June, citing a first-quarter contraction.

Developing-nation currencies have also benefited from the crisis in Ukraine as investors move funds out of Russia and into other high-yielding markets.

Global investors have withdrawn $199 million from Russian bond and equity funds this month while buying the most Indonesian stocks since March and added holdings of South African bonds, according to data compiled by EPFR Global and stock exchanges.

Benchmark borrowing costs in countries such as Turkey and South Africa are at least 6 percentage points above those of the U.S., ranking the highest among developing countries along with Russia.

Indonesia Election

The rupiah advanced to the strongest level in two months after the General Elections Commission said yesterday Widodo secured 53.15 percent of votes cast in the July 9 election, beating Prabowo Subianto, a former army commando, who gained 46.85 percent. Prabowo called the voting undemocratic.

The rupiah gained 0.8 percent to 11,508 per dollar, the biggest increase since July 7. The currency earlier appreciated to 11,483, the strongest since May 20.

The pound fell versus all but one of its 31 major peers after Carney said the stronger currency and weak demand from key export markets, along with continued government budget-cutting and household indebtedness, are holding back growth. While the normalizing economy will warrant higher rates, there is “no pre-set course” for increases in rates, he said.

Sterling weakened 0.1 percent to $1.7044 versus the dollar and to 78.99 pence per euro.

‘Bearish Signal’

The shared currency may extend a drop to a one-year low against the dollar after it broke key support levels, according to Gaitame.com Research Institute Ltd.

Europe’s single currency may fall toward $1.3018, the 50 percent Fibonacci retracement of its July 2012 low of $1.2043 to its May 8 high of $1.3993, Takuya Kawabata, an analyst at Gaitame.com in Tokyo, said by phone today. The euro has broken below a trend line drawn between July 2012 and July 2013 lows, a “bearish signal,” he said.

Australia’s currency advanced versus all of its 16 major peers as the statistics bureau said the trimmed mean annual inflation rate increased to 2.9 percent, the highest level since the three months ended March 2010. The central bank targets inflation of between 2 percent and 3 percent on average.

The Aussie climbed 0.7 percent to 94.56 U.S. cents after reaching 94.62 cents, the highest level since July 2.

The greenback rose 0.5 percent in the past month among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as payrolls surged by 288,000 workers in June, pushing the average gain this year to almost 231,000 a month and putting jobs on pace for the biggest annual gain since 1999. The Fed’s preferred gauge of inflation rose 1.8 percent from a year earlier in May, the most in 19 months.

The yen climbed 1 percent to lead gainers, according to the indexes, while the euro fell 0.7 percent.

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