Emerging market currencies have entered the final full trading week before Christmas on a positive note despite fears over plateauing global economic growth weighing on risk sentiment.
It is becoming clear that a weakening Dollar remains the primary driver behind the impressive gains witnessed in the EM FX space. With the Dollar seen depreciating ahead of the Fed meeting as investors remain on the side-lines, emerging market currencies have the opportunity to extend gains. However, geopolitical risk factors in the form of lingering trade tensions, Brexit related uncertainty and political risk in France are seen fuelling risk aversion down the road. If the Dollar ends up benefiting from the risk-off mood and appetite for risk sours further, EM currencies will most likely be one of the many casualties.
The Chinese Yuan stood its ground against the Dollar as investors positioned ahead of key policy events in China this week. China will be celebrating the 40th anniversary of reforms and opening up on Tuesday while the nation’s annual Central Economic Working Conference will be in focus later this week. It could be an eventful week for the Yuan if the local currency is influenced by these key policy events and lingering trade concerns.
Focusing on the technical picture, the USDCNY is trading marginally below the psychological 6.90 resistance level as of writing. A solid breakout above this point has the potential to trigger an incline towards 6.93.
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