The conflict between Estados Unidos, Israel and Irã that broke out at the end of February disrupted trade routes and raised oil prices, causing direct impacts on emerging market currency prices. Investidores fled to safer investments, shifting resources to US dollars and moving capital away from developing economies. The result was a widespread drop in currencies such as the Indian rupiah, Indonesian rupiah and Colombian peso, while some currencies strengthened thanks to high energy prices.
The global uncertainty caused by the war amplified already existing exchange rate pressures in oil-importing countries. The increase in fuel costs increased inflation, reduced demand for local currencies and made imports more expensive, affecting everything from food to industrial inputs on store shelves.
Moedas who suffered most from the conflict
Países energy importers faced the greatest exchange rate pressures. Índia, Indonésia, Filipinas, Tailândia and Egito recorded sharp drops in their currencies after transport blockage on Estreito of Ormuz disrupted the flow of global oil.
The Indian rupee has fallen about 5% against the dollar since the start of the war, hitting record lows as oil prices rose. Essa devaluation reflected an already existing trend that intensified with the conflict. As the currency loses value, imports become more expensive: energy, plastics, fertilizers and food have all become more expensive for Indian consumers.
Central Bancos responded by raising interest rates and selling US dollar reserves to support their currencies. Indonésia’s Banco repeatedly sold dollars and bought Indonesian rupiah to raise demand for the local currency. Quando rates rise, people get higher returns on savings, but face higher payments on debts and loans.
Fatores who pressed these coins:
- Aumento of fuel and energy cost
- Investors’ Fuga for US Dollar as Safe Asset
- Redução of demand for local currencies
- Encarecimento of imports quoted in dollars
- Pressão on countries’ foreign exchange reserves
Moedas volatile with intense fluctuations
A second group of economies experienced high volatility, with sharp fluctuations in both directions. África of Sul, Colômbia, Chile and México faced intense reactions to the changing mood of global financial markets.
Essas coins weaken when investors seek safe havens, but can recover quickly when commodity prices rise or risk appetite returns to the market. Volatility reflects these countries’ dependence on international capital flows and commodity exports.
Brasil among partial winners
Brasil partially benefited from higher oil prices. Export revenues increased, sustaining interest from foreign investors in Brazilian assets. Bancos like Goldman Sachs and Bank of America highlighted strong demand for Brazilian government bonds in April reports, with Goldman Sachs pointing to Brasil as its top emerging market pick.
The real strengthened in an international context of high energy. However, economist Martín Castellano, head of research at América Latina in Institute of International Finance, warned that higher energy prices could increase inflation in Brasil, delaying interest rate cuts and affecting capital flows.
Outro factor of uncertainty is the October presidential election. XP economist Luiza Pinese warned that political uncertainty “will increase the risk premium on the exchange rate” before the election. Além In addition, Brasil imports refined products such as gasoline and diesel, raising domestic fuel costs despite rising crude oil.
Resilient Moedas: Controls and Power
Algumas coins have remained more stable for different reasons. The Chinese currency (yuan) has remained relatively stable thanks to strict capital controls and direct central bank interventions. The Chinese government restricts money entering and leaving the country and closely manages the exchange rate to avoid sudden fluctuations.
The Russian ruble has emerged as one of the best performing currencies against the dollar since the start of the Irã war. The currency was supported by high energy revenues — Rússia is a major oil producer — and tight capital controls. The government requires exporters to convert foreign profits into rubles and limits the flow of money out of the country.
Economias developed: distinct patterns
Moedas traditionally seen as safe havens strengthened at the start of the crisis, then retreated. The US dollar and Swiss franc reached peaks at the start of the war before returning to levels similar to those seen before the conflict. The Norwegian krone received a significant boost from rising crude oil prices.
The Japanese yen did not behave like a typical safe haven and weakened, largely because Japão relies heavily on imported energy. The Canadian and Australian dollars benefited from stronger prices for commodities their countries export — crude oil, gas, metals, iron ore and coal — although concerns about global growth and trade tensions limited those gains.
The euro and sterling have had bouts of volatility of their own, driven by concerns about higher energy costs, persistent inflation and slowing growth across the Europa.
Perspectivas: weaker dollar could favor emerging markets
Economistas note that while the initial airstrikes on Irã strengthened the dollar, the U.S. currency has since weakened. A weaker dollar typically means easier monetary conditions and more room for interest rate cuts in developing countries.
AllianceBernstein’s Economistas highlighted that a weaker dollar tends to improve prospects for emerging markets, as much of their debt is lent in US dollars and commodities are priced in US currency. Contudo, the dollar’s role remains central in global economies.
Fundo Monetário Internacional warned in April that continued disruptions from the Irã war are pushing the global economy into an “adverse” scenario marked by weak growth combined with higher inflation. Nesse scenario, global growth could fall to 2.5% with inflation rising to 5.4%, compared to the previous forecast of 3.1% with 4.4% inflation.
An even more severe scenario outlined by the IMF shows global growth falling to 2% and inflation exceeding 6%. The fund will update its forecasts in July with more recent data on the impact of the conflict on global economies.