Why Are Emerging Market Currencies Falling?

https://youtu.be/xG-8nMTIwLs http://www.forexconspiracyreport.com/why-are-emerging-market-currencies-falling/ Why Are Emerging Market Currencies Falling? Just a few years ago emerging market economies were on the rise and their currencies were outpacing the US dollar. So, why are emerging market currencies falling and why are many of their economies in shambles? The answer lies in the stalling of the Chinese economy and US interest rates. Bloomberg reports that comments by Chairman Yellen of the US Federal Reserve have hurt emerging market currencies as US interest rates are seen rising. Most Emerging-market currencies fell, extending their worst monthly decline since August, as mounting signs the Federal Reserve will raise interest rates in June or July diminished the allure of higher-yielding assets. Asian currencies led the retreat after Fed Chair Janet Yellen said the strengthening U.S. economy would probably warrant an increase in borrowing costs “in the coming months.” The US Federal Reserve is obligated, among other tasks, to contain the threat of inflation. The most commonly used tool is interest rates. After a ten year hiatus the Fed raised interest rates in December of 2015 and is likely to raise them at least one or two more times this year. When interest rates go up so does the value of the currency to which those rates apply. But are interest rates the only part of the puzzle? What happened to emerging market economies? Oil and Other Commodities One of the nations whose currency did not fall on Yellen’s comments about interest rates was Russia. The rising price of oil has helped the Ruble. Reuters reports that oil prices edge higher in current trading. Oil prices inched up toward $50 a barrel on Monday, although uncertainty ahead of an OPEC producer-group meeting later in the week was expected to cap gains. The point is that countries that see their exports rise and see hard currency flowing in will buck the trend of emerging market currencies falling. But why is it that oil as well as other commodities have taken a beating in the last year or so? China Growth Peters Out China was the wonder of the economic world for decades as its economy grew based on cheap labor, foreign investment, central planning and lots of debt. Unfortunately for China the Great Recession reduced the buying power of all of its customers. And then China cut back of imports of commodities which in turn hurt emerging market economies. Although the Chinese economy is still growing it is nowhere near the 10% per year growth days and probably nowhere near the official 7% figure. Many economies expect to see China’s economy growing at rates similar to North America and Europe by 2020. Falling emerging market currencies are a reflection of this situation. How long with this last and will the Chinese leadership fix things without a hard landing? Fortune says that the Chinese economic rebound is losing momentum. After showing some hope in March, China’s economy was back to its malaise in April. New data released today shows industrial profits slowed way down in the month. Industrial profit growth slowed to 4.2% year-over-year, down almost 7 percentage points. Profit growth at state-owned enterprises fell to -7.8%. Combined with lower sales growth and investment returns, this drop reversed the strong business rebound in March. This comes after earlier data showed the country’s investment, factory output, and retail sales all missed estimates in April. The suspicion is that things are worse in China that expected and worse that then government lets on. This spells disaster not only for China but for emerging markets who have been waiting for Chinese customers to come back.

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