Forex Investment and Currency Trading

Argentina. Lower agricultural production, a negative capital account, and lower export prices - these factors will likely prevent the peso from further appreciating in real terms in 2009. The peso is expected to trade at about USD/ARS3.35 at the end of 2008 and USD/ARS3.9 at the end of 2009. Downside risks are significant given the external outlook, but the government will likely try to limit depreciation as much as possible before the October 2009 midterm elections. Inflation has decelerated toward 21%–22% year over year in September from a peak of 25%–26% in May, and will likely remain at this level if wage hikes do not accelerate. The government’s decision to nationalize pension funds will improve the cash position of the government next year in case this initiative is approved by Congress, but the adverse signal may drive an acceleration of portfolio dollarization by Argentines.

Mexico. Despite recent volatility bouts in the foreign exchange market that prompted authorities to intervene with massive auctions of U.S. dollars, market still believes the primary impact of the global financial crisis on Mexico will be via economic activity. A substantial deterioration in the U.S. economic outlook, particularly in industrial production, has led market to cut the 2009 GDP growth estimates for Mexico. The government has also changed its macroeconomic assumptions and its budget proposal.Taking into account a U.S. recession and the additional fiscal impulse, analyst expects 1.1% GDP growth in 2009. Meanwhile, inflation risks are fading. The new forecast of a weaker peso should partially offset the decline in inflation. Still, weaker demand and lower commodity prices should bring inflation down. Against this backdrop, Banxico will likely ease monetary policy significantly. Market believes Banxico will begin its easing cycle with a 25-basis-point cut next
month.