Virus Concerns in Emerging Markets Lower Oil Prices and Drag Currencies

On Monday, the South African rand, the Russian rouble and Mexican peso were leading losses in currencies across emerging markets, as risky assets roiled globally due to a new strain of the coronavirus that spreads rapidly shut down most of the United Kingdom. Boris Johnson, the British Prime Minister, warned that the new coronavirus strain was highly infectious and was a danger to the country. After this warning, Britain was mostly shut off from Europe, as its closest allies decided to cut transport ties. There was a 2% drop in currencies of oil exporters Mexico and Russia against a US dollar that remained surprisingly steady.

Moreover, there was a 3% slump in crude prices due to concerns of a slower recovery in fuel demand as COVID-19 restrictions were tightened all across Europe. There was also a 1.6% loss in the South African Rand after a coronavirus strain, much like the one reported in the United Kingdom, was pushing a second wave of cases in the country. This prompted some countries to add South Africa’s name in their travel bans. Currency analysts said that large losses had been seen in the South African rand and the high beta Russian rouble overnight because markets were scaling back their exposure to riskier assets.

They said that the primary reason for the correction was due to the release of additional details about the new coronavirus strain that has been found in England. On Sunday, the incoming chief of staff for the White House said that the response of US President-elect Joe Biden to the huge hacking campaign by Russia that was unearthed last week wouldn’t just involve sanctions imposed on the country. He said that the response would go beyond the sanctions and this also added pressure on the rouble.

There was also a decline in central European currencies against the euro, with the Czech crown, Polish zloty and the Hungarian forint trading lower in the range of 0.5% and 1.5%. There was a 0.7% dip in the Turkish Lira, which came after gains in six sessions straight. This was after data indicated that the consumer confidence index of the country remained unchanged, as opposed to a month earlier, because the country had introduced new and stricter restrictions on movement. There was also a 0.7% drop in the MSCI’s basket of stocks of the emerging markets, as an increase in fresh lockdowns and a surge in COVID-19 cases increased fears of more economic issues.

This ended up offsetting any optimism that had emerged because of a fresh stimulus package in the US. On Sunday, the US Congressional leaders had finally come to an agreement on an aid package worth $900 billion for providing the first fresh aid in months to individuals and an economy that has been hammered by the increasing coronavirus pandemic. The news of the new coronavirus strain seems to be wreaking havoc across countries all over the world and it can push the economy down even further.