Emerging market (EM) currencies have had a rough ride recently, adding to what was already shaping up to be a poor year. Our synthetic EM exchange rate index is down by 1.5% against the dollar in the past month and by 5.5% since the start of the year as investors have become more risk averse. Looking ahead, of the five economies that were hit hardest during last year’s “Taper Tantrum”, Turkey, Brazil, South Africa and Indonesia, with their large current account deficits, still stand out as being vulnerable to Fed rate hikes. The sharp fall in India’s current account deficit over the past year should make it less exposed when the Fed tightens.
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