April 28, 2022 15:20 GMT
- The sharp depreciation in the Chinese Yuan in the past two week has been weighing on all EM currencies.
- USDCNYbroke above the 6.60 resistance earlier and is up nearly 4% since the start of its rally last week.
- The chart below shows that all EM currencies are down against the USD in the second half of April (excluding RUB).
- ‘Risk on’ ZAR is the worst performing currency,down nearly 9% against the US Dollar.
- We previously saw the CNY weakness has been the major driver of ZAR lately (correlation between CNY and ZAR surges when implied vol on CNY spikes).
- We have also seen a significant reversal in Latam currencies in the past two week (BRL and COP), which were the strongest performers in Q1, driven by elevated nominal yields and aggressive tightening run by local central banks.
- COP is the second weakest performing currency among the EM world (-6.7%), shortly followed by BRL (-6.2%).