The dollar was a dud among currencies in the first quarter, meaning plenty of other currencies notched impressive showings. That includes some emerging markets currencies. Just look at the WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW), which is higher by nearly 5% year-to-date.
CEW is nearly eight years old and can hold emerging markets currencies, including 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.
There is some talk of a possible near-term retrenchment for emerging markets currencies, indicating CEW could be vulnerable this week.
“EM FX was mixed last week, and remains vulnerable as this week begins. The rebound in oil helped some, such as the Colombian peso (COP), the Russian ruble (RUB), and the Mexican peso (MXN). On the other hand, idiosyncratic political risks weighed on South Africa. That is likely to persist as the South African rand is trading at its weakest level since January 16 and is on track to test this year’s low near 14.00. The 200-day moving average near 13.75 is close,” according to a Brown Brothers Harriman note posted by Dimitra DeFotis of Barron’s.
The strength of developing market currencies could impact emerging markets debt. While yields in developed economies remain depressed, with some even trading with negative yields, emerging market bonds have quickly gained traction as one of the few areas left with attractive yields.
Emerging currencies have strengthened on improving commodity prices, notably the rebound in crude oil prices, as many developing economies are major exporters of raw materials. Consequently, more investors are looking to emerging market yields, despite the risks associated with the developing economies.
“The end of the week will feature the US and Chinese presidents having their first face-to-face meeting. Trump has toned down the bellicose rhetoric in which he accused China of “raping” America, threatened to abandon the one-China policy, and promised to cite China as a currency manipulator “on day one,” according to the BBH note seen in Barron’s. “China seems to have made a few concessions. It has banned coal imports from North Korea, and the US had long wanted China to do more to rein in its ally. It has also granted Trump a little more than three dozen trademarks.”
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