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LATAM FX: Higher US Yields Offering No Reprieve to Latin American Currencies

LATAM FX
  • Slightly firmer US composite PMI data and some cautious comments from Fed’s Schmid have seen treasury futures come under pressure Thursday, with US front-end yields rising around 8bps, resulting in a better session for the US dollar.
  • The USD index stands half a percent higher as we approach the APAC crossover, which has offered little reprieve to struggling Latin American currencies. The Brazilian real has had the most notable move on the session, weakening roughly 1.35%, however, it is the Mexican peso that continues the week’s onslaught. USDMXN hovers around 19.43 heading into the late US session, consolidating the 4.25% rally this week.
  • Weaker-than-expected domestic growth data, lower inflation and a firmer JPY have all worked against the Peso this week, and add to the primary driver of domestic political uncertainty surrounding the proposed judicial reform and consequential nationwide strike from sitting judges.
  • Few surprises were provided in the Banxico minutes and the dissenting opinions from the minority hawks (Heath and Espinosa) largely echoed most recent comments surrounding the undermining of credibility etc.
  • Importantly, the minutes are dated and have to be taken with a large pinch of salt at this juncture given the developing themes in recent days, highlighted above.
  • Chile PPI and Mexico current account balance data is expected on Friday, although global markets will likely take their cues from any central bank commentary stemming from Jackson Hole.
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