Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>I reiterate the risk that the dollar can strengthen in the near term by being on one of the two ends of the dollar smile, thus weighing on EM currencies.</li>
<li>On the positive side, the dollar strengthening should not last since the currency is already expensive in REER terms. Also, long speculative positions in the dollar are already quite heavy.</li>
<li>Since positions tend to follow dollar moves, whenever the dollar starts weakening, the unwinding of long positions can exacerbate the move, making it a supportive environment for EM currencies.</li>
</ul>


I reiterate the risk that the dollar can strengthen in the near term by being on one of the two ends of the dollar smile, thus weighing on EM currencies.
On the positive side, the dollar strengthening should not last since the currency is already expensive in REER terms. Also, long speculative positions in the dollar are already quite heavy.
Since positions tend to follow dollar moves, whenever the dollar starts weakening, the unwinding of long positions can exacerbate the move, making it a supportive environment for EM currencies.


Speculative Long Dollar Positions Highest Since 2019

<ul>
<li>The volatility of the US dollar has risen sharply in recent weeks with the dollar appreciating strongly starting in early November but coming off the highs on the Omicron variant.</li>
<li>I expect the dollar's volatility to stay high whether the Omicron variant turns out to be as big a threat to the economic recovery as feared or not.</li>
<li>For EM currencies, the environment is therefore likely to be less supportive and it's best to hedge exposures with the euro and consider beta-neutral relative-value trades.</li>
</ul>


The volatility of the US dollar has risen sharply in recent weeks with the dollar appreciating strongly starting in early November but coming off the highs on the Omicron variant.
I expect the dollar's volatility to stay high whether the Omicron variant turns out to be as big a threat to the economic recovery as feared or not.
For EM currencies, the environment is therefore likely to be less supportive and it's best to hedge exposures with the euro and consider beta-neutral relative-value trades.


Implications of Higher Dollar Volatility for EM Currencies

<ul>
<li>Chile's political polarization was apparent in Sunday's general elections where the two leading candidates for the presidency who are headed for a run-off election are leftist and ultra-conservative. </li>
<li>The markets reacted positively to the elections in which right-wing parties performed well, which allowed me to recommend taking profits on a long Chilean peso vs South African rand trade.</li>
<li>While there is room for the peso to continue to outperform, I recommend closing the trade for now as I anticipate market volatility to pick up again.</li>
</ul>


Chile's political polarization was apparent in Sunday's general elections where the two leading candidates for the presidency who are headed for a run-off election are leftist and ultra-conservative. 
The markets reacted positively to the elections in which right-wing parties performed well, which allowed me to recommend taking profits on a long Chilean peso vs South African rand trade.
While there is room for the peso to continue to outperform, I recommend closing the trade for now as I anticipate market volatility to pick up again.


Chile’s Market-Friendly Election Outcome Allows Exit from Trade Recommendation

<ul>
<li>The Hungarian central bank increased the size of the rate hike from the previous meeting, but it failed to provide much support to the currency.</li>
<li>I expect the forint to lag in the near term unless the central bank turns more aggressive because real rates remain negative and the carry of the currency is low.</li>
<li>Complicating the task of the central bank are the upcoming election in 2022, which has led to the prime minister ramping up pre-election spending, adding to inflationary pressures.</li>
</ul>


The Hungarian central bank increased the size of the rate hike from the previous meeting, but it failed to provide much support to the currency.
I expect the forint to lag in the near term unless the central bank turns more aggressive because real rates remain negative and the carry of the currency is low.
Complicating the task of the central bank are the upcoming election in 2022, which has led to the prime minister ramping up pre-election spending, adding to inflationary pressures.


Forint to Lag Even as the Hungarian Central Bank Raises the Pace of Rate Hikes

<ul>
<li>The Chilean peso (CLP) has begun to recover after being one of the worst-performing EM currencies over the past 6 months.</li>
<li>I expect CLP to continue to outperform as the central bank is likely to stay aggressive with inflation expectations continuing to rise. Moreover, the presidential election polls have turned market-friendly.</li>
<li>I will be looking for an opportunity to exit from my recommendation to buy CLP against the South African rand, which has worked well.</li>
</ul>


The Chilean peso (CLP) has begun to recover after being one of the worst-performing EM currencies over the past 6 months.
I expect CLP to continue to outperform as the central bank is likely to stay aggressive with inflation expectations continuing to rise. Moreover, the presidential election polls have turned market-friendly.
I will be looking for an opportunity to exit from my recommendation to buy CLP against the South African rand, which has worked well.


Chilean Peso’s Recovery to Continue but With High Volatility

Peru

The peruvian sol spot is the official currency of the republic of peru. the US dollar is the official currency of the united states of america

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Speculative Long Dollar Positions Highest Since 2019

Long speculative positions in the dollar are quite heavy implying that whenever the dollar starts weakening, the unwinding of long positions can...

Gautam Jain, PhD, CFA

Implications of Higher Dollar Volatility for EM Currencies

With the US dollar volatility rising, the environment for EM currencies has turned less supportive and it's best to hedge exposures with the euro...

Gautam Jain, PhD, CFA

Chile’s Market-Friendly Election Outcome Allows Exit from Trade Recommendation

The markets reacted positively to Chile's elections in which right-wing parties performed well, which allowed me to recommend taking profits on a...

Gautam Jain, PhD, CFA

Forint to Lag Even as the Hungarian Central Bank Raises the Pace of Rate Hikes

I expect the forint to lag in the near term unless the central bank turns more aggressive because real rates remain negative, the carry of the...

Gautam Jain, PhD, CFA

Chilean Peso’s Recovery to Continue but With High Volatility

I would be looking for an opportunity to exit from my recommendation to buy Chilean peso vs South African rand as I expect the currency to continue...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)