Published On: Wed, Dec 5th, 2012

Emerging Market Currencies Fall

The gross domestic product report for the third quarter shows that Brazil’s economy grew at half of the rate previously expected.  Prior to the report, most analysts believed that the economy would grow 1.2 percent. Instead, it grew at only 0.6 percent and the second quarter GDP report was revised to reflect just 0.2 percent growth. Investors are now betting that the government will be more amenable to a weaker real in order to boost export growth.
After the release of third quarter GDP, the Brazilian real weakened by 1.57 percent to 2.1299 versus the United States dollar. In addition to lower GDP, the real was hurt by dollar outflows. At the end of the month, companies based around the world normally send their profits abroad. As the government attempts a weaker real, the reserve bank will have to be careful to prevent inflation from erasing any gains made by the economy.
Latin American Currencies
With the political stalemate over government debt in the United States, many risk currencies have suffered. The Mexican peso erased recent gains and fell by 0.13 percent to 12.9640 against the greenback. The central bank in Mexico chose not to embark on an increase in interest rates. This decision arrived just one day before President-elect Enrique Pena Nieto is expected to take office. As the leader of the Institutional Revolutionary Party, Enrique Pena Nieto is attempting to heal the party’s reputation for corruption and authoritarian rule. From 1929 to 2000, the Institutional Revolutionary Party has been hurt by rumors of vote-rigging and widespread corruption.
In Chile, the peso dropped by 0.37 percent to end at US$8.01. The Columbian peso retreated by a mere 0.01 percent to 1,815.0000 while the Peruvian sol fell by 0.08 percent to 2.57 percent. Since the beginning of the year, the Argentinean peso has lost 26.32 percent against the greenback. In yesterday’s session, it retreated by 0.31 percent to a level of 6.4200 versus the United States dollar.
Indian Rupee Rises
In the last three sessions, the Indian rupee has managed to reach a three-week high against the dollar. For a brief period of time, the rupee was trading at 54.26 per United States dollar. Over the previous three sessions, India’s currency has managed to gain 147 paise, or 2.64 percent. Some of the gains were attributed to exporters betting on the greenback falling further in value. At the same time, the BSE benchmark Sensex advanced by 169 points to 19,339.39.
During the session, the rupee ended at 87.09 against the United Kingdom’s pound. Its overnight close was at 87.85. Versus the euro, it advanced from 71.24 to its new level of 70.62. The rupee also appreciated to 65.63 per 100 yen from the previous day’s close of 66.81.
Foreign exchange reserves in India advanced by $1.45 billion to a new level of $294.98 billion for the week ending on November 23. In the previous week, reserves fell by $32.7 million to $293.53 billion. One of the major components of foreign exchange reserves, foreign currency assets (FCA), gained by $1.44 billion to $260.13 billion. Since FCAs are reflected in United States dollars, the appreciation of other currencies held in by the Reserve Bank of India can be effected. Gold reserves in the nation remained basically unchanged at $28.19 billion.
Emerging Markets in Europe
With the debt issues in the United States taking center stage, many emerging market currencies in Europe weakened on Friday. The Czech koruna fell by 0.2 percent versus the euro while the Hungarian forint dropped 0.5 percent. The euro currently fetches 281.30 against the Hungarian forint and 25.258 versus the Czech koruna.
Poland’s currency dropped by 0.3 percent against the euro. Many analysts believe that the central bank in Poland will drop interest rates by 25 basis points. The bank is expected to meet on December 5 and adopt a rate of 4.25 percent. On Friday, the third quarter GDP report showed that Poland experienced its third consecutive quarter of declines.
In Turkey, the trade deficit for October was reported at $5.5 billion. The lira dropped during the session. By the end of the day, the dollar was trading at 1.7873 versus the Turkish lira. On Thursday, it closed at 1.7861.
In South Africa, the rand achieved the nebulous honor of being the worst-performing emerging market currency for the session. The South Africa Revenue Service released data showing a deficit increase of 54 percent from September to October. Coupled with lower metal exports, the news darkened the outlook for the country’s economy. The greenback traded at 8.9063 rand on Friday from a level of 8.7868 on Thursday evening.
Forex Inflows in Nigeria
The Central Bank of Nigeria recently released data showing a total foreign exchange inflow of $35.44 billion by June of this year. In June 2011, this number was just $28.85 billion. Much of the gains were attributed to an increase in autonomous inflows and crude oil sales.
The Nigerian government currently retains revenue of N1.742 trillion. This is 12.4 percent lower than the budget estimate, but higher than the first two quarters of 2011 by 33.4 percent. Nigeria collected N5.577 trillion in federal revenue for the first two quarters of the year and boasted an aggregate expenditure of N2.024. Aggregate expenditure was 20.9 percent lower than the proportionate budget estimate, but higher than the same time frame in 2011. Overall, oil revenue was the source of 78.1 percent of government revenue.
Government debt rose by 17.6 percent from June 2011 to June 2012. In the report, the Nigerian government stated that debt was at N7.103 trillion. Of this amount, N6.153trillion was from domestic sources while $6.04 billion was sources externally.
According to the reserve bank of Nigeria, the bank took extra steps to insure that banking and financial sectors remained stable. By the end of 2012, the nation saw the volume and value of cleared checks drop by 12.5 percent and 12.1 percent, respectively.  Most of this change was a result of the increased use of electronic channels.
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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.