Big Moves In Emerging Market Currencies

The Chinese yuan has lost 1.6% against the US dollar since end-January, in line with our Asia team's long-held view that multi-year yuan appreciation was not a one-way bet. While the currency is unlikely to continue depreciating at this pace, Beijing's shift towards a wider trading band for the renminbi implies a period of extended yuan volatility.

Elsewhere, the picture for emerging market currencies (EM FX) is mixed, with some of the larger current account deficit currencies – the Turkish lira (TRY), South African rand (ZAR), and Brazilian real (BRL) – holding up pretty well in recent trading (ZAR and BRL are actually looking technically quite strong against the greenback), while any remaining confidence in higher risk EM FX – the Ukrainian hryvnia (UAH), Argentinean peso (ARS), and Venezuelan bolivar (VEF) – is rapidly evaporating.

From a strategic perspective, we remain long-term dollar bulls, as the eventual withdrawal of US Fed stimulus and lower commodity prices will continue to expose fragility in many EM economies. In terms of relative EM FX plays, one cross rate that has caught our attention of late is RUB/TRY, which, from a technical perspective, looks poised at some point soon for a move in the lira's favour.

While both Turkey and Russia face substantial macro risks, we still believe Turkey retains the more attractive long-term investment story. A break through lira resistance around RUB16.20/TRY would coincide with our bearish stance towards oil prices, although for now we still expect further lira weakness against the US dollar.

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This Week's Question

Last week's knowledge question was as follows: Which central and eastern European autonomous region declared independence three weeks short of 75 years ago, but was immediately invaded by a neighbouring state and annexed the next day? The answer is Carpatho-Ukraine, which seceded from Czechoslovakia in mid-March 1939, only to be immediately taken over by Hungary.

This week's questions are prompted by recent events in Ukraine: 1) When did the last survivor of the Crimean War (1853-1856) die? (Hint: It was surprisingly recently, but there's a twist) And, 2) In which country, very far from Ukraine, is there a self-styled revolutionary leader who shares the surname of Ukraine's recently released former prime minister?