Commodity prices to remain key driver of EM FX in short term

Emerging countries’ currencies continue to rebound along with commodity prices. In 2016, there is a solid connection between the Citi Commodity Terms of Trade Index and the main EM currencies’ performance. This year, currencies of commodity exporters such as the BRL, the RUB and the ZAR have fared the best against the US dollar. Meanwhile, the currencies of commodity imports such as the CNY, the INR and the TRY have fared the worst.

The Brazilian real is over performing as the markets are happy about a new president that might not alter much, said Nordea Bank. The Polish zloty is succumbing to political risks, whereas the ruble is expected to continue ignoring all factors except oil, noted Nordea Bank.

In the short term, EM FX is expected to continue to be mainly driven by commodity prices, according to Nordea Bank. Moreover, recovery in commodity prices signifies that the slowdown of emerging market economies will come to an end.