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Goldman Sachs Says US Cycle Extension Bolsters Case For MXN & BRL

EMERGING MARKETS
  • Last week’s FOMC meeting and NFP report have been consistent with Goldman Sachs’ view that, in the months ahead, markets are likely to see a ‘US cycle extension’ in which i) the US appears more likely than some other DMs to avoid a recession, ii) Fed pricing for 2023 may turn out to be more resilient than other DM central banks (and relative to market pricing) and, in turn, iii) Dollar strength may extend a bit longer before a sustained turn versus most major currencies.
  • Against this potential backdrop, GS think EM FX investors should i) continue to focus their relative exposure to US activity while limiting their exposure to activity wobbles in Asia and Europe, ii) stay within the Dollar bloc: currencies that, relative to their history, are trading with resilience to broad Dollar strength, and iii) as Dollar yields rise, look for ‘good carry’ in EM FX.
  • GS find that recently each of these considerations tends to underscore their relative preference for longs in BRL and (in particular) MXN and, it is striking that each of these currencies were among the top performers into and through last week’s Fed meeting and US payrolls report.
  • GS also find that KRW & ILS look interesting on some metrics, but the former needs a better impulse from China growth (monitoring public health policy developments), and the latter needs more buoyancy in US tech stocks to perform.
BulletEM BulletEmerging Market NewsHomepageGoldman Sachs Market News
BulletEM BulletEmerging Market NewsHomepageGoldman Sachs Market News

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