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Riku Tanaka
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Forex
April 6 19:50

New and Struggling Currencies Threatened by COVID-19 Maintain Downward Course

Emerging-market currencies that were being hammered by COVID-19 aftermath may have to confront a new round of sell-offs with the fresh arrival of information that projects a major drawdown in Forex reserves
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Emerging-market currencies that were being hammered by COVID-19 aftermath may have to confront a new round of sell-offs with the fresh arrival of information that projects a major drawdown in Forex reserves. The weekly data is set to come out from Mexico on Monday (Apr 6), while Indonesia, Taiwan, the Philippines, China, Malaysia, South Africa and Russia well release their reports the following global day (Apr 7). All this follows the US$9 billion March drop in the South Korean economy and a US$6 billion decrease for India since February ended.

National banks in up-and-coming economies are bringing out their reserve funds in order to restrain the decrease in their currencies as the coronavirus crisis triggers the scramble into the U.S. dollar as a safe haven. The dropping reserves underline the struggle they face as the emerging-market nations attempt to balance retaining stability in the midst of capital outsurges, and having something left over to fight future battles. “I expect more weakness ahead for EM currencies as demand for dollars will remain strong,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore “We can expect to see reserves decline further as central banks continue to smooth FX moves and provide liquidity to the market.”

While most of the aforementioned national banks have larger amounts in reserve than they did during the Asian financial crisis of 1998 and the global recession of 2008, the big picture of the global economy and its future remains unclear.

The US Federal Reserve's swap lines and new office, through which foreign countries can procure their much-needed dollars utilizing Treasury holdings, will help facilitate the process of securing the safe-haven currency. Be that as it may, the projections that the COVID-19 crisis will cause a worldwide recession are maintaining the danger of capital flight in the most vulnerable developing markets. Global assets have downsized stock interests in South Korea, Brazil and Turkey, while auctioning off bonds in nations such as India and Indonesia. The Mexican peso plummeted to a record low on Monday in the midst of the letdown over the administration's stimulus proposals. The country's reserves stay almost a record high as officials seem hesitant to touch them, while Brazilian and Turkish reserves have been consistently dropping.

 The quicker than-anticipated disintegration of the Russian reserves likewise muddles the projection for the fate of the ruble, given the fact that oil prices are still vulnerable to the market-share war with Saudi Arabia. Meanwhile India's national bank has been utilizing its record amount of foreign-currency reserves to safeguard the rupee.