The worst start to a new year since 2016 – Rabobank

The CEEMEA currencies are on track to end January on the back foot marking the worst start to a new year since January 2016, writes Piotr Matys – Senior Emerging Markets FX Strategist at Rabobank

Key Quotes:

“The coronavirus has cast a long dark shadow over the markets and severely undermined the positive impact of the phase one trade deal. Until China demonstrates that the measures implemented so far (including quarantining around 40 million people) will prove sufficient to contain the deadly virus, the CEEMEA currencies will remain under pressure. While the ruble has not been the weakest link, Russia is actually the most exposed amongst its peers to a sharp slowdown in China’s economic activity caused by the paralysis of major manufacturing hubs and much weaker domestic consumption.”

“Russia’s exports to China reached a record high of USD 58.58bn in 2018 compared to just USD 9.73bn in 2003. The negative impact of the sharp fall in economic activity in China – even if short-lived – will be therefore much stronger on Russia than during the SARS crisis. USD/RUB has breached the December high at 63.1057. A close above this level on weekly basis would strengthen the bullish bias favouring further gains towards the December high at 64.4880.”