emerging economies struggling to strengthen own currencies
How emerging economies are struggling to bring back the strength of their currencies
The strength of US dollar has a significant impact on various economies in many ways, especially in the emerging economies. Appreciation of US dollar mitigates the impact of Gross Domestic Product in the emerging markets such that when the dollar appreciates commodities prices and service costs fall and vice versa. Here are sampled emerging economies whose currency standing has been influenced by the strength of US dollar thus affecting their trades.
Approximately 20% of Colombian revenue is generated through its oil exports and it was estimated that oil sales would total to $ 1.1 billion this year compared to $ 6.7 billion in 2014. This unexpected twist has resulted to the staggering of Colombian Peso against US Dollar. Oil prices have reduced significantly by close to 30 percent due to the poor sales with each barrel being traded at $41.
There has been a major decline in the value of Peruvian Sol against US Dollar. This decline has been characterised by the dwindling export of Copper which is Peru’s most important mineral export by value after Gold. With 13 percent of the world’s copper reserve Peru is the third largest producer of the stone and thus their currency has declined in response to the poor performance of the metal in the markets.
Earlier this year Brazilian currency has gone through unpredictable times when the country’s president was undergoing impeachment period. There had been high projections that Brazil’s currency market would face turmoil due to political difficulties ahead however investors opted to ignore such projection. Known for its high influx of foreign visitors and tourists, Brazil was bound to loose big time. Fortunately, now the Brazilian real has held a steady ground of 3.5 against the dollar. By September last year, it was as weak as 4.17 against the very dollar. Speculations against the government as well as falling oil prices which made money centre banks and investors bail on emerging markets in general. BRL is now said to be stable.
Late last year the Argentine government made an announcement that would end the restrictions that had been placed to control the exchange of currency, imports and exports. Since then, Argentina has been experiencing very vibrant local and international trade. Exceptions and tax waivers on exports and imports have created a rich market and as a result, pesos was selling at 13.95 and bought at 13.75 against the dollar. This new exchange rate equals to 41.8% devaluation, which has made Argentina more attractive to both local and foreign investments.
It is understandable that exchange rates are partially driven by relative interest rates of the countries they have close ties with especially on the investment and trade. Now, when Chile’s interest rates decline there is a smaller flow of funds to be exchanged into Chilean pesos because the Chile interest rate is not attractive to the investors. The exporter is adversely affected if the Chilean peso and other currencies are currencies depreciate while on the other hand it’s favourably affected by the appreciation of any Latin American currencies.
The Mexican peso has been going through instability in the last three months. This back and forth dwindle has been partly contributed by the period of US elections which sent it on a turbulent spree against US dollar. However, it is projected that it’s likely to gain stability as election dust settles in the USA. It was hard hit especially when Donald Trump called for building the wall on Mexico-US border and his threat of withdrawing "USA" from North American Trade Agreement. Things have not settled yet since US new president has not been officially sworn to power. If Trump makes true his threat then Mexico’s financial market is bound to tumble heavily. It is a wait and see affair, though.
When there was a global plunge in oil price in 2015, a situation that evoked a big concern about world’s economic growth, Colombia was one of the most hit countries. It is one of such countries that have been struggling under the pressures of oil prices this, in turn, affected its trade in the export and import markets. Colombian Peso traded weakly against different competitive currencies though it is expected to gain grounds in the wake of steadying oil prices.
The Canadian dollar is increasingly viewed as Petrocurrency due to its dependency on global oil prices. It’s the fifth largest producer of oil which comprises 14% of all its exports. It has been struggling to stay afloat in its financial dealings and that’s why economists predicted that it might bounce back to its feet from the multi-year low in oil prices. The stability of the currency against other strong currencies has never been predictable thus affecting the countries economy.