EM Currencies at Risk of Runaway U.S. Dollar

The runaway U.S. dollar is putting many emerging markets in a precarious position, warns Oxford Economics, identifying Malaysia, Chile, Turkey, Venezuela and Russia as the most vulnerable.

“A simple textbook view of the issue might be that a rise in the dollar’s value could be good for emerging markets as it would improve their export competitiveness vis-à-vis the U.S.,” Adam Slater, senior economist at Oxford Economics wrote in a report.

“[But], there are a number of channels through which a stronger dollar may damage growth in emerging market countries,” he said, noting it increases the burden of dollar-denominated debt, lowers commodity prices and chokes off capital inflows.