Last week we observed a strong weakening of emerging markets currencies - 27.1.2014

Last week we observed a strong weakening of emerging markets currencies. The largest decline had the Argentine Peso, which has fallen by almost 18%. We can remark two factors that influence emerging markets. First of all, the purchase of the US government bonds by Fed is realized through money emission. That is why the decrease of the purchase volume means that dollar mass will fall. As a result, investors may be afraid of dollars lack for an exchange and a global investing. Besides, it may cause a significant increase of credit rates and a yield growth of dollar assets. In such case international funds convert their actives into the American currency. Another reason of global sells in emerging countries is slowdown in the Chinese economy and a regular lack of liquidity in the interbank market of China. We should notice that Yuan – Dollar course has not changed significantly since a beginning of the year. However, investors are afraid of a new crisis like one of the South East Asia in 1997-1998.

Meanwhile, the Dollar index has fallen significantly last week. We consider that some part of investors doubt that Fed will reduce bonds purchase by $10 billion. Let us remark that New Home Sales will be available at 15-00 GMT+0. For now the forecast is negative.

The U.S. Dollar fell against the Japanese Yen (USDJPY) to its lowest level in seven weeks. Investors suggest that Yen is more suitable for the status of “protecting currency”. The current Japanese debt is the maximal one among emerging countries. It is over 200% of GDP. The Japanese government tends to decrease the deficit by 1.1% of GDP by 2020/21. That is why the GDP growth rate should not be less then 3%. If the GDP will increase slower, the beginning of the economical crisis in Japan is possible. The next GDP value will be updated by 17 of February. We expect that it will increase by 1.6% that is close to the lower limit of the government forecast. Today, in the morning, the trading deficit of Japan has been published – it turned out that it has been increased twice up to $112.3 billion. In general, it was caused by the increase of energy imports and Yen weakening.

On the background of the crisis Gold has a higher demand as the main "asset protection" instrument (XAUUSD). Besides, the release of the Canadian company Barrick Gold Corp. was published: its gold reserves have been decreased by 10%. Because of the fall in world prices from $ 1,500 to $ 1,200 per ounce, some fields have become unprofitable. Note that a few miners in Canada, South America and Australia have announced about the possibility of reducing their reserves if the price of precious metals will not rise. Rise in gold prices has been observed for five weeks, the first time since September 2012. However, huge investing banks preserve pessimism regarding gold in their forecasts. They expect the fall of the prices to $1150-1050 range because of the world economy rise – see the forecast of IMF.