• Risk Appetite Feeds Emerging Markets
• Won Leads Monday Gains
• LatAm Currencies Bouyed By Domestic Factors

ForexSpace.com (LONDON) - Emerging-market currencies kicked off the week as some of the biggest winners, after they managed to cling on to gains made off the back of better-then-expected U.S. jobs data out Friday.

Higher-yielding varieties found continued support Tuesday as Germany appeared to show support for an ECB bond-buying scheme which is expected to provide support for debt-laden Spain and Italy. Leading gains along with the likes of the Malyasian ringgit, South Korea’s won traded near a four- month high after Germany’s show of support, closing at 1.128.78 against the dollar compared with 1,129.23 yesterday.

Commenting on the encouraging market conditions for emerging currencies across the globe, George Saravelos, FX Strategist at Deutsche Bank, added: “In the past week, markets were surprised on the upside by the communication from ECB hinting the possibility of a more direct intervention to keep sovereign bond yields from soaring as well as the higher than expected payroll numbers released on Friday.”

Analysts Advise Caution Over Asian Gains

The Malaysian ringgit also rose to hit a three-month high against the dollar Monday. But while currency charts continue to track the emerging currencies’ impressive ascents, traders exchanged rumours about  the possibility of central bank intervention from Singapore.

"Too much optimism has been riding on hopes for central bank actions and I won't add any long Asian FX positions at the moment," said Frances Cheung, Credit Agricole CIB's senior strategist in Hong Kong.

Cheung reflected the sentiment of many investors who are supposedly holding back from jumping aboard the Asian EM rallies until Europe deliver further damage-control measures. Such caution has prompted short-term investors to take profits from emerging Asian currencies, and has top analysts warning about the overbought nature of many of the currencies currently on the ascent.

LatAm Currencies Rise

Latin American currencies operated some way behind their risky European counterparts, but continued to benefit from Friday’s more positive tone. The surprise data helped to lift riskier assets across the globe, with the Mexican peso leading gains in the LatAm region.

After notching up gains of over 1.5 percent on Friday’s close, the MXN held onto gains Monday.  "The peso in particular was very favoured by the US employment data, there was a lot of worry that it could come out bad like last month," said Rafael Camarena, an economist at Santander in Mexico City. The Latin American nation sends almost 80 percent of its exports to the U.S., with data slumps posing a threat to manufactured goods across the board.

Leading the pack two trading days after the jobs data hit markets is the Chilean peso. This LatAm currency is now outperforming the rest of the region, driven by strong economic data which has supported any interest from risk-hungry speculators.

Yesterday saw the release of Chilean data which showed that its economic activity index grew 6.2 percent in June. Also buoyed by risk-on sentiment, the peso notched up its biggest gains against the dollar since February; up 0.6 percent to 478.60 CLP at Monday’s close.

The peso has since retraced slightly to trade at 477.78 on currency charts at the time of writing.

Investors will now be watching the ECB for further action which would support a bullish attitude towards riskier currencies.

Sarah Cox, Markets Writer. ForexSpace.com