The Chinese yuan devaluation has been the major driver of the massive volatility in the foreign exchange markets over the last two weeks. Asian currencies have been negatively impacted the most due to the perceived risk of an impending currency war. Economies could compete against each other to have the upper hand in elevating export volumes and price value.
Falling commodity prices amid sluggish growth expectations in the Chinese economy have had a spiraling effect on Latin American currencies as well. A devalued yuan will have negative consequences on China’s imports, many of which are sourced from major South American countries. Crude prices have also been adversely impacted due to slow growth coupled with higher cost of crude imports for the Chinese economy.
Middle East countries are thus under pressure resulting from the developments. The US dollar index has been affected unfavorably by the yuan devaluation, which goes against the ongoing talk towards hiking the US benchmark interest rates. Developed countries thus have benefited in terms of their currencies with respect to the US dollar, the exception being commodity currencies like the Australian dollar and the Canadian dollar, which depreciated against the US dollar.