Emerging Market meltdown continues

Every day brings a new high for USD-EM. Yesterday USD-BRL edged above 3.80 after BCB kept rates on hold at 14.25%. USD-TRY moved within striking distance of 3.00 following worse than expected CPI for August which printed at +0.4% mom, +7.14% yoy. The weakness was not merely confined to these currencies, ZAR and RUB also lost ground. The losses are not explained by USD appreciation, the DXY index actually weakened over the course of the day. 

Rather the markets are seen testing the resolve of central banks to defend their respective currencies and so far the markets are having it all their own way. Large scale interventions so far proved futile and central banks show a notable reluctance to hike rates in a material and durable manner, says Commerzbank. The implication is that further currency weakness will manifest before central banks feel forced to act. That being the case, staying long USD-EM remains the trade of the day.