FXFX Talking
Latam FX Talking: Hawkish Banxico extends peso gains
Banxico’s easing cycle, which started in March, has come to an abrupt halt. Upward revisions to its inflation forecasts question whether Banxico is prepared to again cut rates independently of the Fed. This looks positive for the peso. In contrast, Brazil’s backtracking on fiscal consolidation and political pressure to cut rates harder weigh on BRL
Main ING Latam FX forecasts
| USD/BRL | USD/MXN | USD/CLP | ||||
| 1M | 5.15 | ↓ | 16.75 | ↓ | 950.00 | ↑ |
| 3M | 5.15 | ↓ | 16.75 | ↓ | 950.00 | ↑ |
| 6M | 5.15 | ↓ | 16.75 | ↓ | 950.00 | ↑ |
| 12M | 5.15 | ↓ | 16.50 | ↓ | 900.00 | ↓ |
USD/BRL: Easing cycle slows down
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/BRL
5.1388
|
Mildly Bullish | 5.15 | 5.15 | 5.15 | 5.15 |
- The Brazilian real has had a better month, although we suspect its gains are fragile. Lower volatility has helped high yield currencies in general, but we doubt USD/BRL is ready to sustain a move under 5.00. In fact, we are a little surprised that the real and Brazilian CDS have not suffered more on the news that the government is scaling back its plans for budget surpluses in 2025 and 2026. This sets the scene for fiscal slippage this year too.
- On the monetary side, BACEN has slowed the pace of rate cuts to 25bp (policy rate now 10.50%) and dropped forward guidance. The 5-4 vote split could raise concerns over political pressure to cut rates a little deeper than necessary.
- Government involvement in the private sector is a worry too.
Source: Refinitiv, ING
USD/MXN: Banxico remains hawkish despite March cut
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/MXN
16.75
|
Neutral | 16.75 | 16.75 | 16.75 | 16.50 |
- Having cut rates 25bp to 11.00% in March, Banxico guided expectations of unchanged policy in May. Yet the May meeting proved far more hawkish than most were thinking. Core inflation forecasts were revised up substantially and suggest Banxico will be reluctant to cut independently of the Fed – largely because it might need a strong peso for a little longer.
- Banxico’s hawkish shift is music to the ears of peso bulls – where MXN’s high, risk-adjusted carry keeps it very popular.
- The path ahead after November’s US elections is not clear. The peso is too expensive hedge and corporates will probably wait to see who wins the White House and if a new trade war breaks out.
Source: Refinitiv, ING
USD/CLP: Don’t chase the CLP rally
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/CLP
922.20
|
Mildly Bullish | 950.00 | 950.00 | 950.00 | 900.00 |
- USD/CLP has broken lower as the powerful copper rally and softer US rates have finally broken through into Chilean peso pricing. 950 might now prove resistance for USD/CLP. However, we are not looking for copper prices to push much further ahead from here. This because of ongoing woes in the China property market and higher copper inventory levels over there too.
- Expect much focus on the local easing cycle. Inflation is proving sticky near 4.0% and inflation expectations are fractionally on the rise. Another big (50-75bp cut) could unnerve the CLP.
- As discussed last month, we think a wide current account deficit and low FX reserves should maintain a risk premium in the CLP.
Source: Refinitv, ING
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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