Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

In this note, we discuss the Mexican central bank's most recent monetary policy meeting where it kept policy rates steady while reiterating that it expects inflation to converge to the target next year. We continue to expect the central bank to raise rates this year and emphasize our trade recommendations meant to capture that view.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

In this note, we discuss the Mexican central bank's most recent monetary policy meeting where it kept policy rates steady while reiterating that it expects inflation to converge to the target next year. We continue to expect the central bank to raise rates this year and emphasize our trade recommendations meant to capture that view.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Mexico – Delaying the Inevitable Monetary Tightening

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Olivier Desbarres

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4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

The past week has seen a short-lived flurry of market price action, with daily volatility in the US Dollar and equities edging higher on 30th April and again on 4th May. However, volatility overall has remained subdued, particularly in the benchmark US 10-year Treasury yield. Moreover, the Dollar NEER and US 10-year yields – increasingly a bellwether for financial markets – remain firmly within their multi-week ranges while the S&amp;P 500 yesterday closed in the middle of a narrow 3-week range of just 1.8%. US markets are seemingly sitting on the fence at this juncture, unwilling to take material directional positions given the uncertain outlook for US and global inflation and central banks’ reaction functions.  However, the gradual 6bp fall in the US benchmark 10-year Treasury yield between 29th April and 5th May to about 1.58% and the flattening of the 2s5s and 2s10s yield curves alongside a 0.4% gain in the Dollar NEER is noteworthy.Our take is that markets may have become marginally less worried that the Fed will have no choice but to tighten monetary policy sooner than it has indicated despite expectations that year-on-year US CPI-inflation will rise further in coming months. Moreover, the inverse relationship between the “safe-haven” Dollar and riskier assets has remained strong. US macro data released in the past week have been strong enough to put a floor under the S&amp;P 500 but not strong enough to push it to new highs. Finally we think that markets, in particular real-money funds, have once again been paying greater attention to valuations, including the relative cheapness of the Dollar.Notably most of the other major NEERs have also traded in narrow ranges since early March and few have moved much in the past month. Central banks, particularly in Asia, have been willing and able to keep their currencies on a short leash in order to maintain export competitiveness and minimise inflationary or deflationary pressures.Within Asia, the Taiwan Dollar is looking expensive relative to the Korean Won, in our view.

The past week has seen a short-lived flurry of market price action, with daily volatility in the US Dollar and equities edging higher on 30th April and again on 4th May. However, volatility overall has remained subdued, particularly in the benchmark US 10-year Treasury yield. Moreover, the Dollar NEER and US 10-year yields – increasingly a bellwether for financial markets – remain firmly within their multi-week ranges while the S&amp;P 500 yesterday closed in the middle of a narrow 3-week range of just 1.8%. US markets are seemingly sitting on the fence at this juncture, unwilling to take material directional positions given the uncertain outlook for US and global inflation and central banks’ reaction functions.  However, the gradual 6bp fall in the US benchmark 10-year Treasury yield between 29th April and 5th May to about 1.58% and the flattening of the 2s5s and 2s10s yield curves alongside a 0.4% gain in the Dollar NEER is noteworthy.Our take is that markets may have become marginally less worried that the Fed will have no choice but to tighten monetary policy sooner than it has indicated despite expectations that year-on-year US CPI-inflation will rise further in coming months. Moreover, the inverse relationship between the “safe-haven” Dollar and riskier assets has remained strong. US macro data released in the past week have been strong enough to put a floor under the S&amp;P 500 but not strong enough to push it to new highs. Finally we think that markets, in particular real-money funds, have once again been paying greater attention to valuations, including the relative cheapness of the Dollar.Notably most of the other major NEERs have also traded in narrow ranges since early March and few have moved much in the past month. Central banks, particularly in Asia, have been willing and able to keep their currencies on a short leash in order to maintain export competitiveness and minimise inflationary or deflationary pressures.Within Asia, the Taiwan Dollar is looking expensive relative to the Korean Won, in our view.

Sitting on Range-Trade Fence: Complacent Comfort

This is the third edition of our monthly trade ideas recap note in which we list our current trade recommendations and discuss whether any need to be closed. We have made a total of 12 trade recommendations so far, of which 8 are in the money.

This is the third edition of our monthly trade ideas recap note in which we list our current trade recommendations and discuss whether any need to be closed. We have made a total of 12 trade recommendations so far, of which 8 are in the money.

Alpha Bites: Monthly Trade Ideas Recap (May 2021)

As the Canadian dollar (CAD) has rallied following the hawkish surprise from the Bank of Canada, we go over the drivers behind our trade recommendation to buy the Mexican peso vs CAD and recommend holding the trade.Separately, the attached file is a snapshot of EM currency market, which we produce daily, and where we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to the broad market.

As the Canadian dollar (CAD) has rallied following the hawkish surprise from the Bank of Canada, we go over the drivers behind our trade recommendation to buy the Mexican peso vs CAD and recommend holding the trade.Separately, the attached file is a snapshot of EM currency market, which we produce daily, and where we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to the broad market.

FX Dashboard: Update on Mexican Peso Vs Canadian Dollar Trade Recommendation

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Two weeks ago in a note titled <a href="https://www.smartkarma.com/insights/commodity-currencies-and-their-warnings" target="_blank" data-smartkarma-citation="insights:49691" rel="noopener">Commodity Currencies and Their Warnings</a> we examined their short term setups and potential declines (mainly against the USD)This was largely on the back of a slip in the Oil price and long term levels being tested on major commodity indices. A lot of the indications in that note are still valid.Since then, we see fresh indications that yields will likely slip too which brings some JPY crosses into focus. While there have not been any breaks as yet, key levels on AUDJPY and CADJPY should be watched closely.

Two weeks ago in a note titled Commodity Currencies and Their Warnings we examined their short term setups and potential declines (mainly against the USD)This was largely on the back of a slip in the Oil price and long term levels being tested on major commodity indices. A lot of the indications in that note are still valid.Since then, we see fresh indications that yields will likely slip too which brings some JPY crosses into focus. While there have not been any breaks as yet, key levels on AUDJPY and CADJPY should be watched closely.

Canada

The Canadian dollar is the official currency of Canada. 

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CAD (USDCAD CURNCY)

Rates 10y Dashboard: Mexico – Delaying the Inevitable Monetary Tightening

While Mexico's central bank held rates steady at the meeting last week, we continue to expect it to raise rates this year and emphasize our trade...

Gautam Jain, PhD, CFA

Sitting on Range-Trade Fence: Complacent Comfort

Vol & directionality in Dollar, Treasuries and S&P 500 modest in past week and most EM currencies remain rangebound. Markets sitting on fence, but...

Olivier Desbarres

Alpha Bites: Monthly Trade Ideas Recap (May 2021)

In our monthly trade ideas recap note, we list our current recommendations and discuss whether any need to be closed. We have made a total of 12...

Gautam Jain, PhD, CFA

FX Dashboard: Update on Mexican Peso Vs Canadian Dollar Trade Recommendation

As the Canadian dollar (CAD) has rallied following the hawkish surprise from the BoC, we go over the drivers behind our trade recommendation to buy...

Gautam Jain, PhD, CFA

Commodity Currencies and the JPY

The three charts of US 10Y yield with USDJPY, AUDJPY and CADJPY are all giving early warning signs that lower levels could be seen. Watch these levels

Shyam Devani

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