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Relentless US Yield Rally Keeps EM Currencies Volatile

LATIN AMERICA
  • The run higher in the US yield curve continued early Wednesday, resulting in the 30yr yield breaching 5.00% and the 10y yield touching a new multi-decade cycle high. The bedding-in of the higher-for-longer narrative across US markets roiled Latam currencies Tuesday, leaving markets likely to continue the spell of volatility across Wednesday hours.
  • USDBRL rallied sharply to reflect the widening US-BZ yield differential, breaking through the 5.1277 resistance level, the May 31 high, opening the psychological 5.20 handle as well as 5.2113, the 61.8% retracement for the Nov’22 – Jul’23 downleg. Domestic equities also came under pressure, with the Ibovespa selling off by 1.4%, moving in tandem with US stock markets. Banks also slipped on the back of the Desenrola legislation to cap credit card rates at 100%.
  • In Mexico, USDMXN topped horizontal resistance at 17.9981 on Tuesday and briefly traded above the 18.20 handle today, marking a new multi-month high. Gains were short-lived however, with the rolling over of US yields alleviating upside momentum in the pair. Any return higher opens 18.1075 - the 3.0% 10-dma envelope. A break here opens 18.4011, the Apr 05 high.
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