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Emerging Market Currencies Extend Dive Versus USD Amid Fed, Risk Talk

Emerging Market Currencies Extend Dive Versus USD Amid Fed, Risk Talk

Bradley A. Kearns,

Talking Points:

  • Risk Aversion seen in venues like global equities led to a drop in risk-sensitive currencies
  • The Brazilian Real lead Emerging Market currencies drop hitting a record low vs the US Dollar
  • Further slowdown in China is expected by Chinese executives

When risk aversion settles in the market, traders sell risky securities and divert capital into “safe haven” assets. Emerging Market currencies, like the Mexican Peso, Renminbi, Rand, Ruble and Real fit the bill of riskier units, and all have weakened against the Greenback since the beginning of the year.

Leading the trouble for the grouping’s (Emerging Market) local currencies is the slowdown in China which is the largest of the developing economies – not to mention the second largest economy in the world. Emerging markets depend on demand in part from China to fuel export growth. Yesterday, the MNI Business Report cited that Chinese executives’ future expectations have fallen to its lowest level since 2007. This could mean that further slowdown in China may be in the works.

The fear of global economic turmoil was also mentioned by the Federal Reserve. One of the reasons given for the FOMC not to hike the Federal Funds Rate was the fear of a spillover from China into the US economy. After the Fed’s decision, the Mexican Central Bank also chose to leave its base lending rate unchanged.Moving forward, economic trouble, a change in monetary policy for various key players and the start of capital repatriation threatens to exacerbate a capital shift that turns into a more thorough risk aversion theme.

Emerging Market Currencies Extend Dive Versus USD Amid Fed, Risk Talk

Upcoming Emerging Markets Event Risk:

Mexico:

  • July’s Retail Sales due on 9/23 at 13:00 GMT. 4.7% expected vs 54.4% prior.
  • August’s Trade Balance due on 9/25 at 13:00 GMT. -1825.0m expected vs -2266.9m prior.
  • September’s PMI Manufacturing due on 10/01 at 14:30 GMT. 52.4 prior.

China:

  • September’s Caixin PMI Manufacturing due on 9/23 at 01:45 GMT. 47.5 expected vs 47.3 prior.
  • September’s CPI due on 10/14 at 01:30 GMT. 2.0% prior.
  • September’s PPI due on 10/14 at 01:30 GMT. -5.9% prior.

South Africa:

  • August’s CPI due on 9/23 at 08:00 GMT. 4.8% expected vs 5.0% prior.
  • (SEP 23) Interest Rate due on 09/23. 6.0% expected vs 6.0% prior.
  • September’s Barclays Manufacturing PMI due on 10/01 at 09:00 GMT. 48.9 prior.

Russia:

  • September’s Markit PMI Manufacturing due on 10/01 at 05:00 GMT. 47.9 prior
  • (2Q F) GDP due on 10/01. -4.6% prior.
  • September’s CPI due on 10/05. 15.8% prior.

Brazil:

  • (SEP 22) FGV CPI IPC-S due on 9/23 at 11:00 GMT. 0.36% expected vs 0.28% prior.
  • August’s Unemployment Rate due on 9/24 at 12:00 GMT. 7.7% expected vs 7.5% prior.
  • September’s Markit PMI Manufacturing due on 10/01 at 13:00 GMT. 45.8 prior.

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