EM currencies take a beating on China worries

The impact of China’s renminbi devaluation is continuing to be felt across emerging markets. The Kazakh central bank today scrapped its trading band for the tenge, which subsequently fell by over 20% against the US dollar. The move follows hot on the heels of Vietnam’s decision to widen the dong trading band with the dollar. The devaluation of the renminbi, which has led to renewed fears over the health of the Chinese economy, has also contributed to the big falls in the currencies of major commodity producers, notably the Russian rouble and the Malaysian ringgit. The Renminbi devaluation has sparked fears (unfounded in our view) of a currency war, which helps to explain the recent falls in currencies of countries with strong trade ties to China, namely the Taiwan dollar. Not every country has been affected, though. Currencies in Central Europe have actually appreciated against the US dollar since the devaluation.