Turkey Currency Collapse Spooks Markets

Emerging market currency fears dominated trading overnight with the Turkish Lira falling precipitously against the US dollar. Fears of a currency collapse in Turkey are not aided by the defiant and aggressive Turkish President Erdogan who has ruled out interest rate hikes and is blaming the US for Turkey’s problems. Turkey runs a large current account deficit, has a high inflation rate and a large amount of foreign debt. Erdogan’s misinformed understanding of economics leads him to believe that high interest rates cause inflation and therefore he is not allowing interest rates to rise. Other falling emerging market currencies include the South African Rand and the Argentinian Peso. Meanwhile, in the US, Tesla CEO Elon Musk is struggling to defend his prior statement that he already had ‘funding in place’ for his buyout plan. US stocks closed lower on the session with the Dow Jones falling 0.5% and the S&P 500 0.4%.

Gold prices were slammed lower as a strengthening US dollar puts pressure on the USD price of gold. Gold broke below US$1,200 per ounce for the first time in 18 months, currently trading at US$1,194 per ounce. The US dollar index, on the other hand, has surged as investors have fled to the perceived safety of the US dollar at the expense of most other currencies. The dollar index (DXY) is currently at a one year high of 96.32 which has pushed the AUD to an 18-month low of US$0.727.

The ASX 200 has managed to hold its ground over the prior month although there has been some volatility. The weaker currency should provide some support to the index as it makes our stocks cheaper to foreign buyers while certain companies will benefit directly from the weaker currency, such as those with foreign sourced revenue. ASX 200 futures are up 5 points this morning. 

Data Releases:

-    UK Unemployment Rate 6:30pm AEST

This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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