EM FX Trading: Top Trade Thursday
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The dollar has traded sideways this week with risk sentiment having dried up slightly into month-end. Next week we have the Chinese NPC starting on 5th March, which we expect will be a significant driver for Chinese/Asian assets over the coming weeks in light of (what we view as) the recent policy pivot by the PBoC, and its shift from industrial production stimulus measures towards the end consumer/domestic demand. We expect the market may turn more constructive risk should global manufacturing PMIs hold onto expansionary territory, and G10 ex-US economic surprise indices show continued signs of bottoming out. This week we have added a new (short-term) ZAR Mar-Jun IMM trade, which takes advantage of month-end flow dynamics and domestic bond coupon payments. Meanwhile, we hold our paid CLP and CZK fwd-fwd positions, in addition to our long BRL carry trade, but have taken profit on our short THB trade, with rallies above 36.00 having been consistently faded. As ever, feel free to reach out to our traders if you have any questions, and make sure to join our weekly Thursday morning EM FX trader call to hear about the desk’s key convictions. |
COP – COP moved higher today amid a mixed LatAm complex. In terms of flows today, our trader has seen mixed flows, especially in hedge funds. However, he noted COP inflows from both real money and cash. Corporates were also better USDCOP buyers in cash. He is watching 3875-3990 as relevant levels and notes that data tomorrow, including US PCE, US jobless claims, and COP unemployment could generate some volatility. However, he does not expect USDCOP to break the range in the short term. On the political front, pension reform resumes congressional processing this week, moving to its second debate, in plenary in the Senate. Although the debate was scheduled for Tuesday, it was suspended due to lack of quorum, and rescheduled for today. Our econ team flags that it is worth recalling the current congressional session is set to end on June 20th, with room for extraordinary sessions.
KEY MESSAGES
A poor outlook for private and public investment in
Colombia poses downside risks to our below consensus growth forecast of 1% for 2024.
The current decline in investment rates is consistent
with trend growth closer to 2% instead of 3%, we
estimate.
Weaker trend growth would pressure the fiscal outlook,
which will be in focus during 2024 due to a potential
miss of the fiscal rule.
Downside risks to growth mean a lower bar to
accelerate the easing cycle in the short term. Yet the
impact on the terminal will depend on the government’s
fiscal policy stance.