Forex Investment and Currency Trading

The slower pace of CNY appreciation has continued with a CNY/USD gain of only 0.35% since the beginning of April. Looking forward the current, more gradual pace could persist given the likely CPI moderation in 2Q and increasing signs of weaker export growth. April CPI, due next Monday, is expected to moderate slightly to about 8% from 8.3% in March. Accordingly, the chance of another interest rate hike in May has been reduced, particularly after the latest Fed rate cut further widened the US-China interest rate spread. Meanwhile, concerns over a possible export slowdown could limit the scope for CNY [...]

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Russia The CBR raised all of its key interest rates by 25bp in an effort to curb inflation and slow money supply growth. The main refinancing rate is now at 10.50%, while minimum repo rate at 6.50%. This is not very surprising given the recent surge in inflation. However, with interest rate channel relatively less effective in the Russian financial system, and CPI inflation set to overshoot the original 6%-7% year-end target by a good margin, CBR’s 25bp rates hikes seem to be a rather symbolic gesture. To be sure, the latest CPI registered at 13.3% yoy in March from [...]

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Emerging Market (EM) currencies have performed extremely well relative to other markets since the onset of turmoil originating in the US. Despite a strong performance, however, two issues surface.
First, returns from purely EM currency exposure remain relatively flat since November 2007. However, the volatility of returns is substantially higher in the recent period coincident with the financial stress originating in the US. For example, the actual volatility of the EM High Yielding index was 9.7% between July 1, 2007 and April 14 relative to a scant 6.1% in the first half of 2007, 6.7% in 2006, and 5.7% in [...]

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Hungary February wage growth was much stronger than expected, posting a 13.4% yoy rise vs. -1.5% in January and expectations for 7.2%. The underlying structure also deteriorated. Indeed, both private and public sector gross wages accelerated in February, by 14.4% yoy and 11.8% respectively. The private sector wage growth adjusted for bonus, closely watched by the NBH, advanced to 10.4% yoy, from 8.7%. Wage growth should remain a major concern for the NBH, suggesting that a 25-bp rate hike on April 28 is likely.
Czech Rep Retail sales were on the strong side of expectations, rising 6.3% yoy in February from [...]

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