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The SA Daily 19 June 2018

No reprieve for emerging markets

Shireen Darmalingam

  • Emerging market (EM) currencies have, since the beginning of the year, lost ground to the dollar, with the Argentine peso and the Turkish lira amongst the biggest losers. The rand has lost 10.6% since the start of the year, while losses for the quarter thus far amount to 14.5%.
  • Emerging markets would have hoped for some reprieve this week, as markets are quieter, following two weeks of events that kept EM currencies on the back foot. The Fed hiked rates for the second time this year, and signalled a cumulative four hikes this year; and the European Central Bank (ECB) indicated its stimulus exit plans later this year.
  • However, the trade war brewing between the US and China is threatening EM currencies further this week. The US announced tariffs on $50bn of Chinese imports last week. US tariffs of $34bn will start on 6 July, with a second list of $16bn to be considered under a review process. The Chinese retaliated with tariffs on $34bn worth of US goods (which includes agricultural products and vehicles), also starting on 6 July. As these two economies edge closer to a full blown trade war, EM currencies will remain on the back foot, with little relief in sight.

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