TRADE WAR ADDS FUEL TO ROUT IN EMERGING MARKET
CURRENCIES
The emerging market currency crisis is deepening to the detriment of U.S. farmers. Since we last wrote about the issue in May, the Argentine peso has fallen an additional 10% and the Brazilian real is down another 5%. Of potentially even greater consequence, however, the Chinese renminbi is nearly 10% below its value in April (Figure 1). These currency moves have coincided with a sharp fall in the prices of corn and soybeans – a slide that has been exacerbated by the U.S. trade conflict with China and Mexico.
Figure 1: Year to Date versus USD: January 1, 2018 = 100 100
105 100 95 90 85 80 75 70 65 60
Plunging emerging market currencies shouldn’t come in emerging market currencies with interest-free loans in U.S. dollars. Now that the Federal Reserve has increased rates seven times and plans several more hikes, these types of currency carry trades are unwinding.
Emerging market currencies often have problems following the Fed tightening monetary policy. Latin America was plunged into a decades-long economic depression following the Fed Chair Paul Volcker’s the Mexican peso collapsed and was followed a few years later by the Asian and Russian currency crises. the prices of agricultural goods. During that time, the
The current trade war and high debt levels exacerbate billion of China’s exports to the United States should
Jan 18 Source: Bloomberg Professional Feb 18
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28 | ADMISI - The Ghost In The Machine | July/August 2018
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