How Emerging Markets (EEM) affect the currency market?
The emerging market is defined as the market between the developed and developing market. The concept of an emerging market is one which is showing signs of early growth and potential to continue to a mature stage of development.
The most prominent emerging markets within today's global economy are the individual markets of Brazil, Russia, India and China. (BRIC)
Combined power these four emerging markets account for 21% of total global GDP. In other words, BRIC collectively account for one-fifth of the global output of all 190+ sovereign states. Any fallout of the EEM can potentially trigger the global recession.
When EEM economies pick up, demand for commodities increase such as copper, steel, nickel and coal. This will benefit the commodity currencies (AUD, NZD, CAD)
EEMs often offer higher growth than developed markets and higher risk as well.
During a RISK ON environment, EEM currencies tend to move higher while during RISK OFF environment, EEM currencies tend to sell off.
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