Three Thoughts From London – Don’t Go Chasing Waterfalls

1/ Imagine a river in a late summer morning.
2/ Upstream, the Kazakstan tenge fell 23% overnight, with the country reportedly adopting a free floating currency regime.
3/ Downstream, countries have begun to put up a fight against currency depreciation – with varying degrees of success.

1/ Imagine a river in a late summer morning. A diverse group of bathers enter its crystal clear waters from different points along its margins. Some relax and enjoy the ride, letting the warm currents take them. Others fight the flow right from the start; they dig their feet into the fine riverbed sand or try to paddle upstream. The distance between the swimmers grows. Tired and afraid to be left behind, many of the swimmers upstream capitulate, letting the river drag them faster into the waters below. Downstream, meanwhile, the current is moving at a vertiginous speed; swimmers start to fight the turbulent waters in fear of drowning or being thrown against the rocks – some fare better than others. Let’s just hope there is no waterfall.

2/ Upstream, the Kazakstan tenge fell 23% overnight, with the country reportedly adopting a free floating currency regime. Yesterday, Vietnam widened its trading band by an additional 1%, the third such move this year. Just last week, China changed its FX regime, letting the currency experience a small adjustment. And much before that, Russia had been moving toward a freer exchange rate regime. And there could be a lot more adjustments still to come.

3/ Downstream, countries have begun to put up a fight against currency depreciation – with varying degrees of success. Brazil’s central bank changed its FX intervention policy, reversing the earlier trend by fully rolling over its dollar selling swap program. Turkey and Mexico hold auctions to sell dollars, and the latter has vowed to hike rates with the Fed to keep interest rate differentials from narrowing too much. The likes of Russia, Malaysia and India are using FX reserves and intervention in futures markets to help navigate the overwhelming trend of capital outflows and dollar strength. Many will have to swim a lot faster than this.

Annie Edson Taylor was an American adventurer who, on her 63rd birthday, October 24, 1901, became the first person to survive a trip over Niagara Falls in a barrel.