Currency Volatilities of BRICS Countries: The Impact of Commodity Prices, Interest Rates and Geopolitical Risks

Currency Volatilities of BRICS Countries: The Impact of Commodity Prices, Interest Rates and Geopolitical Risks
Author: Heng Luo
Degree: Master of Management in Finance and Investment,
Date: 2024
Institution: University of the Witwatersrand, Johannesburg, South Africa
Supervisor: Dr Jones Odei-Mensah

This thesis investigates currency volatility in the five BRICS nations, focusing on the effects of commodity prices, interest rates, geopolitical risks, and economic policy uncertainty. Using data from September 2011 to September 2023, the study employs the Autoregressive Distributed Lag (ARDL) model to identify long-run and short-run determinants of currency volatility, and Quantile Regression to examine tail behaviors in the currency markets.

Key findings include: Interest rate fluctuations, commodity price risks, geopolitical events, and economic policy uncertainty significantly influence BRICS currencies, especially during high-volatility periods. There is evidence of volatility spillovers from commodity markets, US geopolitical risks, and economic policy shocks to BRICS currency markets, as well as interconnected spillovers across BRICS currencies. The Chinese RMB exhibits a distinctive shock evolution trend, with heightened sensitivity to US geopolitical risks, US and domestic economic policy risks, and oil price changes.

The study highlights the heterogeneity of BRICS currency markets in response to external shocks and the asymmetric connectedness among them. The findings provide crucial insights for investors, policymakers, and financial managers, offering guidance for risk management and strategic decision-making in emerging market currencies.