Leverage our insights with our guide to emerging market currencies, also known as EM currencies. Their volatility can offer opportunities but, of course, there are risks involved, as with any form of trading.
Emerging market currencies are used in countries where the economy is in a state of development. It can be difficult to attach an exact definition to the term because different bodies use different metrics to determine whether a nation's economy can be classed as fully developed or still in the process. Those discrepancies aside, there are a number of currencies that are widely considered to be linked to emerging markets.
When compiling a list of emerging market currencies, BRICS will commonly feature prominently. This stands for:
The real has been the official currency of Brazil since 1994, when it was launched to replace the cruzeiro real. It was initially pegged to the US dollar but has floated freely on the market since 1999 and its performance can be impacted by commodity prices. It was these prices that helped to fuel the growth of the Brazilian economy in the first decade of the 21st century, thanks to significant exports such as iron ore and agricultural produce.
The rouble is thought to be one of the oldest currencies still being used, alongside the British pound. Fresh banknotes and coins were introduced following the dissolution of the Soviet Union, and the rouble in its current guise is a redenomination of the previous Russian rouble, which in turn had replaced the old Soviet rouble. As with Brazil, Russia's economy is heavily commodity-based, so coal, gas and oil prices can all affect its performance.
The history of the rupee dates back all the way to the 16th century and the Indian economy has shown GDP growth in all but one year since the start of the 1980s. The exception was in 2020, when the outbreak of coronavirus contributed to a 5.8% decline. The Reserve Bank of India helps to manage the rupee's rate by trading USD/INR, although it is not pegged to the dollar.
Although classed as an emerging market currency, the renminbi is the fifth-most-traded in the world, featuring in 7% of all forex trades according to data from the Bank for International Settlements. The abbreviation CNH is used to describe renminbi when traded offshore, and CNY for when it's traded in mainland China.
The rand has been in circulation since 1961, replacing the South Africa pound when the country left the Commonwealth and became a republic. It has previously been pegged to the US dollar although it floats freely now and, like some of the other EM currencies mentioned here, its performance is heavily influenced by commodity prices – most notably platinum, gold and iron ore.
As well as BRICS, a list of emerging market currencies may feature the likes of:
The Singapore dollar features in the top 10 most frequently traded currencies, with an average daily turnover amounting to US$183 billion as of 2022. Launched in 1967 after the nation gained independence from Malaysia, it was first pegged to the British pound. It has floated freely since 1985 and the Singapore Department of Statistics can be a useful resource to track the performance of the national economy.
The won replaced the yen in 1945, at the end of World War Two when Korea was divided into North and South. It was initially pegged to the USD, before being replaced by the hwan but by the 1960s it had been reintroduced and in 1975 it stood as the sole legal tender. South Korea and China share a prolific trading relationship, so the performance of the CNH can have a bearing on the KRW.
Although Poland is preparing to adopt the euro, a date has not yet been specified and it continues to use the zloty. Its average daily trading turnover is small at $54 billion, and its value can be influenced by political events that impact its neighbours – such as Ukraine.
Emerging market currencies are susceptible to a wide range of external factors that can influence their performance. It's important to understand what these are so that you can feed them into your fundamental analysis and help you make your decisions. For example:
As with any asset, you need to be sure you've built up a strong understanding before you enter any positions. Decisions not backed up by extensive analysis could increase your chances of making a loss, so you need to appreciate the potential risks and benefits of trading emerging market currencies.
Your approach for trading emerging market currency pairs will depend on your goals, the time and financial resources available to you, and your level of understanding. We've outlined a few common strategies below.
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Please note that when trading forex with Tradu there is no physical delivery of any currency.