Emerging market (EM) currencies have rallied against the dollar after Friday's U.S. jobs number, with some forex experts predicting an interesting period ahead for an asset class that had fallen out of favor this year.
The U.S. economy added slightly fewer jobs than economists had expected in March, which managed to steady expectations that the Federal Reserve would adjust its timetable for cutting bond purchases and raising rates.
Among a series of sharp price shifts in asset classes after the fresh figures, momentum stocks on the Nasdaq took a hit. At the same time foreign currencies showed strength against the dollar. By 11:00 a.m. London time on Monday, the greenback had lost 1.89 percent against the Brazilian real, 0.6 percent against the Mexican peso, 1.4 percent against the South African rand and nearly 1 percent against the Turkish lira.
Marshall Gittler, head of global foreign exchange (FX) strategy at IronFX dubbed Friday's price movements as a "surprising surprise" and stated that the "carry trade" was showing renewed interest. The carry trade is where investors borrow in a low yielding currency to fund investments in higher yielding assets somewhere else. The anticipation of higher rates in the U.S. in the past few months meant emerging market currencies lost their appeal. But recent price movements - in some EM currencies at least – point to this trend reversing.
"Some currencies are starting to show signs that they may struggle once again, such as the (Russian) ruble, and the (Turkish) lira could be vulnerable, but this isn't leading to a broad-based selloff. If the fundamentals in some EM countries like Brazil can continue to do well, then we could see further upside in the EM FX space," Kathleen Brooks, a research director at FOREX.com told CNBC via email.