FXFX Talking
Latam FX Talking: Hit by the global growth downgrade
The Latam FX complex remains under pressure on what the trade war means for global demand and industrial commodities. Brazil and especially Chile look more exposed here. Mexico is hoping to reach an early deal with Washington, but sliding US growth may well keep the peso under pressure
Main ING LATAM FX Forecasts
| USD/BRL | USD/MXN | USD/CLP | ||||
| 1M | 5.90 | ↑ | 20.50 | ↑ | 1000 | ↑ |
| 3M | 6.00 | ↑ | 21.00 | ↑ | 1000 | ↑ |
| 6M | 6.25 | ↑ | 22.00 | ↑ | 1025 | ↑ |
| 12M | 6.25 | ↓ | 22.00 | ↑ | 1050 | ↑ |
USD/BRL: Policy rate reaching the peak at 15.00% soon
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/BRL
5.8551
|
Mildly Bullish | 5.90 | 6.00 | 6.25 | 6.25 |
- Despite world trade volumes and growth being revised down on the tariff war, Brazil is still struggling with unanchored inflation expectations. It has already raised rates some 375bp since last September (now 14.25%) and should complete the tightening cycle with a move close to 15% this summer. Clearly the Brazilian real is now an expensive sell!
- But the macro picture looks worrying in that Chinese growth is slowing and energy and metal prices are softer. Let’s see whether Chinese demand for Brazilian soybeans can help.
- Expect fiscal to remain the Achilles Heel, where any looser policy later this year could send USD/BRL back to 6.10/20.
Source: Refinitiv, ING forecasts
USD/MXN: Banxico to keep cutting, peso stay vulnerable
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/MXN
20.05
|
Mildly Bullish | 20.50 | 21.00 | 22.00 | 22.00 |
- Banxico forecasts Mexican growth at just 0.6% this year with downside risks. Politicians are working at speed to try and get carve-outs for tariffs, which currently hit through the steel and aluminium sector and any goods trade not conducted on USMCA terms. Banxico looks ready to cut rates further from 9% - potentially all the way to 7.50% later this year.
- The peso has managed to hold steady over the last month, largely as tariffs dropped elsewhere in the world. But owning the MXN remains a high-risk proposition until trade settles.
- President Claudia Sheinbaum says automakers have no plans to relocate from Mexico yet – let’s watch this story and what it means for FDI.
Source: Refinitiv, ING forecasts
USD/CLP: Toying with 1000
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/CLP
966.35
|
Bullish | 1000.00 | 1000.00 | 1025.00 | 1050.00 |
- The big tariff sell-off in industrial commodities did not spare copper, and Chile’s peso was hit. USD/CLP made quite a sharp turn from 1000, questioning again whether the central bank may have been intervening a little more than at its scheduled FX sales.
- Until the US-China tariff war gets resolved, expect Latam FX to remain collateral damage and currencies to generally stay on the soft side. Additionally, the market now prices another 50bp of easing in Chile (taking the policy rate to 4.5%), which does not offer the peso much protection at all.
- Apparently, FDI trends in the mining sector are looking good in Chile – but we don’t like the peso.
Source: Refinitiv, ING forecasts
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This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
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