By Claire Milhench
LONDON, July 19 (Reuters) - Trade war concerns and dollar strength continued to cast a shadow over emerging market currencies on Thursday, with China's yuan weakening to a one-year low while the South African rand fell more than 1 percent ahead of a central bank meeting.
The dollar has been supported by U.S. Federal Reserve chairman Jerome Powell's upbeat testimony this week, providing headwinds for emerging markets given the rates outlook.
At the same time, Powell warned that globally higher tariffs could mean lower wages, less investment, lower productivity, and stagflation. about a more protectionist world have weighed on emerging markets, which are dependent on free trade and strong exports for growth. MSCI's benchmark emerging stocks index fell 0.6 percent .MSCIEF , its third day of losses this week, with selling across Asia and emerging Europe.
With China taking the biggest hit from U.S. tariffs to date, China's yuan fell almost 0.9 percent, hitting a one-year low of 6.77 per dollar in onshore CNY= and 6.78 in offshore trade CNY=CFXS .
The moves came after the official midpoint was set below 6.7 per dollar, with the central bank widely expected to loosen policy via more bank reserve ratio (RRR) cuts in coming months. Chow, emerging markets strategist at UBP, said the depreciation was surprising, and should not be interpreted as a "firing shot" in the trade spat with the United States.
"If you allow the yuan to depreciate it intensifies tensions with the United States," he said, highlighting China's trade surplus with the U.S., which hit a record high in June. your exchange rate into that is an adversarial action, and that's inconsistent with what they've done in the last two weeks – they've complained about the U.S. threats but they haven't reacted."
China hopes to control the risk of destabilising capital flows, with China's forex regulator saying it will use "counter-cyclical" measures to respond to short-term volatility, highlighting its "ample" reserves. mainland and Hong Kong stocks continued to slide with the Shanghai Composite index .SSEC down 0.5 percent and Hong Kong .HSI fell 0.4 percent.
Chinese weakness weighed on other Asian markets, with the Indian rupee INR= down 0.5 percent, heading back towards record lows. Indonesia's rupiah IDR= fell 0.5 percent, trading around its weakest level in nearly three years, as the central bank kept rates at 5.25 percent as expected. from Asia, the South African rand ZAR=D3 fell over 1 percent ahead of a central bank meeting at which it is expected to talk tough on taming rising consumer prices but leave rates on hold at 6.5 percent. consumer inflation quickened to 4.6 percent year-on-year in June from 4.4 percent in May. John Ashbourne, senior emerging markets economist at Capital Economics, noted that core inflation slowed from 4.4 percent to 4.2 percent, strengthening his view that the bank would leave rates on hold.
"We think that oil prices will decline over the remainder of the year, and that the big falls in the rand are now behind us," he said.
The Turkish lira TRY= retreated 0.8 percent after a three-day rally while Mexico's peso MXN= fell 0.6 percent. U.S. President Donald Trump has said the U.S. may seek a separate trade deal with Mexico, sowing fresh doubts about the future of NAFTA. rouble RUB= also dipped 0.6 percent to a two-week lows, as investors eyed the possibility of more U.S. sanctions.
A bill gaining momentum in the U.S. Senate suggested that sanctions targeting key Russian economic sectors would kick in swiftly if U.S. authorities determined the Kremlin had again meddled in a U.S. election. shares .IMOEX fell 0.4 percent and Russian dollar-denominated stocks fell 0.8 percent .IRTS . UBP's Chow said any new sanctions were likely to be of a different nature to those levied on Rusal, which had had unintended consequences such as the disruption to global aluminium supplies.
For GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see http://tmsnrt.rs/2dZbdP5
For TOP NEWS across emerging markets CENTRAL EUROPE market report, see CEE/
For TURKISH market report, see .IS
For RUSSIAN market report, see RU/RUB ) Emerging Markets Prices from Reuters
Net Chg % Chg % Chg
Morgan Stanley (NYSE: MS )
Emrg Mkt Indx .MSCIEF 1063.03
-5.72 -0.54 -8.24
-0.49 -0.05 +0.81
2139.08 -10.04 -0.47 -13.09
34661.20 -59.11 -0.17 -11.98
7886.10 -104.05 -1.30 +1.71
-5.20 -0.67 -4.21
-8.83 -0.77 -1.61
.JTOPI 49876.61 -292.13 -0.58 -5.06
.XU100 92479.97 +158.01 +0.17 -19.81
2772.98 -14.28 -0.51 -16.15
.BSESN 36335.53 -37.91 -0.10 +6.69
close currency currency
% change % change
South Africa ZAR=
4.79 -0.86 -21.62
3.85 +0.00 -13.99
Index Strip Spd Chg %Rtn Index
Sov'gn Debt 11EML EMBIG 361
.02 7 79.78 1
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