Forex Investment and Currency Trading

Chile: The central bank cut the policy rate by 50bp to 1.75%, as expected, over the Easter holiday noting further cuts could be necessary. The cut followed two aggressive 250bp cuts at previous meetings with the pace of easing having to be slowed down as the policy rate approaches the zero bound. As monetary policy easing cycles are close to approaching an end in the region, traders are starting to look further out the nominal rates curves for trading opportunities.The CLP may benefit from positive economic news out of China over the weekend which has contributed to stronger copper prices.

Brazil: The major data point to watch this week will be retail sales on Thursday. While short end rates remain range bound (pricing in ~100bp at the April 29 meeting), the curve has bear steepened over the last week. While the steepening trend may continue in coming weeks, we would expect a correction flatter in the near term. USD-BRL continues to edge lower amid the increase in global risk appetite and analysts remain bullish on the BRL going forward. However, over the coming days market will be watching for BaCen’s intentions (or lack thereof) to roll over cross currency swaps maturing at month end.

Mexico: The USD-MXN continues to trade lower with few technical support levels in sight until the 12.65-12.70 area. The big focus this week will be the Banxico decision on Friday. Economists expect a 50bp cut next week with surveyed analyst forecasts ranging from 25bp-100bp. The market is pricing in a 75bp cut. If the rally in the MXN holds, the market could begin to seriously consider a 100bp cut. Though much has been made of the need for the central bank to send a clear message to markets regarding the course for monetary policy, it is possible that they may choose to ease aggressively now and clarify their decisions later in the quarterly inflation report due out near month end.