October 7, 2011Emerging-Market Currencies Rise on U.S. Jobs Report
Emerging-market currencies, led by the Brazilian real, jumped after a key U.S. jobs report beat expectations, giving investors a less gloomy perception of the U.S. economy's growth.
But their current momentum may not last, as uncertainty in the euro zone persists and the U.S. economy's growth path remains murky. The performance of emerging-market currencies has been closely linked to issues in the developed world, especially regarding Europe's sovereign-debt crisis and the outlook for the world's largest economy.
Nonfarm payrolls rose by 103,000 in September, according to the Labor Department's report, and payrolls data for the previous two months were revised up by a total of 99,000. That injected optimism in the market, helping emerging-market currencies add onto gains made Thursday, after the European Central Bank cheered markets with additional measures to support the region's banks.
Emerging-market currencies have "definitely been crawling back the last couple of days, [and] this is another reason to continue the correction," said Win Thin, global head of emerging-market currency strategy at Brown Brothers Harriman.
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The Chilean peso, tracking the jump in international copper prices, advanced about 1.6% against the dollar. The Chilean peso often takes cues from copper prices, since Chile is the world's largest copper producer.
In the near term, however, it may be difficult for growth-linked currencies to sustain their advances, analysts warn. The jobs report is not a clear turning point for the U.S. economy, which still looks bleak overall, analysts said. The unemployment rate in September remained stubbornly high at 9.1%, highlighting the labor market's weakness.
"I don't think we're completely out of the woods yet, but the data's been improving a bit so that's reassuring," said Guillaume Salomon, emerging market strategist at Societe Generale.
While euro-zone leaders have shown signs of progress in managing the region's debt crisis, the common-currency bloc still has many steps to undergo to prevent a contagion effect on its larger economies, analysts say. That could keep investors cautious about emerging markets, despite spurts of confidence as seen Friday.
"I don't think people are still that gung-ho about the emerging-market story," Brown Brother Harriman's Mr. Thin said.
Emerging-market currencies could also suffer a bout of profit-taking in the very near term, since some investors won't want to pile on too much risk ahead of the weekend, especially with a holiday in the U.S. Monday, analysts said.
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