Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>With Russia invading Ukraine, my view of the dollar remaining strong and possibly appreciating further in the near term is playing out.</li>
<li>EM currencies have weathered the spillover from Russia and dollar strengthening well so far, but this may be about to change as their (negative) beta to the dollar has increased.</li>
<li>Beyond the near term, the outlook for the dollar and EM currencies has become hazy given the uncertainty emanating from Russia's invasion and the fallout of the sanctions.</li>
</ul>


With Russia invading Ukraine, my view of the dollar remaining strong and possibly appreciating further in the near term is playing out.
EM currencies have weathered the spillover from Russia and dollar strengthening well so far, but this may be about to change as their (negative) beta to the dollar has increased.
Beyond the near term, the outlook for the dollar and EM currencies has become hazy given the uncertainty emanating from Russia's invasion and the fallout of the sanctions.


Contagion Risks from Russia to Other EM Currencies

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Thomas Schroeder

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Technical Analysis

<ul>
<li>USD/RUB was a high conviction long at 75 at 81. Today's gap higher warrants a closer look at where to reduce. Next major projection lies at 112.80.</li>
<li>More importantly the knock on effect into other EM FX is unfolding. USD/BRL met our macro USD long entry point. A major USD breakout is in the works for Q2/Q3.</li>
<li>NZD and AUD short focus as risk off bets. NZD compelling bear wedge stands out.</li>
</ul>


USD/RUB was a high conviction long at 75 at 81. Today's gap higher warrants a closer look at where to reduce. Next major projection lies at 112.80.
More importantly the knock on effect into other EM FX is unfolding. USD/BRL met our macro USD long entry point. A major USD breakout is in the works for Q2/Q3.
NZD and AUD short focus as risk off bets. NZD compelling bear wedge stands out.


<ul>
<li>In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.</li>
<li>The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.</li>
<li>If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.</li>
</ul>


In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.
The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.
If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.


Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

<ul>
<li>Brazil's rate curve has gone through significant transformations in the past few months, with the curve currently exhibiting a hump in the front end and a kink 3 years out.</li>
<li>The driver behind the hump has been the aggressive rate hikes and the kink is resulting from increasing risk premium in the long end arising from fiscal and election uncertainty.</li>
<li>I expect the kink to get pronounced as more rate cuts get priced with inflation coming off the peak and growth slowing, while risk premium increases heading into the election.</li>
</ul>


Brazil's rate curve has gone through significant transformations in the past few months, with the curve currently exhibiting a hump in the front end and a kink 3 years out.
The driver behind the hump has been the aggressive rate hikes and the kink is resulting from increasing risk premium in the long end arising from fiscal and election uncertainty.
I expect the kink to get pronounced as more rate cuts get priced with inflation coming off the peak and growth slowing, while risk premium increases heading into the election.


A Hump and a Kink in Brazil’s Yield Curve

<ul>
<li>Since the end of last year, the US dollar has persisted around its strongest level in two years on the back of rising US Treasury yields and risk aversion.</li>
<li>I expect the dollar to remain strong at least until the US rates volatility drops meaningfully and the headwinds to US equities, including geopolitical and domestic growth concerns, fade.</li>
<li>Once these risks pass, the dollar – which is expensive in valuation terms – should depreciate as the year progresses, creating a supportive environment for EM currencies.</li>
</ul>


Since the end of last year, the US dollar has persisted around its strongest level in two years on the back of rising US Treasury yields and risk aversion.
I expect the dollar to remain strong at least until the US rates volatility drops meaningfully and the headwinds to US equities, including geopolitical and domestic growth concerns, fade.
Once these risks pass, the dollar – which is expensive in valuation terms – should depreciate as the year progresses, creating a supportive environment for EM currencies.


The US Dollar View and Its Implications for EM Currencies

Brazil

The Brazilian real is the official currency of the Federative Republic of Brazil.  

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BRL (USDBRL CURNCY)

Contagion Risks from Russia to Other EM Currencies

EM currencies have weathered the dollar strengthening well so far, but this may be about to change as their (negative) beta to the dollar has...

Gautam Jain, PhD, CFA

USD/RUB Long Lock in Zone

USD/RUB was a high conviction long at 75 at 81. Today's gap higher warrants a closer look at where to reduce. Next major projection lies at 112.80.

Thomas Schroeder

Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

If risk aversion remains low, LatAm currencies should continue to outperform but given the uncertainty, it is best to target relative-value trades...

Gautam Jain, PhD, CFA

A Hump and a Kink in Brazil’s Yield Curve

I expect the hump and kink in Brazil's curve to get more pronounced as more rate cuts and a higher risk premium is priced, which should lead to a...

Gautam Jain, PhD, CFA

The US Dollar View and Its Implications for EM Currencies

Although the dollar should remain strong in the near term at least until we get clarity on the Fed path, it should depreciate for the remainder of...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)