JOHANNESBURG — South Africa’s rand fell 0,8% yesterday, joining the rupee and rupiah in their tumble against the dollar, while emerging equities lost 1% as US Treasury yields rose to new two-year highs.
The fierce sell-off that has hit some emerging assets shows no sign of abating because the market is increasingly convinced that the US Federal Reserve will start reducing its stimulus programme from next month.
Developing countries with big funding deficits are taking the most heat.
The rand, already the biggest faller this year among emerging currencies, hit six-week lows versus the dollar, with the pressure on it exacerbated by the threat of fresh labour strife.
“We see the dollar being bid against emerging currencies and US yields pushing higher.
“Those currencies where there are concerns about outflows from stocks and bonds are getting hit most,” Guillaume Salomon, a strategist at Société Générale, said.
“India and South Africa are the two currencies that are most at risk. . .
“The end game is that as long as the currency trades with a weak bias, concerns about outflows will remain.”
The Indian rupee hit a new record low against the dollar, impervious to the policy steps taken in its defence, while Indonesia’s rupiah sank to four-year lows
after data showed the country running a bigger than expected current account deficit.
Both currencies fell more than 1% while credit default swops on the State Bank of India, used as a proxy for the sovereign, jumped 45bps.
Stock and bond markets in both countries suffered heavy losses, with the Jakarta index down 3% and Mumbai losing 2%. Ten-year bond yields in both countries surged to 2011 highs.
Broader emerging equities fell to 10-day lows. Johannesburg stock markets stayed close to record highs, but in dollar terms the index has lost more than 11% this year. South African bond yields rose to one-year highs.
In emerging Europe, the Polish zloty was the biggest loser, falling almost half a percent to the euro.
The Turkish lira is in focus ahead of today’s central bank meeting, which some think could yield a 75 basis point widening of the interest rate corridor, although most expect no change.
Turkey’s currency defence has been seen as successful, with the lira flat against the dollar yesterday, despite a current account gap that is bigger than in India.