The Turkish lira has replaced the South African Rand as the world’s most volatile currency ending a two-month long reign at the top.
This is due to Turkey having one of the worst external debt profiles in emerging markets, resulting in the country’s corporate sector chasing the weakening currency by buying dollars against Turkey – exacerbating the depreciation of the lira in the process, said Bloomberg’s Mark Cudmore.
South Africa replaced the Mexican Peso as the world’s most volatile currency on 8 November 2016, following President Jacob Zuma’s ongoing battle with Finance Minister Pravin Gordhan.
The rand has closely tracked with Zuma-related headlines since then, advancing when his position weakened and selling off when Gordhan seemed threatened.
The result has been a real-world measure of the “political risk premium” as investors look to buy and flip the rand within days of one another because of how much the currency can change weekly, said Guillaume Tresca, emerging-market strategist at Credit Agricole SA,
With tensions between Zuma and Gordhan cooling off in the past few weeks, the currency has stabilised some what, allowing the lira to take top place. This will likely be remedied however, as Turkey’s Central Bank looks to hike internal interests rates to remedy the depreciation.
Meanwhile South Africa’s problems could just be beginning as the politiciking carries on into 2017, warned Tresca.
“My concern is that it’s not the end of the story at all, it’s just the beginning.”
“I don’t think that Zuma will do nothing. He will find another way to strike back. The rand will remain very hard to trade.”