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6 Currencies to Watch During Market Volatility

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The stomach-churning drop in China’s markets and devaluation of the yuan triggered market volatility that went far beyond China’s borders. Investors watched in horror as equities and currencies alike went on a roller-coaster ride that has continued past the end of August and into September.

While China is still trying to control volatility in its markets and all eyes are on the Fed to see whether it will raise interest rates, other countries’ currencies have been riding a swinging pendulum for weeks, and trying to avoid falling off a cliff.

Emerging markets have been hit particularly hard, though they are by no means alone. However, many EM countries are overly dependent on doing business with China, and the devaluation of the yuan has threatened their economies. As a result, the move by China has set off falls in currencies elsewhere, as some countries seek to offset the damage the yuan devaluation has done by devaluing their own currencies, and others simply fall under traders’ bets.

While many deny that they’re engaging in a “currency war,” the G20 group of nations formally acknowledged the possibility by agreeing “to refrain from competitive devaluations” at a meeting over the Labor Day weekend in Ankara, Turkey. The G20 hasn’t used such specific terms about currency woes since 2013.

Here’s a look at 6 currencies that are experiencing the most volatility or getting the most attention for investors to consider in days to come.

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1. Turkish lira:

The Turkish lira has performed worse this year than any currency outside South America. Since the beginning of the year it’s lost 22%; just since the devaluation of the yuan, it’s lost 7.5%. It’s been 11 years since the currency has seen so many consecutive weeks of descent.

Beset by inflation and political woes, the Turkish economy is probably headed for more trouble. The government faces snap elections in November, which Moody’s says is “credit negative” for the country and will likely keep the existing government from taking any action to resolve the problems it already faces on the home front.

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2. Vietnamese dong:

Vietnam has devalued its own currency, the dong, for the third time this year. The country posted a trade deficit of $300 million in July amid slowing export growth, and other countries in the region have seen their currencies fall by greater proportions than the 4.4% it’s already down.

Earlier devaluations of 1% each in January and May—the same amount as this latest move—brought increased economic growth; the State Bank of Vietnam has said it might take additional steps, particularly if the yuan falls again. The bank is also concerned about the possibility of an increase in interest rates from the Fed.

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3. Malaysian ringgit:

The ringgit has fallen steadily against the dollar, and is down to a 17-year low. One of Malaysia’s problems has been its economy’s heavy dependence on commodities, which of course have taken a beating in recent market turmoil.

That’s taken its toll on the country’s currency, although ironically a fall in currency could prove to help exports other than commodities. There are sufficient concerns over the currency’s health, however, that in late August Malaysian Prime Minister Najib Razak said he would not peg the ringgit to the U.S. dollar despite worries over capital flight. So far this year the ringgit has lost 17% against the dollar.

But the news has not bothered Franklin Templeton, which so far this year has added an aggregate 9.64 billion ringgit ($2.3 billion) to its holdings, bringing the grand total to around 23.1 billion ringgit. In reports, Michael Hasenstab, chief investment officer for Templeton Global Macro, cited the country’s economy, which he said “is far stronger today than it was” during the 1990s Asian financial crisis or even the 2008 financial crisis.

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4. Kazakhstan tenge:

Kazakhstan’s economy is heavily dependent on oil (it’s the second largest producer, after Russia, in central Asia), so the plunge in oil prices has hit the country’s economy hard. The devaluation of the yuan made the situation worse, as surrounding economies devalued their own currencies in efforts to stay competitive, and in late August Kazakhstan let the tenge float free. It dropped 26.2%.

Kazakhstan has been suffering for other reasons, too. Its economy has also taken a punch from falling commodity prices. The drop in the value of the Russian ruble hasn’t helped, either. And despite the floating tenge, the country looks likely to continue to suffer till things improve on one or more of those fronts.

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5. Saudi riyal:

While Saudi Arabia has said it has no plans to drop its peg to the dollar, investors haven’t been so sure, especially considering the country’s oil-dependent economy. One-year forward contracts indicate that some, at least, are betting that the country will follow downward movements in other nations’ currencies in the wake of the yuan devaluation.

The country isn’t solely reliant on oil, however. According to the Emirates NBD and Markit Economics Purchasing Managers Index, non-oil business activity reached a five-month high in August. Still, Fitch Ratings cut its long-term foreign and local currency issuer default ratings (IDR) to negative from stable—although it also said in a statement, “Fitch does not foresee any change to the exchange rate peg to the dollar, which provides a key policy anchor, even though it constrains policy flexibility.”

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6. Russian Ruble:

Russia thought it could divert its troubles by turning east instead of west after sanctions hit. But China threw the Kremlin a big curve with its own economic slowdown and subsequent devaluation of the yuan. Now Russia is left hanging, its own economy laboring under the burdens of low-priced oil and heavy sanctions, and the toll on the ruble has increased.

The currency was already in trouble before this latest market contretemps; now, over the past year, it’s lost more than 45% of its value against the dollar. Now it looks as if the Russian central bank will have to abandon plans to lower interest rates, and hope that arguments with China over what it’s to be paid for imports of its commodities will not inflict further economic damage. With both countries’ currency values in flux, those arguments are liable to take a while.