Deutsche Bank Sees Further Rebound

According to Deutsche Bank, Latin-American currencies are the most undervalued in emerging markets and have significant room to rebound as the global economy recovers.

• At the same time, they will face growing local headwinds in 2021 as they move beyond the initial rebound phase, analysts noted.
• Pending fiscal resolutions and elections across many regions will provide obstacles. Additionally, the huge task of vaccine rollouts may create issues.
• "We therefore expect currencies to remain tethered to local developments looking beyond this initial rotation into cyclical FX".
• Looking at individual currency pairs DB believe:
  • BRL will probably strengthen to 4.80-4.90/USD in Q1 once the budget passes.
  • COP has most cyclical upside as oil and oil-linked currencies have lagged.
  • MXN has smaller room to gain due to more advanced positioning and less appealing valuation.
  • PEN may see some retracement as investors remove hedges following political stabilization.
  • CLP is undervalued and supported by commodities, but investors should favour tactical positioning due to political tensions.