EMERGING MARKETS

Today, the Indian Rupee has weakened below the Rs70 per dollar mark, hit in part by the rallying crude prices, with the nation being a large oil importer.

EM currency crisis could resurface again in the coming months, if investors unwind their bullish bets on these currencies and equities, after a very positive first quarter – especially for the INR.

There’s a bit of calm in the markets today. Emerging market currencies on the whole have stopped falling, stocks are finding a bit of support and commodities are also firmer.

Understandably it has been a rather quiet day in the markets with North Americans out celebrating Labor Day. But with the summer holidays over, volatility should pick up from now on. In fact, this week promises to be a busy one in terms of macro events.

Another week has flown by and what a disastrous one it has been for the likes of the Turkish lira and to a lesser degree the British pound, but once again it has been a good for the US dollar.

As we noted earlier this morning, it’s shaping up as a classic “risk-off” day as global stocks, oil and high-yielding bonds continue to sell off in the US afternoon session. Naturally, that also means that emerging market currencies are having a rough go of it as well, with widely-followed EM currencies like the Turkish lira, South African rand, and Mexican peso all losing ground against the dollar. While the greenback fell relatively sharply across the board last week, the long-term trend for most EM currencies remains to the downside, prompting us to ask: “Can emerging markets capitalize on thie falling currencies?”

Central banks will be traders’ central focus in the G10 this week, with monetary policy “decisions” out of the Federal Reserve, Reserve Bank of New Zealand and Bank of Japan, but there will also be some potentially important central bank meetings in the emerging world as well. While not too many readers are trading the currencies of Hungary, Nigeria, Ukraine or Israel (each of which features a central bank meeting this week), there will be central bank updates from more widely-followed nations like Russia, South Africa, and Turkey.

As we’ve noted repeatedly over the first trading week, emerging market currencies have been getting walloped as panicked FX traders sell any holdings they see as risky for the perceived safety of the US dollar and Japanese yen. As the chart at the bottom of this report shows, the Mexican peso has certainly not been spared from the EM FX massacre.