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Currencies hit six-week low as oil spike brews inflation concerns

10/06/2021 | 04:45am EST

* Polish c.bank expected to hold rates at 0.1%

* Russian stocks at record high, inflation awaited

* Turkish lira near record low

Oct 6 (Reuters) - Emerging market currencies sank to six-week lows on Wednesday as a spike in oil prices spurred concerns over high inflation and drove investors out of risk-driven assets.

MSCI's index of emerging market stocks fell 0.6%, while the currencies benchmark dipped 0.2%, as investors feared high commodity prices would further pressure economies already struggling with elevated inflation.

South Africa's rand dropped more than 1% and was the worst performer among currencies in Europe, the Middle East, and Africa (EMEA).

Oil prices surged to multi-year highs on signs of tight energy supplies, especially after the OPEC+ group said it would increase output at a gradual pace.

"The surge in energy costs globally could dent discretionary spending and pressure non-energy-exporting economies, especially those in emerging markets. As the U.S. is a net exporter of fossil fuels, higher prices could indirectly help the USD," analysts at UBS wrote in a note.

Turkey's lira fell as much as 0.7% to 8.9345 to the dollar, trading just above its record low of 8.9557, given that Turkey's large crude imports make the currency sensitive to the oil market.

Russia's rouble fell 0.5%, losing relatively less than its peers due to Russia's status as a net exporter of oil. Russian stocks rallied to record highs as heavyweight energy stocks found support from the crude market.

Investors were also awaiting Russian inflation data to help determine whether the central bank will hike rates further.

High U.S. Treasury yields added another layer of pressure to emerging market currencies, as investors bet that elevated U.S. inflation, stemming from high commodity prices, could lead the Federal Reserve to tighten policy sooner than signalled.

In central Europe, the Polish zloty fell 0.6% to the euro ahead of an interest rate decision by the central bank. The bank is widely expected to hold rates at a record low 0.1%, but has signalled recently that an eventual rate hike is on the cards to contain a spike in inflation.

Poland's regional peers Hungary and the Czech Republic have already kicked off hiking cycles this year, which had provided some support to the forint and the crown.

In Asia, dollar-denominated bonds of Chinese property developers remained under pressure as investors fretted over possible defaults in the space, which could in turn adversely impact the Chinese economy and have a contagion effect.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see

(Reporting by Ambar Warrick Editing by Mark Potter)


© Reuters 2021
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