The Wall Street Journal reports that "Investors unloaded emerging-market currencies Thursday, after weak economic data out of China heightened worries about the developing world's ability to weather the end of easy-money policies''.
''Taking some of the biggest hits were the South African rand, the Turkish lira, Brazilian real and the Argentinian peso.
Chinese demand for years has been a major engine of growth in emerging markets. Many investors are worried that any hiccups in Chinese growth could create even bigger headwinds in slowing economies such as South Africa and Brazil, which send raw materials to China. There are also fears that flagging growth will exacerbate the social unrest that has already led investors to pull cash from countries such as Turkey''.
''While many emerging-market currencies have steadily weakened for months, the pace of the selling has picked up this week as investors realize some central banks are running low on foreign-exchange reserves—the ammunition needed to buy currencies''.
At its lowest point Thursday, Argentina's peso plummeted 16% against the dollar, according to CQG. Traders attributed the fall to the absence of Argentina's central bank from currency markets. Officials have for years been supporting the peso, spending billions of dollars of Argentina's foreign-currency reserves in the process. Eventually, the central bank stepped back in by selling dollars Thursday, according to a person familiar with the matter. The currency stabilized at 7.9 pesos to the dollar, down 12% from late Wednesday's price.
The Turkish lira hit a record low of 2.3045 lira to the dollar, according to CQG, even though the country's central bank spent a sizable chunk of its foreign-exchange reserves Thursday to support the currency, analysts and traders said.
In a one-sentence statement Thursday, the central bank said it was taking action in the markets because of "unhealthy price developments." A spokesman declined to comment further.
The lack of confidence in Turkey's central bank led to a domino effect where several emerging-market currencies sold off, said Dan Dorrow, head of research at Faros Trading LLC. "It's a loss of confidence in emerging markets," Mr. Dorrow said. "It's just plain and simple."
The lira's troubles triggered a decline in many other emerging-market currencies, a selloff that was reminiscent of a rout last summer.
The problems in Turkey "brought home the fact that emerging-market central banks are in a pretty difficult situation," said Peter Kinsella, emerging-market currency strategist at Commerzbank. "If these central banks don't get their act together in pretty short order, it could go from a period of adjustment in forex to currency crisis."
The Fed began reducing, or tapering, purchases this month. The move has contributed to a strengthening of the U.S. dollar and high yields on U.S. Treasurys, two factors that dim the allure of emerging markets. The Fed's policy-making committee meets again next week.
Many economists say emerging-market central banks need to raise rates to support their weakened currencies and fight inflation. But higher rates could crimp already tepid growth.
The dollar rose above 11 South African rand for the first time since October 2008. The breach of that threshold added to pressures after the country's platinum miners went on strike Thursday. Already, the country suffers from weak growth, reduced output at its gold and platinum mines and falling commodity prices.
China is one of South Africa's biggest trading partners.
Brazil another big trading partner of China,saw its currency fall to 2.40 reais per dollar
