Similarities

Despite their singular personalities, from a technical perspective emerging market currency pairs trade similarly to major G7 currency pairs. It shows a daily chart of the U.S. dollar/ S. African rand (USD/ZAR) pair. Also, fundamental market drivers, including central bank actions, are relatively comparable. So, experienced traders can essentially transfer their G7 currency trading experience into the emerging-market area.

For example, shifts in the MXN or ZAR can happen on speculation of rate hikes by the central banks in Mexico and South Africa. Retail sales is a key report in Hong Kong and Singapore because these countries’ economies are increasingly dependent on exports and domestic spending by their citizens.

A word of caution, however, about these reports: Because of the lack of transparency in many EM governments and official agencies, reports tend to be slightly understated or overstated. Also, many EM economies are based on a single growth sector — e.g., non-oil domestic imports in Singapore — which can result in wide swings from month to month.