Emerging Markets Currencies in the Crosshairs

It was another day, another record low for the Indonesian Rupiah which tumbled to levels not seen since the 1998 financial crisis past 15,180. While expectations may mount over Bank Indonesia raising interest rates once again to defend the Rupiah, this may do little to limit the downside. In South Africa, the Rand shed roughly 4.26% against the Dollar since the start of the trading week while the Lira was not far behind at 4.11%. With ongoing US-China trade tensions weighing on sentiment and US rate hike speculation supporting the Dollar, EM currencies remain in an unfavorable position.

Across the Atlantic, the Dollar has aggressively appreciated on the back of rising US bond yields, robust domestic economic data and safe-haven demand. Market optimism over the strength of the US economy is likely to boost buying sentiment towards the Greenback, which could result in the Dollar Index marching towards 97.00 in the medium term.

The main event risk and potential market shaker on Friday will be the pending US jobs report for September. With the ADP figures printing above market expectations, the U.S non-farm payrolls data may follow a similar positive pattern. A robust NFP print coupled with signs of rising wage growth could fuel expectations over the Fed tightening policy faster than expected. Naturally, such an outcome will be good news for the Dollar but bad news for emerging markets.

Oil prices are trading near four-year highs amid looming US sanctions against Iran and falling production from Venezuela. With a growing sense of uncertainty over the global supply outlook fuelling fears of possible supply shocks, oil prices remain supported in the near term. In regards to the technical picture, WTI Brent remains bullish with $87.00 acting as the first level of interest.

Gold remains pulled and tugged by conflicting fundamental drivers. A broadly stronger Dollar and prospects of higher US interest rates have weighed heavily on the yellow metal. However, uncertainty surrounding Italy’s debt and ongoing US-China trade tensions continue to accelerate the flight to safety – ultimately supporting safe-haven Gold. The muted price action today suggests that the metal needs a fresh catalyst to make its next major move. Focusing on the technical picture, prices are likely to range within the $1,213 resistance and $1,190 support level ahead of Friday’s US jobs report.