Bloomberg | Apr 06, 2020 08:09
Emerging-market currencies beaten down by Covid-19 fallout may face a fresh round of selling with this week’s release of data expected to show a big drawdown in foreign-exchange reserves.
Mexico’s weekly data is set to come out on Monday, while Indonesia, Taiwan, the Philippines, China, Malaysia, South Africa and Russia are due to issue updates on Tuesday. That comes on the heels of a $9 billion slump in South Korea last month and a $6 billion decline for India since the end of February.
Central banks in emerging economies are tapping reserves to stem a decline in their currencies as the coronavirus pandemic induces a rush into the U.S. dollar as a haven. The sliding stockpiles highlight the quandary they face trying to bring stability amid capital outflows, while ensuring they have ammunition for future actions.
“I expect more weakness ahead for EM currencies as demand for dollars will remain strong,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore “We can expect to see reserves decline further as central banks continue to smooth FX moves and provide liquidity to the market.”
While most emerging-market central banks have greater reserves than they did during the Asian financial turmoil of 1998 and global financial crisis of 2008, the macro economic outlook remains uncertain. The Federal Reserve’s swap lines and a new facility through which developing nations can secure dollars using Treasury holdings will help ease some pressure.
But expectations the pandemic will cause a global recession are keeping the risk of capital flight elevated in the weakest links of emerging markets. Global funds have scaled back stock investments in South Korea, Brazil and Turkey, while selling off bonds in countries such as India and Indonesia.
The Mexican peso slid to a record low on Monday amid disappointment over the government’s stimulus plans. The nation’s reserves remain near a record high as officials appear reluctant to tap them, while Brazilian and Turkish stockpiles have been sliding.
The faster-than-expected erosion in Russian reserves also clouds the picture for the ruble given oil prices remain vulnerable to the market-share war with Saudi Arabia. India’s central bank has already been using its record foreign-currency arsenal to defend the rupee.
©2020 Bloomberg L.P.
Written By: Bloomberg
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.
More content, faster quotes and charts, and a smoother experience is available only on the App.