Emerging market FX pickup exposed to reversal after new virus surge: Report

The real, the rouble and the rupee are on the spot as infections of Covid-19, the illness caused by the virus, pile up in Brazil, Russia and India.

Emerging market currencies will likely give back recent gains if a resurgence of the coronavirus pandemic continues in the second half of the year, driving foreign exchange flows to the safer US dollar, a Reuters poll of market strategists showed.
The real, the rouble and the rupee are on the spot as infections of Covid-19, the illness caused by the virus, pile up in Brazil, Russia and India, the nations with the highest case counts in the world after the United States.

The outlook for these emerging economies keeps worsening due to the unrelenting health crisis, with Brasilia engulfed in political rows, the Kremlin tightening its grip and Indian cities suffering from a lack of adequate infrastructure.

Over 90%, 63 of 68 respondents in the June 25-July 1 Reuters poll said a second shock from the pandemic would boost the dollar, as in March, when anxious investors dashing for the greenback dealt EM FX its steepest loss since May 2012, according to an MSCI index.

"A second wave of the Covid-19 pandemic represents the major risk," said Roberto Mialich, FX strategist at UniCredit. "If so, we can expect investors to stay in the greenback or even increase their long exposure."

He added emerging market currencies would bear most of the brunt in the event that investors and traders became defensive once again. But he said global conditions would gradually improve, meaning less exposure to the dollar.