Friday, October 03, 2008

Emerging Market Currencies under Pressure

The market is in full blown Risk Aversion. With the U.S. Senate passing legislation last night on the Bailout Bill I was expecting a slightly better opening to the market. But I guess all the "add-ons" were viewed as negative and the market got hammered pretty good. It does amaze me that Senators can say that they cannot vote for a $700 billion Bailout but can vote for a $850 billion one! The Latin American currencies led the way down.

Brazil. Brazil reported its largest monthly decline in industrial production this year. It fell a seasonally adjusted 1.3% in August. This increased expectations that the next move in rates will be lower. Economic growth is clearly slowing in Brazil and the U.S. rates need to come down. This will add pressure to the currency. We broke 2.0000 today (current level 2.0200) and it looks like there is alot more to go.

Chile. The Peso fell to its lowest level in three years. This was in part because of the Bailout (how are we going to pay for it ?)and the general lack of risk appitite in the region.

``The package announced here in the U.S. doesn't have as much to do with Latin America these days,'' said Aryam Vazquez, an emerging markets economist with Wells Fargo & Co. in New York. Investors in Latin America ``are more focused on the pace of U.S. growth in general.''

Mexico. Dollar funding was quite flush today in the short dates and the effect was felt in the Mexican forward market. Short date points that were trading at par just two days ago shifted hard to the right and traded at +35 per day. Using 1% dollar rates that implies 12.25% in the Peso.

I have very little on and am playing mostly defense at the moment.

Good Luck and Good Currency Trading.



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