Emerging Market Currencies Deliver Big Opportunities for Investors in Q1

April 5, 2017

Rand Down: Plummeting South African Currency Has OFXers Cashing In

The South African rand (ZAR) took three hits in recent weeks off the back of President Jacob Zuma recalling and subsequently firing his finance minister. Shortly after, the S&P downgraded the country’s credit rating to junk status. (Junk debt is debt with a long-term rating of BB+ or lower.) In the wake of the rand dropping 10% against the USD, OFX is seeing surging sales of ZAR as customers snap up the discounted currency.

Compared to previous weeks, sales of rand have more than doubled at OFX as savvy customers cash in on the rand’s decline. As an emerging market currency, the rand is also one of the most volatile of the commodity currencies (currencies whose value is heavily influenced by commodity prices such as the AUD and CAD.) One thing’s for sure: the new Treasury chief, Malusi Gigaba, has his work cut out for him.

Taco ‘bout a Comeback

Meanwhile, on the other side of the earth, it’s a very different story as the Mexican peso (MXN) posted a massive quarterly gain against the USD, the likes of which haven’t been seen since 1977. Trump’s election caused a Titanic-esque sinking of the peso, but it has seen a rapid resurgence in the first quarter this year up 10.8% against the USD.

Trump’s rhetoric against Mexico has softened during his time in office. When he failed to gain support for other key initiatives, the peso continued its steady recovery. With Banxico, the Mexican central bank, raising interest rates last week, the peso’s gains increased again. Embracing emerging markets as they seek out higher gains, bullish traders are helping the peso return to pre-Trump nomination levels.

Turkish Delight?

Since mid 2016, the Turkish lira (TRY) is down 25% against the USD after a failed military coup in July 2016. In Turkey, inflation hit 11.29% in March with food and alcohol prices up nearly 22%.1 While the political turmoil has taken a heavy toll on President Erdogan and the lira, it’s not all doom and gloom in Turkey. GDP shows the economy expanding by 3.5% in Q4 and manufacturing is holding strong. It’s a risk/reward conundrum for investors looking to snap up affordable investment opportunities.

But wait, there’s more. On April 16, Turkey will vote in a critical constitutional referendum that will either maintain the fragile parliamentary system or grant a mandate for sweeping executive presidential powers with the ability to bypass parliament completely. The question on everyone’s mind is: will Turkey swing away from its current democratic system and if it does, how much faith is the world willing to put in Erdogan?
 

What Does This Mean For Your Money?

Emerging markets may present some of the most unique overseas investment opportunities available right now, but volatility can increase the risk profile. To protect your future investment, consider using a Forward Contract to lock in an exchange rate for up to 12 months.*

In terms of your personal budget, currency swings can make a profound difference if you have overseas ties. If you’re tired of excessive bank margins on the exchange rate, create an account with OFX today, so you’re ready to move when the rate is right.

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Sources:

  1. https://www.ft.com/content/3de40fc0-90b4-3e93-916b-b6dbd6c1ad13/

*Not available for Turkish lira