Friday, July 25, 2008

Rates continue on a higher path in Latin America.

Mexico. Inflation was considerable higher then the markets were expecting. The Bi weekly CPI came in at .38% against an expected .25%. The core came in at .24% against and expected .18%. This will keep interest rates on an upward trend.


Brazil. As written in yesterday’s post, the Central Bank raised rates a surprising (at least to me) 75bp. The currency did not react as strongly as I would have expected, nor have rates moved aggressively higher.


Current positions.

Long Usd/Brl. I think we should be lower and we are not. Maybe there is something I am missing but since we are not moving lower, I prefer to stay small long dollars, or square.

Looking for widening interest rate differential in U.S. Dollars ag Brazil and U.S. Dollars ag Mexico. The U.S are not changing rates near term and Brazil and Mexico are in rate rise environments. I guess if it ain’t broke don’t fix it, so staying the course here.

Looking for narrowing differentials in U.S. Dollars ag Argentina. I have cut this position down quite a bit as I do not see much upside for this trade at these levels. The yield is still very attractive so I will ride it for the short term.

Good Luck and Good Currency Trading



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