(Bloomberg) -- Emerging-market currencies advanced Friday, buoyed by a move by China’s central bank to support markets, just as data showed the economy expanding the least in six quarters.
MSCI’s EM currency index climbed for the first time this week, with South Africa’s rand leading the gains. Despite the positive momentum on the day, market uncertainty remains high, with strategists at Citigroup pointing to next month’s US elections as a key risk factor for emerging-market assets.
“Investors’ appetite for risk has notably diminished in recent weeks,” said Citigroup strategists led by Luis Costa in a note to clients. “And if the election outcome proves to be very tight, we could see further damage to sentiment,” they said.
The strategists said EM currencies could become more vulnerable around the time of the election, particularly as rate cuts in many emerging markets have eroded their real yield cushion against developed market peers.
One-month implied volatility for emerging-market currencies is rising for the fourth straight week, the longest streak since August.
Elsewhere, Chile’s central bank cut its key interest rate by a quarter-point for the second straight meeting and signaled borrowing costs will keep falling to a neutral level as the economy struggles to gain traction.
In Hungary, 10-year bond yields rose to the highest in three months and the forint was hovering around the key 400 level against the euro after the latest change in guidance by the central bank.
Iron ore and copper advanced after China, the top commodities consumer, moved to support markets following data that showed slower economic growth. The People’s Bank of China disclosed more details of its measures to boost capital markets, boosting optimism over Beijing’s commitment to economic stimulus and sending stocks higher.
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