Global Cooling Alert: Emerging Market Currencies Drop to Record Low As China Saps Commodities

by Natasha Doff and Zahra Hankir at Bloomberg

Emerging-market currencies deepened their slump to a record low as a surprise slowdown in Chinese manufacturing threatened to exacerbate a rout in global commodity prices.

Brazil’s real led the decline, dropping to the weakest level against the dollar in 12 years on mounting concern that the country’s credit rating will be cut. South Africa’s rand fell 1.3 percent as gold tumbled. The lira slid for a third day as Turkey stepped up its fight against Islamic State militants. The Bloomberg Commodity Index sank to the lowest since 2002. A gauge of 20 developing-nation currencies retreated 0.5 percent.

China’s preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics fell to a 15-month low in July, weakening the outlook for the world’s second-largest economy. Currencies posted their longest stretch of weekly losses since January as U.S. economic data supported the case for the Federal Reserve to raise the near-zero interest rates that have bolstered demand for riskier assets in developing nations.

“It is negative for emerging markets and the world as a whole if China doesn’t manage to get its economy back on track,” Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen, said by phone. “How the Fed communicates next week will be crucial for emerging markets.”

U.S. policy makers are edging toward raising rates for the first time since 2006 following solid gains in the labor market. There’s a more than 50-50 chance the Fed will lift borrowing costs in September, St. Louis Fed President James Bullard said.

Equities Drop

Developing-nation stocks slumped for a third day. The MSCI Emerging Markets Index declined 1.4 percent to 910.40. The gauge is dropped 3.3 percent this week.

The rand depreciated to 12.6118 per dollar in the steepest retreat in seven weeks. Gold, among South Africa’s main metal exports, slid

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