Forex Investment and Currency Trading

In Brazil, the freeze in available credit and substantial deterioration in the global macro environment will likely push the Copom to pursue a much less hawkish stance than is projected in the BCB survey for a 50bp hike. A move of 25bps is likely, if global markets stabilize. Otherwise, BCB may hold. In Mexico, in recent days the MXN suffered from the worst volatility episode in the FX market since 1998. MXN pressure derived from increased risk aversion was exacerbated by a few Mexican Corporates engaged in Fx structured options that needed to cover short USD positions leading the MXN [...]

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The Argentine peso may be ‘less exposed’ than other Latin American currencies to the global credit crisis but that does not mean that it is ‘not exposed’. From 3.1625 per U.S. dollar on October 3, it fell to an intra-day low of about 3.2737, its weakest level since January 2003. At that point, it appears that the central bank intervened aggressively – though obviously this is unconfirmed — forcing it back to 3.2250 by the close.
The Brazilian real has suffered the largest net depreciation against the U.S. dollar of any of any normal currency in the world since the end [...]

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Brazil: The monetary policy committee (COPOM) hiked the overnight Selic target rate by 50bp to 11.75%. The move was a surprise to most analysts, where 25bp represented expectations. In a brief statement, COPOM clearly demonstrated a desire to be highly preemptive in its approach to restraining inflationary pressures. The decision was designed to “immediately carry out a relevant part of the adjustment of the interest rate” which would “contribute to an opportune lowering of the risk that designs the inflationary scene” and “ultimately reduce the magnitude of the total adjustment necessary.”
The decision to hike the Selic rate comes at a [...]

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Inflation in Brazil represents a growing challenge for Banco Central do Brasil (BCB), even though IPCA inflation is closer to its target relative to many Emerging economies where inflation is more dramatically exceeding targets. The market implication is for a 25bp hike in rates at the April 16 meeting and a move lower in USD/BRL to 1.65. The targeted IPCA inflation index gained 0.49% mom during February – above expectations for a 0.45% gain. The monthly advance also contributed to pushing yearly inflation to 4.61% yoy from 4.58% in the previous month. Annual inflation has now exceeded the 4.50% central [...]

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