Currency Volatility Tracker

Currency Volatility Erupts in Latin America

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Venezuela and Argentina were the two most volatile currencies in the world in the 2nd quarter as the result of major declines against the dollar.

Latin America has replaced Africa as the region with the world's most volatile currencies as emerging markets worldwide come under greater stress.

Venezuela and Argentina, two of Latin America's most unstable and anti-market economies in recent years, are in trouble once again as their respective currencies were the most volatile in the world during the second quarter of 2018, according to the Currency Volatility Index (CVI).  Emerging markets have come under pressure amid a strengthening dollar, higher U.S. interest rates and growing trade tensions.

Overall, index volatility was up 1.67 percent from the 1.50 percent average in the year's opening quarter, an 11 percent increase in volatility.  Typically, African currencies are the main drivers of volatility but this quarter some of the world's biggest emerging markets were the reason as four of the ten most volatile currencies were emerging market countries Turkey, Brazil, South Africa and Mexico.  Argentina, which will regain its emerging market status with the Morgan Stanley Classification Index (MSCI) in May of next year, would have been the fifth. 

Money continues to poor out of Venezuela with the country's currency, the bolivar fuerte, falling 93.3 percent against the dollar from April through June to an all-time low of 95,860 to the dollar.  The second quarter decline is on top of a massive devaluation that took place in February when the country discarded its tiered-currency structure in favor a single floating currency rate.

Argentina's peso continued to fall reaching another all-time low of 28.937 against the dollar, as of June 29th, the final day of second quarter currency tabulations in the CVI. By all indicators, investors are becoming more uneasy with the lack of progress shown by the Macri government in pushing through much needed free market reforms in a country that, like Venezuela, has shunned the free market for most of the past 20 years.   

But the big story is the accelarating decline of emerging market currencies in the second quarter of 2018 led by Brazil, South Africa and Turkey all with declines of 16 percent or more against the dollar and the sudden decline in China's currency, which fell 5.27%, the largest quarterly drop in that country's currency since CreditPulse began tracking currencies in 2010.  Just last quarter, the yuan was up 3.12 percent against the greenback.

The average value of all 23 emerging market currencies has fallen over the past six months 6.03%, led by by Turkey whose currency has declined 22% so far this year.  Brazil, the largest country in Latin America, saw its currency fall 19% in the first half of the year.  Colombia's peso was the only emerging market currency that hasn't declined in the past six months other than Qatar and UAE, two countries that fix the values of their currencies to the U.S. dollar.

The currency volatility in Latin America is so severe that even Uruguay, a small country that is normally insulated from the currency problems of its two larger neighbors -- Brazil and Argentina -- saw the value of its peso fall 10.5% to create a volatility rate of 4.63%, which ranked fifth among all world currencies.

Turkey's lira has been in rapid decline for the past three quarters over concerns about the direction the country is taking under President Recep Tayyip Erdogan and his growing influence over the central bank.  Erdogan wants to the Turkish central bank to lower rates, which are currently at 17.75% even though inflation is running at 15.4%.