📝EMFX Vulnerabilities Suggest Further Depreciation: Wells Fargo

On average, we found that highly vulnerable currencies can depreciate between 15%-20% over the entire course of the selloff. We also found that moderately vulnerable currencies can experience a 10%-15% depreciation, while low vulnerability currencies can see a more contained selloff of up to 10%. In this context, currencies in Figure 1 ranging from the Turkish lira to the South African rand can come under the most depreciation pressure and could sell off up to 20% in a global risk off episode.

Given Thailand's shift to a moderately vulnerable currency amid the BOT's hesitant outlook on monetary policy, another 7% selloff in the baht could materialize. Even our low vulnerability currencies could be at risk of depreciation. Our analysis suggests the Israeli shekel could weaken another 2%, while the Chinese renminbi could depreciate another 4%.Polish zloty could experience another 8% depreciation, the Indonesian rupiah can weaken another 11% and the Indian rupee another 10%. Both Chilean peso and Hungarian forint appear to be oversold, the former could rally 6%. The Colombian peso has likely bottomed out and has experienced the full extent of the currency's short-term depreciation.

-Wells Fargo Economics