Wednesday, May 30, 2012

Eurozone contagion spreads to emerging markets

Emerging markets currencies are under pressure again. In particular the rupee is getting slammed - now above R56 per $1. The Eurozone-based risk aversion as well as India's economic uncertainties are driving investors into dollars.
The Economic Times: - The rupee fell for a second successive session on Wednesday to near a record low, as oil importers ramped up demand for the greenback ahead of the end of the month, while global risk assets were hit by worries about Spain.

Though global cues are providing the trigger, traders said the rupee was also being weighed down by deep concerns about India's fiscal and economic challenges, and doubts about slowing policy reforms.
INR per $1
Other Asian currencies have taken a beating as well.
Bloomberg/BW: - All of the 10 most-traded currencies in Asia excluding the yen are headed for monthly declines as exchange data show international investors pulled $7.7 billion from South Korean, Taiwanese and Indonesian stocks during the period.
Even China is allowing the renminbi to weaken in order to support its exporters. This is a reversal of the long-standing appreciation policy, and should get some US politicians riled up.

CNY (renminbi) per $1
The Russian ruble and the Mexican peso are also weakening as oil prices decline sharply (both nations are big oil producers). BRL remains relatively stable (near recent lows) on the back of Brazilian government's recent intervention. It is unclear what if anything other governments will choose to do about their weakening currencies.

This depreciation in emerging markets currencies shows that the Eurozone contagion is spreading globally as risk aversion grips global investors.

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