Emerging-markets currencies are getting crushed on Tuesday.
A trio of market crises — tumbling commodity prices, deteriorating relations between Greece and its creditors and the imploding Chinese stock market — are largely to blame.
The downshift comes after a brief recovery for the currencies, whose fates are closely tied to commodity prices. Stabilizing oil prices and a brief economic slowdown in the U.S. that pushed back expectations for an interest-rate hike had helped them gain ground in recent months. But oil prices are falling again, and talk that the Federal Reserve could raise rates in September is intensifying. Higher interest rates in the U.S. would make investing in already high-interest emerging-markets currencies less alluring.
The selloff in agricultural and industrial commodities hit Latin American currencies especially hard on Tuesday. The Brazilian real USDBRL, -0.6086% is down 1.75% at 3.1874 to the dollar, the Chilean peso USDCLP, -0.77% is down 1.1% at 648.70 pesos to the dollar and the Colombian peso COPUSD, +0.629629% is down 0.6% at 2,684.44 to the dollar. Brazil is a major exporter of crude oil and soybeans. Chile is a major exporter of copper.
African currencies — which are mostly considered frontier markets, a notch below emerging markets — are also heavily influenced by commodity prices. The South African rand USDZAR, -0.5218% the continent’s most-traded currency, was down 1% to 12.52 to the dollar.
The selloff in commodities like oil and iron ore was partly related to the market chaos in China, one of the world’s biggest commodity importers, though several other factors were at play.
Commodity traders are especially sensitive to anything that could hamper Chinese growth, however indirect. The country’s rapidly imploding stock market could have an indirect impact on already slowing domestic growth, as the recent halt in approving new initial public offerings hampers the ability of companies to raise capital and expand.
China’s central bank keeps its currency, the yuan, on a tight leash against the dollar.
Currencies of other Asian countries that are net importers of oil and other commodities also weakened. The Indonesia rupiah USDIDR, -0.40% was down 0.5% to 13,360 to the dollar, while the Indian rupee INRUSD, +0.205285% , which has been one of the more stable currencies in the region as of late, was down 0.3% to 63.54.
The Malaysian ringgit MYRUSD, +0.4152% which on Monday fell to its lowest level against the dollar since the late 1990s on reports that Prime Minister Najib Razak is being investigated for corruption, found room to move down another notch and set another post-late-1990s low. It was recently down 0.1% to 3.82 to the buck.
The Russian ruble RUBUSD, +0.756452% which has been one of the most sensitive currencies to the price of oil, was down 1% against the dollar to 56.53 rubles, but is still far stronger than its an all-time low of 80 rubles to the dollar hit in mid-December. The Mexican peso MXNUSD, +0.394647% fell to a new all-time low at 15.86 pesos to the buck, as it weakened 0.7% on the day.
And the rout may not yet be over. Minutes from the June Federal Reserve meeting and a speech from Federal Reserve Chairwoman Janet Yellen are expected later in the week, and both could clarify investors’ thinking on the timing of the Federal Reserve’s first interest-rate hike in nearly a decade. Any sign that reaffirms a rate hike in September would likely benefit the dollar at the expense of every other currency, especially those in emerging markets.
“No one’s really focusing on the Fed right now,” said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman. “That’s the other shoe to drop.”
original source: http://www.marketwatch.com/story/the-global-selloff-in-emerging-market-currencies-is-intensifying-2015-07-07