Emerging Market Currencies Climb as US-China Tensions Ease

 

Emerging-market currencies advanced on Monday, supported by renewed optimism that trade relations between the United States and China are improving ahead of scheduled talks in Malaysia later this week.

The MSCI Emerging Market Currency Index added 0.2%, with the South African rand outperforming peers and rising 0.7%, often seen as a barometer of global risk appetite. Latin American currencies, including the Brazilian real and the Chilean peso, also posted gains, benefiting from a softer US dollar.

“We’ve seen some encouraging remarks from President Trump suggesting that high tariffs on China are not sustainable,” said Brendan McKenna, economist at Wells Fargo in New York. “Emerging-market FX is responding positively to the idea that US-China relations may stabilize heading into November.”

 

Following last week’s flare-up in tensions, market sentiment improved after President Donald Trump acknowledged that his threatened tariffs on Chinese goods were “not sustainable,” though he noted they “could stand.” 

Trump highlighted rare earths, fentanyl, and soybeans as key US concerns, emphasizing that he maintains a good relationship with China’s leadership and expects to meet with his counterpart in South Korea later this month. According to Chris Weston, head of research at Pepperstone Group, markets are betting that China may relax its rare-earth export restrictions, potentially extending the current tariff truce. 

“However, there’s still the question of whether markets are underestimating the risk that China might not back down,” he cautioned.

The MSCI Emerging-Market Equity Index also jumped 1.7%, led by strong performances from Taiwan Semiconductor Manufacturing Co., Tencent Holdings Ltd., and Alibaba Group Holding Ltd., reaching its highest level since 2021.

Analysts at Barclays Bank, including Lefteris Farmakis, wrote in a note that: 

“There’s good reason to expect the US-China spat to remain contained for now, given the strategic importance of the issues involved.”

Traders are also watching for the delayed US Consumer Price Index (CPI) data for September, now scheduled for release on Friday after the recent government shutdown. The figures will provide key input for the Federal Reserve ahead of its upcoming policy meeting. 

“Aside from the improving US-China outlook, the market will finally get some fresh data this Friday,” said Marco Oviedo, strategist at XP Investimentos in São Paulo. “Inflation is expected to stay steady, and with a relatively weak job market, Fed rate cuts remain on the table — a positive backdrop for emerging markets.”

Elsewhere, Israeli stocks and the shekel gained after the government confirmed it had resumed a truce with Hamas in Gaza, lifting regional sentiment.

The halt in fighting also boosted Egypt’s markets, with the country’s dollar bonds showing the strongest gains among developing peers. In contrast, Colombian bonds and the peso slipped as Trump accused President Gustavo Petro of being an “illegal drug leader,” sparking concerns over possible economic repercussions.

Meanwhile, Argentina’s dollar bonds initially climbed after the central bank signed a $20 billion currency swap line with the US Treasury, signaling confidence in President Javier Milei ahead of key midterm elections. However, the lack of further details saw those gains fade, and the peso later weakened.