Emerging markets refer to countries whose economies are advancing towards becoming more developed. These countries have high economic growth potential but also come with greater risks compared to developed nations. In the context of forex trading, currencies from emerging markets are frequently traded because they offer significant opportunities, albeit with higher volatility. Here are some of the major emerging market currencies that are often traded in the forex market:
Brazilian Real (BRL)
- Trading Rank in Forex: The Brazilian Real ranks among the top 20 most frequently traded currencies in the forex market.
- Currency Pairs: BRL is often traded against the Euro (EUR/BRL) and the US Dollar (USD/BRL).
- Brazilian Economy: Brazil is known as a major exporter of commodities such as iron ore, soybeans, coffee, and automobiles. The Brazilian economy is heavily influenced by its export sector.
- Volatility: The BRL frequently experiences sharp fluctuations due to various factors, including national debt crises, commodity price declines, and domestic political situations. The exchange rate for the Brazilian Real reached 4.1 per USD1 after previously being at 3.1 per USD1 in August 2016.
Russian Ruble (RUB)
- Trading Rank in Forex: The Russian Ruble is frequently traded in pairs with the Euro (EUR/RUB) and the US Dollar (USD/RUB).
- Characteristics: RUB is known as one of the most volatile currencies in the world, appealing to traders who seek significant opportunities but are also willing to bear high risks.
- Russian Economy: Russia is a major exporter of crude oil and natural gas, particularly to the European Union, China, and Japan. The RUB exchange rate is greatly influenced by global crude oil prices and economic sanctions from Western countries.
- Volatility: The RUB exchange rate often undergoes drastic changes, such as in 2015 when a global crude oil sell-off led to a 42% depreciation of the RUB against the USD in just four months.
Indian Rupee (INR)
- Trading Rank in Forex: The Indian Rupee is generally traded against the US Dollar (USD/INR).
- Monetary Policy: The Indian government implements a managed floating policy, where the Rupee's exchange rate is influenced by interventions from the Reserve Bank of India (RBI) in addition to open market transactions.
- Indian Economy: India's economy is supported by the services sector, agriculture, and oil exports. India’s GDP reached USD 11.468 trillion in mid-2019, with the services sector contributing the largest portion of the economy.
- Volatility: The INR can be influenced by various factors, including RBI policies, export sector performance, and changes in global oil prices.
Chinese Yuan (CNY)
- Trading Rank in Forex: The Chinese Yuan is the eighth most frequently traded currency in the forex market and the most dominant among other emerging market currencies.
- Chinese Economy: China has the largest workforce and is the world’s second-largest exporter of machinery. China’s GDP reached USD 27.3 trillion in 2018, making it the largest economy among emerging markets.
- Impact of Trade Wars: In recent years, the Yuan's exchange rate has been heavily influenced by the trade war between China and the United States. At its peak, the Yuan fell to 7.0275 per US Dollar after the People's Bank of China (PBoC) lowered its reference exchange rate.
- Volatility: The USD/CNY pair often shows high volatility, particularly during periods of trade tension or changes in monetary policy by the PBoC.
Currencies from emerging markets offer significant opportunities in the forex market but come with higher risks compared to currencies from developed nations. Traders need to understand the economic, political, and monetary policy factors that influence these currencies to effectively capitalize on their volatility. Currencies like the Brazilian Real, Russian Ruble, Indian Rupee, and Chinese Yuan are often favored by traders looking to profit from sharp and potentially lucrative price movements.
