Traders Cherry-Pick Latin America Bets on Diverging Rate Paths
2024-10-02
Summary:
Money managers are trading Latin American assets, seeking winners as major economies diverge after the Fed's first rate cut in four years.
Money managers are pitting Latin American assets against each other, hunting for winners as the region’s largest economies take opposite paths in the wake of the Fed’s first interest-rate cut in four years.
One way around that is to bet on monetary-policy divergence as countries that slashed rates to record lows in tandem during the pandemic have begun to split.
Currencies from Mexico, Brazil and Colombia have weakened markedly this year, among the worst in the world, as uncertainty over local politics and government spending plagues the region.
Brazilian policymakers kicked off a hiking cycle with a quarter-percentage point increase, and signalled there’s more to come as inflation expectations deteriorate.
The rate differential will likely shore up the Brazilian real while its peers face pressure from imminent rate cuts. The real is trading near the strongest in a year against Mexico’s peso.
Elsewhere, traders are pricing in at least about a percentage point of monetary easing in Chile, Colombia and Mexico over the next six months, swap markets data shows.
Mexico and Central America would be the most vulnerable to dramatic shifts in US policy following the election, whereas South American economies would be more insulated, according to the EIU.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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