AlexandreZaire
Long

USD/Latin American currencies poised to rebound

FX_IDC:USDBRL   US DOLLAR / BRAZILIAN REAL
2 months ago
We have in Red ( USDBRL             ) and Orange ( USDCLP             ) the two strongest currency in latin american recovering from recent devaluation in a pronounced way in comparison with Dolar Index (Green). But fiscal situation in Brazil is getting worse, the political problem after impeachment of last president is to approve a series of bills             to cut social expenditure like Health and Education, while continuing rolling over debt. Debt-to-GDP ratio is getting to 70% this year, in 2014 it was 55% showing significant deterioration.

While Business Confident Index (BCI-OCDE) improved this year, I have no reasons to believe it will last, in my vision is more related to a psychological vision that impeachment will bring structural changes, but the new goverment don't discard raise taxes.
In Chile ( USDCLP             ) on the other hand, without impeachment, has the worst BCI in the world right now. showing the profound crises Latin American is facing. With all the majors countries in crises Mercosur business is stagnated.


Time to LONG Latin American Pairs.

Sources:
Debt-to-GDB Brazil: BCB 2016
BCI-OCDE: https://data.oecd.org/leadind/business-confidence-index-bci.htm
a month ago
Comment: Latam currencies starting to correlate more with dollar index (DXY)
15 days ago
Comment: So far so good.
Garruki
2 months ago
Totally agree on your analysis of Brazil. If this cut (PEC 241'- as it has been named the political plan proposed by Temer (brasilian president)) is a fact and the interest rate is decreased considering as well a more than probably hike in USD dolar by the FED we have an opportunity to BUY USDBRL.
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AlexandreZaire Garruki
2 months ago
If PEC241 got approved, it certainly will be a relieve in the fiscal dominance Brazil is passing. But It will probably wont, social expenditures are already low in Brazil, 55% of federal budget goes for paying debt, only 45% of taxes is available for citizens. But even if this got approved, there's still a hike in US rates, USD streghting against the world...
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