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20 May 2015
Latam FX remains vigilant on the FOMC – Scotiabank
FXStreet (Edinburgh) - Eduardo Suarez, Chief FX Strategist at Scotiabank, reviewed the recent performance of the Latam FX space.
Key Quotes
“The main market driver today is likely to be the release of the Fed’s FOMC meeting minutes, where focus will center on whether there is indication of a potential earlier than anticipated hike, on the back of the FRBSF’s article that argued US GDP growth for Q1 may have been understated”.
“Since the selloff in EMFX started, we are seeing the tables once again revert to the “betas we saw last fall”, with LATAM FX losses led by COP (‐2.9%), CLP (‐1.4%) and BRL (‐1.4%) and MXN (‐1.2%), while less freely floating PEN has been propped up (‐0.3%). Our sense is that the most vulnerable LATAM FX to renewed USD strength is the COP”.
“Since US yields started widening at the start of May, the performance of LATAM curves has been fairly consistent with the beta each LATAM market had over recent sell‐offs, with Chile’s and Mexico’s outperforming, and Peru and Colombia underperforming”.
“The one that has broken the trend has been Brazil, but part of the reason for that break‐of‐trend has likely been the underperformance of the Brazilian curve earlier (in the August 2014 – March 2015 period)”.
Key Quotes
“The main market driver today is likely to be the release of the Fed’s FOMC meeting minutes, where focus will center on whether there is indication of a potential earlier than anticipated hike, on the back of the FRBSF’s article that argued US GDP growth for Q1 may have been understated”.
“Since the selloff in EMFX started, we are seeing the tables once again revert to the “betas we saw last fall”, with LATAM FX losses led by COP (‐2.9%), CLP (‐1.4%) and BRL (‐1.4%) and MXN (‐1.2%), while less freely floating PEN has been propped up (‐0.3%). Our sense is that the most vulnerable LATAM FX to renewed USD strength is the COP”.
“Since US yields started widening at the start of May, the performance of LATAM curves has been fairly consistent with the beta each LATAM market had over recent sell‐offs, with Chile’s and Mexico’s outperforming, and Peru and Colombia underperforming”.
“The one that has broken the trend has been Brazil, but part of the reason for that break‐of‐trend has likely been the underperformance of the Brazilian curve earlier (in the August 2014 – March 2015 period)”.