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Steady Recovery in Equity Indices Bolsters Regional Currencies

LATAM FX
  • Latin American currencies have been particular beneficiaries on Wednesday, well supported by the steady grind higher in major equity indices and a slightly softer dollar.
  • Considerable outperformance seen in the Chilean Peso, rising 1.8% as markets continue to price more aggressive rate hikes from the BCCh following a surge in annual inflation to 7.7%.
  • Previously noted, the downtrend is highlighted by a bearish moving average condition that suggest recent gains have been corrective. A return lower and a break to fresh cycle lows would confirm a resumption of the downtrend and open 788.22, the Nov 10 low ahead of 783.23, the 50.0% retracement of the May - Dec 2021 upleg.
  • Chilean swap rates continue to come under pressure, with the front-end of the Camara curve rising another 16-17 basis points.
  • Elsewhere, the Peruvian Sol is the second best performing currency in the region, despite the ongoing political turmoil surrounding President Castillo’s cabinet. The confirmation of Oscar Graham to continue as finance minister likely bolstering short-term sentiment.
  • Chile Central Bank Minutes Due tomorrow as well as the BCCh economist survey results.
  • The main event for Thursday will be the Banxico decision due at 1900GMT/1400ET. Our preview is here: https://marketnews.com/mni-banxico-preview-feb-2022-core-inflation-points-to-50bp-hike
  • Below gives key levels of LatAm markets in current trade:
    • USDMXN down 0.64% at 20.4839
    • USDBRL down 0.79% at 5.2172
    • USDCLP down 1.78% at 812.91
    • USDCOP down 0.21% at 3939.78
    • USDPEN down 0.79% at 3.8059
    • Bbg Dollar Index down 0.17% at 1173.62
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