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Free AccessRBC Like Short ZAR vs. MXN, BRL
- Following yesterday’s SARB decision, RBC write that inflation dynamics have been less severe in comparison to peers, and recent speeches from SARB members suggest the bank is hiking towards a more a “neutral” stance. If that’s the case, that would imply another roughly 50-75bps of hikes.
- They add that policy rates are lagging high-beta peers (namely BRL, CLP, MXN, COP) and it seems unlikely that the SARB would deliver another ~225/245bps of hikes that would be sufficient to put nominal & real rates at the minimum of the current rates range of LatAm peers.
- As such, SARB’s “front-loading” does not lend much support to ZAR vs its LatAm peers, unless the central bank turns significantly more hawkish.
- They conclude that if the external backdrop deteriorates further (e.g. Fed turns even more hawkish), that is not likely to prevent the pair from moving higher. As such, they like short ZAR/MXN and long BRL/ZAR from a RV perspective.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.