More On EM Currencies Weakening23 September, 2011, 2:26. Posted by Zarathustra
I flagged yesterday that South Korea is selling US dollar to counter the slide in Korean Won.
In fact, we are seeing more EM currencies weakening, which is actually very understandable (well in fact, everything but US dollar and Japanese Yen is weakening, so it seems). FT Beyond Brics points out that the Brazilian Central Bank was selling dollars. Also the Polish Zloty is being hammered.
Meanwhile, Hong Kong dollar crossed the 7.8 mark before strengthening somewhat. Of course, I have also just flagged that the non-deliverable forward contracts are pricing in a depreciation of Chinese Yuan.
What does that mean? There might be some selling into the markets which have been doing well for the past year or so as investors are trying to cover the losses they made elsewhere. Deleveraging in US and EU will also mean more demand for US dollar and Euro.
The implication for those countries with a peg to the US dollar, a strong dollar with a capital outflow will be deflationary.