Summary:

• Emerging market FX poised for biggest weekly loss since Nov 2016
• BRL, TRY and ZAR the worst hit; all 3%+ lower vs USD 
• USDMXN today breaks to 14-month high

One of the biggest stories this week has been emerging markets (EM), with several currencies that fall into this bracket experiencing large declines. In fact, if we take the EM space as a whole, it is looking like it will be the worst week for this group of currencies since November 2016 – the month that Trump won the US election. The root cause of these moves are the same as the ones we saw back at the end of 2016, just after Trump’s unexpected election victory with rising US treasury yields and a stronger dollar common explanatory themes on both occasions. 

The yield on the US 10-year has added to recent gains this week, firming up above the psychological  3% threshold and the US dollar has hit its highest level today since mid-December. Looking at the heatmap function on xStation we can see the damage done in this space with the EM currencies occupying the space for the 7 biggest fallers against the USD. BRL is the worst hit, lower by 4.1%, with TRY (-3.9%) and ZAR (-3.7%) not far behind. 

 

 EM currencies have dropped sharply in the past week against the US dollar, with the biggest fallers all coming from this space. Source: xStation 

The Brazilian Real seems to be getting caught up in the whirlwind surrounding neighbouring Argentina, where the peso has plummeted in recent weeks causing concerns of a full-blown currency crisis. The Turkish Lira has hit all-time lows this week against both the USD and EUR as president Erdogan has doubled-down on his stance that he will influence monetary policy with his unorthodox views should he win re-election next month – which seems highly likely. 

 USDTRY is trading back near it’s all-time high of 4.50 set earlier this week. Source: xStation

NAFTA talks have been described today by US trade representative Lightizer as “nowhere near close” to reaching an amicable outcome and this has weighed on the Mexican peso, as well as the Canadian dollar which whilst not a EM currency has also tumbled after the latest Canadian data release. The USDMXN made a high earlier of 19.98, the highest level seen in this cross since early March last year. 

 USDMXN has made a move higher today and is back near the 20 handle – its highest level in more than a year. Source: xStation