Emerging currencies come under siege
WHETHER the Federal Reserve raises interest rates in September or December is turning out to be almost irrelevant for emerging market currencies and those from nations that export minerals to China.
Rather than being dominated by prospects for US policy, they are falling as commodity prices tumble for a seventh week.
The rand dropped to a 13and-a half-year low against the dollar, even after minutes of the Fed’s July meeting prompted traders to pare bets on a rate increase next month. Kazakhstan’s tenge plunged after the country relinquished control of its exchange rate.
“The moves in emerging markets are getting pretty wild,” said Peter Rosenstreich, the chief market strategist at Swissquote Bank in Gland, Switzerland. “There’s probably not a big difference between September and December – it would psychologically change the game if they pushed it out to 2016.”
Pressure is most intense on countries with managed exchange rates, which are finding it increasingly difficult to stop their currencies from weakening, particularly after China devalued the yuan last week.
Ukraine is under pressure to remove capital controls on the hryvnia, while Nigeria is losing the battle to prevent the naira from going the way of other oil-dependent currencies.
The Australian dollar dropped 0.5 percent, the most in more than a week, to 73.09 US cents. Traders reduced odds on a September rate increase by the Fed to less than 40 percent. That is still up from 21 percent after the July 8 release of the June meeting’s minutes.
That is when policy makers expressed concern about weak consumer spending and risks from China and Greece. Futures show a 65 percent chance that officials will act in December.
Minutes of its last policy meeting published on Wednesday showed most officials didn’t consider that the conditions for the first rate increase in nine years had been reached.
Still, participants said conditions “were approaching that point” where the world’s largest economy could sustain a slight increase in official borrowing costs.
Emerging-market currencies around the world are, meanwhile, plunging in line with commodities. On Wednesday, Vietnam marked down the dong for the third time this year. – Bloomberg