EM Markets: Stabilisation to revive EM currencies – Nordea

FXStreet reports that the impact of coronavirus in an important economy for emerging markets like China has strained these countries. Nordea is expecting a recovery for EM Markets, especially for commodity currencies.

"The second half of January proved to be stressful for emerging markets amid worries around the coronavirus outbreak in China. EM currencies lost on average 2%, the key pattern of the current increased volatility is that commodity currencies (RUB, CLP, ZAR, BRL, COP) find themselves under particular pressure."

"Markets seem to be stabilising for now as the pace of the virus spread has started to decrease. Massive liquidity injections by the PBoC have also contributed to calming down the markets. Should this stabilisation prove to be sustainable, commodity currencies may slightly outperform the rest of the EM currencies in the coming month."

"If the markets get more proof that the virus spread is under control, we expect EM currencies to gradually regain ground. Continued liquidity injections, notably by the Fed, will remain one of the supporting factors for risky assets and risk appetite. We have previously noted that dollar liquidity tends to lead EM FX."