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note! Recent export risk warnings for these countries! Multiple emerging market currencies have plum

  • Author:Cynthia
  • Release Date:2018-05-12
   Recently, the Fed’s rate hike is expected to continue to heat up, and the US dollar index is rising rapidly. In the past two months, the US dollar has risen against the non-US dollar currency. With the continuous spread of the "US dollar shortage" in the global capital market,TurkeyThe currencies and financial markets of emerging market countries are undergoing severe tests.

Turkish Lira
Since the beginning of this year, the Turkish Lira has kept refreshing its history to a minimum, falling more than 8% against the US dollar and 9% against the euro. In the past week alone, the Turkish lira has plummeted more than 6% against the US dollar and fell to an all-time low. The Turkish Lira is known as one of the worst emerging market currencies so far this year and has depreciated by 13.9% since August 2017.
Turkey's real GDP growth rate in 2017 reached 7.4%, which is almost double the growth rate in 2016, and it also created the best performance of G20 countries' growth rate. However, the economy is overheated and there are some huge imbalances. At the same time, double-digit inflation and an expanding current account deficit are both reflected in weak currencies.

It is this kind of market environment that makes Moody's downgrading Turkey's credit rating to junk level in March. The International Monetary Fund also warned that all this has made Turkey very fragile in the face of changing global conditions.

Russian ruble
As a result of the deterioration of the geopolitical situation, the Russian stock market and foreign exchange market experienced a sharp crash on April 9 and 10. On April 11, the ruble briefly touched the weakest level of 64.77 against the US dollar since November 2016. The ruble fell to 79.75 against the euro, the weakest since March 2016. Currently at 63 rubles: around US$1, a depreciation of 9.4% compared to the end of 2017.
Some European electronics and household appliance manufacturers supplying Russia have said that due to the collapse of the ruble exchange rate, they may consider raising the price of products offered to Russian retailers by 5% to 10%. Lenovo Group also stated that if the rouble exchange rate against the US dollar and the euro continues to fall, it may consider increasing the selling price of the product.
Argentine Peso
Since the beginning of this year, the cumulative decline of the Argentine peso to the US dollar has exceeded 15%, making it the worst performing currency in emerging markets this year.

In order to save the precarious local currency, the Argentine central bank was forced to raise interest rates three consecutive times within eight days, and the interest rate reached a staggering 40%! The Central Bank of Argentina started the first shot of defending the peso on April 27.

On the same day, the Argentine Central Bank announced a rate hike of 300 basis points, which raised the benchmark interest rate from 27.25% to 30.25%. On May 3, the Argentine Central Bank raised interest rates again by 300 basis points, and the benchmark interest rate has reached 33.25%. By May 4, Argentina The central bank directly raised the benchmark interest rate to 40%. However, the decline of the Argentine peso against the U.S. dollar does not seem to have stopped.

The Argentine economy grew by 2.8% in 2017. The government expects this year's economic growth will reach 3.5%. The Central Bank of Argentina predicts that the domestic inflation rate will be 15% this year, but the IMF believes that Argentina’s domestic price increase will reach 19%, and some research institutions estimate that it will exceed 20%. According to Edward Glossop, Latin American economist at Capital Economics, Peso’s risks include current account deficits, high dollar debt, inflation, and currency overvaluation.

From a global perspective, the plunge of the Argentine peso will sound alarms for debt to the global economy, especially to the emerging economies. The collapse of the peso may produce a "butterfly effect," which in turn will trigger a global financial crisis.

Indonesian Rupiah
The Asian currency has rebounded since the last quarter of last year. The exchange rate against the dollar has risen steadily. The uptrend is very impressive. However, recently, the US dollar has a strong return. Asian currencies, including Ringgit Malaysia, may face the threat of another devaluation. The Indonesian rupiah was the first currency to fall. Over the past three months, the Indonesian rupiah has lost more than 4%.

Indonesia's economic growth slowed down in the first quarter, reflecting that domestic consumption was still weak. The authorities in Jakarta who cut interest rates eight times in the past two years were a major defeat. Affected by this negative impact, Indonesian Rupiah devalued the Indonesian Rupiah barrier by 14,000 against the US dollar on May 7 and reduced it to a 28-month low.

The Indonesian rupiah exchanged 1.52 rupiah against the US dollar on the 7th to Rp14,185. It was the first time since December 2015 that it had broken down the 14,000 shield level. If the Indonesian rupiah breaks down the 14,693 rupiahs in September 2015, the next level It was the low tide of the Asian financial crisis in 1998.

The Indonesian Central Bank has stepped up efforts to boost the Indonesian rupiah in April and has publicly stated that it will intervene in the market. In the past two months, the bank has used about 6 billion U.S. dollars of foreign exchange reserves to defend its currency.

The situation in most Asian countries is the same as in Indonesia. Therefore, the decline of the Indonesian rupiah should be a warning to Asian countries.

South African Rand
In April, the South African Rand fell by 5.1% against the US dollar and became the third-best performing currency among emerging market countries. In addition, the South African Rand also fell 3.6% and 3.1% against the British pound and the Euro.

On May 2, the rand fell to 12.77175 against the US dollar, the lowest since December 22 last year.
In addition, the Brazilian Real and the Indian Rupee suffered significant depreciation to varying degrees.

As the largest economy in Latin America, Brazil’s Real is better than Argentina’s peso in Latin America’s third largest economy, but it’s not much better: Since 2018, the Real has depreciated 9.5% against the US dollar.

The Indian rupee has been reduced to 67.4:1 against the US dollar since the beginning of the year from the 63.4:1 frontline, and the depreciation rate has exceeded 6%.

According to Claudio Piron, the head of Asia’s foreign exchange and interest rate strategy at Bank of America Merrill Lynch, the dollar will continue to rise against emerging market currencies. Please take note of the risks of friends who are exporting to these countries (a large and rapidly depreciating currency will cause the cost of local importers to increase) and pay for certain shipments.