Where Has the Talk of Currency Wars Gone?

Sha Ying | CNBC

India, Brazil, Indonesia and Turkey have all intervened in the currency markets this week to shore up their battered currencies - a sign of just how much things have changed from just a few months ago when countries globally were doing all they could to keep their currencies weak.

The Indian rupee hit a record low of 58.98 against the dollar on Tuesday, while the Indonesian rupiah weakened to its lowest level since September 2009 and the Brazilian real hit its lowest level in four years this week, prompting central bank intervention on foreign exchanges.

(Read More: US Government Forced to Pay Real Rates on Debt)

Jitters that the U.S. Federal Reserve will start to unwind monetary stimulus for the U.S. economy soon has dealt a blow to emerging market assets, although emerging market currencies are not the only ones that have fallen sharply or gone on a wild ride in the past month.

The Australian dollar has tumbled about 6 percent in the past month, while the yen, which was at the center of talk earlier this year about governments taking action that would deliberately weaken their currencies, has firmed more than 7 percent from a four-and-a-half year low hit last month.

"Things have certainly changed very quickly," says Vishnu Varathan, market economist at Mizuho Corporate Bank in Singapore. "QE [quantitative easing] tapering means that the dollar is rising against all currencies and emerging market currencies are taking a hit in particular because of higher opportunity costs as U.S. Treasury yields rise."

"Another reason the currency war talk has faded is that risk sentiment has turned quickly, so we've gone from two extremes," he added.

While weak currencies were in favor earlier this year given the boost they provide exporters, the problem say analysts is that some currencies are falling too fast, too soon, for the liking of policymakers who prefer stable to orderly market moves.

The Indonesian rupiah for instance weakened beyond 10,000 per dollar on Tuesday for the first time since 2009, prompting the central bank to lift its overnight deposit facility rate, which it pays commercial banks for deposits, in a bid to shore up the local currency.

"Central banks around the world, especially those who rely on overseas trade, love a lower currency, however the falls need to be orderly, and clearly as the dollar-funded carry trade is unwound, these currencies are falling way too quickly," said Chris Weston, chief market strategist at trading firm IG in a note, referring to a trade where investors borrowed dollars while interest rates were low to invest in higher-yielding or more risky assets elsewhere.

(Read More: Emerging Markets See Biggest Exodus Since 2011)

"It was only a number of months ago that we were talking currency wars, and of course that is still prevalent with the BOJ [Bank of Japan] trying its best to export its deflation to the rest of the world," he said. "But it's interesting to see countries like Brazil, Indonesia and Turkey all conducting exercises to strengthen their currencies, namely through central bank auctions."

In Asia, analysts said currencies were being particularly hurt by concerns about a slowdown in China where recent data point to weaker-than-expected growth in the months ahead.

"Concerns about China have hit Asian currencies, such as the Indonesian rupiah, particularly hard," said Mizuho's Varanthan. "The China story rubs salt into the wounds."

— By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter:@DharaCNBC