An emerging market lacks some of the infrastructure or political and economic stability to make it a developed country like the U.S., Australia, or Germany. Yet emerging countries can also see exceptional growth and prosperity. Since currencies can be traded whether they rise or fall, emerging market forex pairs provide significant opportunities for those willing to analyze and trade them.
For example, the USD to INR pair (the U.S. dollar / the Indian Rupee) saw a steady uptrend in late 2024 and early 2025.
Here’s what to look for when analyzing emerging market currencies, and what affects their prices and volatility.
How to Analyze Emerging Market Currency Fluctuations for Trading
Analyzing emerging market currencies requires the right tools — charts, news feeds, and economic data — available for free on various financial sites. There are also more sophisticated and costly options for those wanting all the information in one platform.
Tracking Exchange Rates
Real-time and historical forex charts are available through forex trading apps like Investing.com, as well as financial data sites such as Yahoo! Finance and TradingView. Forex price data is usually free, although platforms may charge for other features, such as no ads or enhanced analysis tools.
Use the tools to compare multiple currencies to find the best trades. The USD/INR pair may be trending higher, for example, but possibly the USD/TRY or USD/MXN is moving up more or is presenting an opportunity based on a specific price pattern right now.
Look for mobile-friendly apps that allow for monitoring when away from the home or office, since currencies trade around the clock during the week. Being able to manage positions, whenever needed, is important.
Using Bloomberg Terminal for In-Depth Market Insights
The Bloomberg Terminal is the premier data source for traders who want all the data they could possibly want in one platform. It provides in-depth fundamental statistics, economic figures for countries, a huge inventory of assets to chart and analyze, trade analytics, news feeds, and much more.
At $32,000 per terminal annually, it is a good option for institutional investors. Free sources, on the other hand, can provide the data required to trade emerging market currencies effectively.
In addition to charts, here are key data points to monitor as they heavily affect currency prices.
5 Key Drivers of Currency Fluctuations
Key factors such as a country’s interest rates, commodity prices, economic strength, stability, and sentiment play a role in how one currency moves relative to another.
1. Interest Rate Changes and Monetary Policy
A high interest, in isolation, is more attractive than a low one. The higher interest rate currency is more likely to appreciate compared to a lower interest rate currency because traders can sell the low interest-rate currency and buy (pushing up) the high-interest currency, collecting the interest rate difference and a potential capital gain.
This generally applies to stable economies without high inflation. Countries with very high inflation tend to see more selling pressure because the currency's buying power is being constantly eroded.
2. Commodity Prices and Their Influence on Currency Strength
Countries import and export commodities. Commodity prices fluctuate, which results in a greater cost or revenue for the country. The more integral a specific commodity is to a country, the more impact it will have on its currency.
- An exporter’s currency benefits from a rising commodity price. A falling commodity puts downward pressure on the exporter’s currency.
- An importer’s currency rises if the commodity price falls. If the commodity rises, that puts downward pressure on the importer’s currency.
However, this relationship may not be always consistent.
3. Economic Growth and Stability
Countries with steady growth are more favorable than countries with no or erratic growth. Minimal or negative growth puts downward pressure on a currency because other currencies are more attractive.
Money tends to flood into stable country’s currencies — like the USD, CHF, and JPY — in times of financial panic, such as when COVID-19 hit or during the 2008 financial crisis. Keep this in mind when trading emerging market currencies.
4. Stable Political Environment and Government Policy
Abrupt changes in policy or rash and emotional decisions on the part of government officials can lead to that currency being viewed less favorably and its price falling.
Political strife or erratic government policy makes it harder to predict how a country will fare over the short-term and long-term, making it a less appealing investment choice.
Political stability and prudent financial policy favor an appreciating currency.
5. Market Sentiment and Risk Appetite
Risk appetite is how willing people and businesses are to take risks. When risk appetite is high, traders move into higher interest rates or less stable currencies.
When confidence is shaken, investors close their positions by selling those currencies. During uncertain economic times, when risk appetite is lower, more stable currencies tend to do well, even though they may not have the highest interest rates.
If a currency pair has a big rally or decline, this is often due to an increasing or decreasing risk appetite, in conjunction with the other factors discussed above.
Tips for Navigating Volatility in Emerging Market Currencies
Navigating volatility means managing risk. The main tools for managing risk include stop losses and position sizing. A stop loss exits a trade at a pre-set level if a trade doesn’t move in the anticipated direction. Position size works in tandem with the stop loss to keep losses to a small percentage of the account.
Traders monitor the price action of currencies as well as the key factors mentioned above, which can affect the short-term and long-term trajectory of the price. Technical analysis is the study of patterns in price movements and can signal times to enter and exit trades. Fundamental data can provide the tailwind for long-term trends.
When multiple emerging market trading opportunities are present, a diversified approach is commonly used. Instead of risking a set amount on one pair, the risk is divided among multiple trades.
