Rand plunges to 2-year low as Turkish crisis hits emerging markets

13 August, 2018, 14:28 | Author: Regina Silva
  • Syndicate Post image

By 1903 GMT on Sunday - early Monday morning in the Asia Pacific - the lira was at 7.06 against the dollar, after touching 7.24 earlier.

As investors dumped riskier assets, emerging market forex continued to reel as investors anxious about contagion.

Stock markets around Asia are lower, U.S. stock futures are down, and high quality bonds are rallying.

The volatility in the lira has started to spill into other emerging markets (EM).

The currency tumbled to a record low of around 7.20 lira against the dollar late on Sunday after Erdogan warned of drastic measures if businesses withdraw foreign currency from banks.

Hong Kong's Hang Seng index was down nearly 1.6% in afternoon trade, while the Shanghai Composite fell 1.7%.

World markets shuddered on Monday, as Turkey's worsening currency crisis persuaded investors to dump equities and emerging markets and flee to safer assets such as government bonds and the dollar. United States stocks were also rattled. Dow futures were down by 0.47%, or around 118 points, while futures for the broader S&P500 were down 0.38%.

"The market has woken up quite late to this (the Turkey crisis)", he said.

Here's the chart showing USD/TRY over the past week.

Recep Tayyip Erdogan
The Turkish president has struck a defiant tone

That could be a big blow for emerging markets more broadly, but one analyst told Reuters, with a GDP smaller than the Netherlands, spillover from Turkey may be modest.

But, investors in the public cryptocurrency exchange market have full authority over their funds and are free to sell their holdings of Bitcoin to other foreign currencies like the United States dollar, Japanese yen, and the South korean won.

The central bank has over the last weeks defied calls from markets for rate hikes to combat these problems, raising fears of interference from Erdogan who has repeatedly called for low interest rates.

A short time ago, the U.S. dollar was around 1% higher against the Indonesian rupia, and had also gained ground against the Indian rupee and Argentinian peso. "A strong dollar will cause some dissonance and the trend will continue throughout this week".

After opening in negative territory, Australian stocks have continued to slide and a short time ago the ASX200 was around 0.5% lower. The S&P 500 was down 20.3 points, closing at 2,833.28.

Hang Seng 28,010.09, -1.71%.

Ankara and Washington also disagree over their military interventions in the Syria war, Turkey's plan to buy missile defense systems from Russian Federation as well as the U.S. conviction of a Turkish state bank executive on sanctions-busting charges in January. "These banks are thought to have the greatest exposure to Turkish debt and their loans are unhedged".

The conventional response to a collapse in the currency and a surge in imported inflation is to raise interest rates.

Friday evening, the USA issued a proclamation officially announcing the doubling of steel tariffs on Turkey, planned to go into effect Monday, according to global media reports.

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