Argentina’s peso fell 12 percent yesterday to 7.8825 per U.S. dollar, marking its biggest decline since a devaluation in 2002. The central bank pared dollar sales aimed at propping up the peso to preserve international reserves that have fallen to a seven-year low. Today, the bank said it would lift currency controls and allow the purchase of dollars for savings starting next week.
Fatal Protests
Venezuela devalued its currency for airline tickets and incoming foreign direct investment on Jan. 22. Its international reserves are at a 10-year low. Ukraine’s hryvnia slumped as Parliament planned to hold an emergency session after anti- government protests led to fatalities this week.
South Africa’s rand tumbled to as low as 11.1949 per dollar today on concern a strike at the world’s biggest platinum mines would dent the country’s exports.
The selloff in emerging-market currencies started in May, when the Fed signaled it may pare the monthly asset purchases that had helped fuel investment in developing nations. Yields on U.S. Treasuries rose in response.
“In an environment of rising U.S. rates, the market is quickly finding out who has been swimming naked,” Dirk Willer, a Latin America strategist at Citigroup, the second-largest currency trader, wrote in a client note. He said it’s “not unreasonable” for the Argentine peso to fall to 14 per dollar.
Buying Opportunities
The recent weakness has created buying opportunities for some emerging markets with stronger economic prospects, according to Marcela Meirelles, a Latin America sovereign strategist at TCW Group Inc.
“This selloff will create eventually good buying opportunities of those EM credits with strong fundamentals and there is still no shortage of them around the world,” Meirelles said in an e-mailed reply to questions.
HSBC recommends clients buy the Mexican peso against the Chilean peso, saying Mexico’s currency will benefit from expansion in the U.S. as efforts to open up the energy industry to outside investment boost its southern neighbor’s long-term growth potential.