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ING Are Mildly Bullish USD/BRL, Forecast Return to 5.25

LATAM FX
  • ING have stated that Latam FX performed quite well during the US banking crisis. Investors will remain nervous but should continue to be attracted to any dips in the Mexican peso. ING think USD/BRL and USD/CLP will struggle to sustain moves below 5.00 and 800 respectively.
  • Helping BRL has been the positive reception of the new fiscal framework announced at the end of March. Having done its part, the government will now be leaning on the central bank to cut rates. So far, the central bank is still sounding hawkish given that inflation expectations are heading in the wrong direction. BRL is enjoying a short honeymoon, but renewed pressure on the central bank or poor fiscal developments can easily end the rally. ING favour USD/BRL returning to the middle of a 5.00-5.50 range.
  • In February, Chile’s copper production was the lowest in six years. Underinvestment and ageing deposits are being blamed here and clearly this will weigh on Chile’s FX income in a year when growth may well contract. This is probably the reason why USD/CLP is not participating in the broad dollar decline. ING are also closely watching Chile’s FX reserves for signs of intervention to rebuild its reserves, which fell from US$55bn to US$38bn last year. Despite 10% yields, ING do not see CLP as attractive.
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