An exchange traded fund that tracks emerging market currencies has surged against the U.S. dollar as currencies from the developing economies experience their best month in 18 years.
The WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) jumped 5.0% so far this month and was 4.3% higher year-to-date. CEW tracks the U.S. dollar against the Mexican Peso, Brazilian Real, Chilean Peso, Colombian Peso, South African Rand, Polish Zloty, Russian Ruble, Turkish New Lira, Chinese Yuan, South Korean Won, Indonesian Rupiah, Indian Rupee, Malaysian Ringgit, Philippine Peso and Thai Baht.
The Bloomberg gauge of 20 developing country currencies advanced 5.6% in March and is heading toward its best month since February 1998, Bloomberg reports.
Emerging market currencies are appreciating against the greenback after Federal Reserve Chair Janet Yellen said the central bank will move “cautiously” as they consider hiking interest rates in light of ongoing global volatility. The more dovish stance weighed on the U.S. dollar and propped up foreign currencies.
“Yellen’s comments were pretty aggressive and make it clear that rate hike expectations might as well be scratched out for this year,” Nathan Griffiths, a senior emerging-market equities manager at NN Investment Partners in The Hague, told Bloomberg. “This is the perfect backdrop for emerging markets to continue” the rally because positioning remains geared to a rising dollar.
Griffiths argues that Brazil, South Africa, Russia and Turkey are in the best position for a weaker dollar.
CEW includes hefty tilts toward the Russian ruble 7.2%, Brazilian real 7.1%, South African rand 6.7% and Turkish lira 6.7%.
[related_stories]Moreover, the dovish Fed stance has fueled risk-on appetite and raised investor bets in riskier emerging market assets. EPFR Global data showed $2.9 billion flowing into developing market stocks in the week ended March 23, the most since July. The strong flows has also supported exchange rates for emerging currencies.
Additionally, commodity producing country currencies are enjoying a boost from rebounding crude oil and metals prices. For example, Russia is a large producer and exporter of oil. Brazil also has larger oil and metal reserves. South Africa is also a major gold and precious metals miner.
WisdomTree Emerging Currency Strategy Fund