LATAM FX: COP, CLP Under Pressure As Post-Fed Dollar Gains Extend
* As noted, the sharp increase in core yields and weakness in major equity indices has provided further support to the US dollar on Wednesday, putting significant pressure on the EMFX complex. Within this, Latam currencies have underperformed, most notably COP (-2.8%) and CLP (-1.8%), which have fallen to session lows in recent trade. * The move in COP has taken it two-month lows against the greenback, as tight onshore US dollar liquidity and ongoing fiscal concerns add to pressures from the recent pullback in crude oil. USDCOP has now rallied more than 8% from last month's multi-year low, which has seen the pair piece next resistance at 3300. * The recent FX weakness adds to the risk of another BanRep rate hike next week, prospects of which increased after some Board members highlighted their concerns last week about the further increase of inflation. IBR swap rates have also underperformed today, with 2Y yields up 13bp to leave the market pricing a further 50bp of rate hikes over the next 6 months. * Elsewhere, USDCLP is also testing recent 11-month highs, as lower copper prices provide an additional headwind for the peso. With a bull cycle firmly intact, sights are on next resis
* As noted, the sharp increase in core yields and weakness in major equity indices has provided further support to the US dollar on Wednesday, putting significant pressure on the EMFX complex. 8%), which have fallen to session lows in recent trade. * The move in COP has taken it two-month lows against the greenback, as tight onshore US dollar liquidity and ongoing fiscal concerns add to pressures from the recent pullback in crude oil. USDCOP has now rallied more than 8% from last month's multi-year low, which has seen the pair piece next resistance at 3300.
* The recent FX weakness adds to the risk of another BanRep rate hike next week, prospects of which increased after some Board members highlighted their concerns last week about the further increase of inflation. IBR swap rates have also underperformed today, with 2Y yields up 13bp to leave the market pricing a further 50bp of rate hikes over the next 6 months. * Elsewhere, USDCLP is also testing recent 11-month highs, as lower copper prices provide an additional headwind for the peso. 75, a Fibonacci projection.
5390, the Jul 29 high, to take the rally from Sept 4/cycle lows to 4%. 6764, the Jun 24 high could potentially come into play if the Banxico board strikes a more upbeat tone on progress on inflation in tomorrow's MPC meeting.