Weekly Economic Briefings > Emerging Markets Weekly Economic Briefing

China's unexpected decision to allow its currency to depreciate on August 11 has intensified global currency risks. Currencies most at risk of weakening in the months ahead include those of countries with large trade links to China, weak fundamentals and especially high sensitivity to global commodity prices. The major currency most vulnerable is the Australian dollar. Among emerging countries Brazil, Chile, South Africa and Malaysia are among those in danger.There has already been a sell-off in many currencies in the wake of the China devaluation but this is not necessarily the end of the story. China's economic slowdown may yet have further to go, and the danger of further currency depreciation in China is quite significant. In addition, some emerging countries such as Argentina have yet to see the China effect impact on their currencies but are likely to.So far, trade links to China have not correlated well with currency moves since August 11. This in part is due to many of China's closest trading partners having large current account surpluses and managed exchange rates. Current account positions also help explain other recent features of currency markets such as the strengthening of the euro and yen and the poor performance of the Turkish lira.