bne:Chart – Perfect storm continues to hammer EM currencies

By bne IntelliNews September 8, 2015

Kivanc Dundar and Henry Kirby -

 

The Belarusian ruble was the world’s worst performing currency last week, hitting a record low against the dollar on August 28. A combination of market jitters over China's economy and rising geopolitical tensions has had damaging consequences for many emerging market (EM) currencies, with the Turkish lira also hitting historic lows against the dollar.

The Belarusian currency has been following the Russian ruble’s downward spiral, hit by a slump in oil prices and emerging market sell-offs.

The Turkish lira also weakened to an all-time low and Turkish stocks fell on September 7 after the Kurdistan Workers’ Party (PKK) killed 16 soldiers in a single attack on September 6 in the conflict-riven southeast of the country.

The teetering Turkish currency combined with the unrest has rattled investors, causing more concerns over security ahead of the November snap election. The political uncertainty emerged after June’s inconclusive parliamentary elections kept the local currency under pressure.

Falling as much as 1.29% in early trading following news of the attack on September 7, the lira weakened beyond the psychological barrier of TRY3 to the dollar. Shares dropped 1.28% on the back of the sharp decline in the lira.

The lira has tumbled more than 20% this year against the dollar, making it one of the worst performing currencies on the EM landscape. Concerns about the local currency are amplified by the prospects of a US interest rate increase later this year. Investors are also unnerved by the Turkish central bank’s reluctance to raise interest rates to defend the currency.

Falling commodity prices and economic slowdowns in trading partner nations mean that Belarus and Turkey are not alone in their currency crises, with nearly all currencies in the former Soviet space taking a hit over the last month.

China’s renminbi devaluation and the resultant crash in commodity prices have had a huge impact in emerging market sentiment across the globe, breeding anxiety in investors and hitting currency markets hard.

Lower demand from China doubled with increasingly low oil prices forced Kazakhstan to abandon the tenge’s trading corridor on August 20, with the currency losing 34% of its value against the dollar in just two days.

While staging a slight rally in the last few days ($48.96 at the time of writing), the price of Brent crude fell to a six-year low of $43 per barrel on August 26.

After the tenge’s freefall, neighbouring countries’ currencies almost immediately followed suit, with the Georgian lari losing nearly 4% within two days of the tenge’s fall.

Use the interactive bne:Chart below to view the performances of EM currencies against the dollar since 2014.

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