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‘A clear crescendo’: Emerging-market currencies take a hit; rand down 2.4%

Stand in the way of this one at your peril.

In the long term, a constrained President Trump is likely a boon for emerging markets assets. For now, though, those currencies are struck by a classic dose of nerves from the escalating US political storm, worsened in addition by the latest corruption scandal in Brazil.

Leading the way (down) among the more heavily traded EM currencies, the South African rand is down by 2.4 per cent against the buck, leaving the dollar at ZAR13.51. The Mexican peso is down by just over 2 per cent, with the dollar at MXN19.15, while the Turkish lira is also down by 1.8 per cent at TRY3.63.

Both the rand and the peso are on track for their biggest one-day losses since the week of the US election.

Citi writes:

As much as we believe the degree of panic in the market is exaggerated, there is now a clear crescendo in the amount of noise in the markets. Given the concentration of short-term risk in Latam (the Mexican peso and Brazilian real), and the political developments out of Brazil overnight, the high-yielders in Latam may take the lead in the selloff today, and they will be important bellwethers in the risk-selloff.

The bank said it is therefore trimming its positive exposure on the lira, rouble and rand.

Tim Ash at BlueBay Asset Management also notes:

The classic adage of markets being able to price risk but not uncertainty comes into play today, finally, around US political events. They simply do not know which way this is going to go.