These Currencies Could Be The Next To Tumble In Global FX Wars
Earlier this week, Kazakhstan moved to a free float for the tenge, prompting the currency to plunge by some 25%.
The move came after the country’s exporters could no longer stand the pain from plunging crude prices and the RUB’s relative weakness. China’s move to devalue the yuan was the straw that broke the camel’s back.
Here, summed up in one chart, was the problem:
This “may prop up growth in the country and help [the] fiscal sector to accommodate external pressures in case they continue to mount,” Deutsche Bank said, commenting shortly after the news hit.
In many ways, the decision to float the tenge (like the move by Vietnam to allow the dong to swing in a wider channel) is emblematic of what’s taking place in FX markets from Brazil to South Korea.
Shockwaves from China’s devaluation have conspired with sluggish global demand and an attendant commodities slump to wreak havoc on developing market currencies the world over. For Asia ex-Japan, the outlook is especially dire, as the PBoC’s FX bombshell threatens to undermine regional export competitiveness, put upward pressure on the region’s REER, and will likely serve to further depress demand from the mainland.
Idiosyncratic political events have only made the situation worse for the likes of Brazil, Turkey, and Malaysia.
Here are some brief comments from Citi:
Is this Asian Currency Crisis Part 2? It sure feels like it. It would be more accurate to call it the Great EM Deval-Meltdown as emerging market currencies are in freefall and another peg bites the dust overnight (Kazakhstan). There are few pegs left besides Saudi Arabia and EURCZK and both are under pressure. The 1-year SAR forwards are at 12-year wides and EURCZK is pinned to the 27.00 floor. Take a look at the white chart below right which shows Malaysian Ringgit and you can get a sense of the 1997/1998 crisis vs. now.
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