Although it hasn't been given much attention during the last month with all eyes on China's economy and the Federal Reserve, the forex market is hardly immune from these developments in the global economy. There are even reason to believe that emerging market currencies now behave more closely to their developed market counterparts than not.
Indonesia's currency reversed losses this week after the Bank of Indonesia, the country's central bank, began selling dollars on Thursday to support the rupiah. The rupiah rebounded after touching a 17-year low, though India's Economic Times cited experts who believe the surge for Asian currencies could be temporary.
The Japanese currency saw safe haven demand during the week as global equities slid; despite its relatively weak exchange rate, the yen is a major global trade currency that the markets have come to trust. After touching a 3-month high of nearly ¥118 per dollar, the yen has since eased back to about 121 to the dollar.
The EMU's common currency whipsawed this week in tandem with European stocks, initially seeing demand as a safe haven from global volatility before sinking from a high near $1.16 to below $1.12 on Friday. More quantitative easing from the ECB could spell another slump for the eurozone currency.
China's manipulation of its currency (alternately known as the renminbi) is well-known, but the dramatic series of movements on the markets this month also coincided with a 2% devaluation for the yuan. Although the move was supposedly intended to allow the yuan to find its true free-market equilibrium, the People's Bank of China has since intervened to keep the renminbi propped up around 6.4/$.
Russia's currency slid back on Friday after surging on Thursday to its best day in 6 years (+4%) thanks to the 10.25% jump in crude oil prices. Because oil exports make up such a large portion of the Russian economy, the fate of the ruble depends largely on how oil performs. Economic sanctions by the West haven't helped matters, either, as the central bank battled selloffs of the ruble for much of 2014.
The South Korean currency saw demand as the country's exporters bought up won in order to settle month-end contracts. The won's upside was subdued, however, by foreign investors dumping shares of Korean firms to the tune of 4 trillion won, or $3.5 billion. The currency has been weaker of late due to tensions with North Korea and the potential sale of British grocer Tesco's South Korean division.
Similar to South Korea, major exporters in Taiwan helped support the local currency by buying them up in preparation for month-end contract settlements. The Taiwan dollar also advanced on fresh foreign investment in the country's equities.
The New Zealand dollar—informally, the "kiwi"—lost more than 3% this week, following Chinese markets lower. This follows respective losses of 6.1% and 2.7% in June and July. Yet, at an exchange rate against the U.S. dollar within shouting distance of 65 cents (compared to 71 cents for the Aussie dollar), the Reserve Bank of New Zealand remains confident that the kiwi will stabilize.
The Venezuelan currency has been battling massive inflation that was set in place by years of socialist policies that encouraged ever-greater money printing and spending increases. Estimates from on the ground (as government data is wholly unreliable) puts annual inflation around 700%. The bolivar did fine when crude oil prices (Venezuela is an OPEC member) were riding high above $100 per barrel, but now that prices have fallen to just $40/bbl, the country's economy is cratering.
The dollar advanced 2.8% this week, firming up to about 96.0 on the DXY index. As the global forex market tends to follow wherever the USD goes, all eyes will be trained on the Fed summit in Jackson Hole, Wyoming, which extends into Saturday. Although expectations for big announcements are tempered by the absence of Fed Chairwoman Janet Yellen and ECB President Mario Draghi, there will still surely be signals about central banking policy at the meeting. An important exchange is expected between Fed Vice Chair Stanley Fischer and Bank of England Governor Mark Carney in a panel discussion that will also involve ECB Vice President Vitor Constancio and Bank of India Governor Raghuram Rajan.