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3 Mar 2015
Brazil and Mexico showing sharp differences – TDS
FXStreet (Edinburgh) - Strategists at TD Securities exposed the opposing directions regarding the macro and FX environment in both countries.
Key Quotes
“We expect differentiation between Mexico and Brazil to become more pronounced as Brazil enters a recession on the back of difficult fundamentals and a substantial fiscal adjustment, and inflation remains high as the risk of energy rations looms large. Meanwhile, the recovery in Mexico appears to be underway and the country is poised to capitalize on stronger US growth via manufactured exports”.
“Despite the weaker currency, Banxico is likely to remain on hold until the Fed begins hiking in the second half. In Brazil, fiscal policy will be supportive of the BCB’s goals, and we expect the Copom will leave rates elevated for a prolonged period of time, rather than looking to cut in the face of weak growth or the first inflation print that suggests an inflection point and the first signs that inflation is on a declining path”.
“With the gradual unwinding of the BCB swaps program and poor growth prospects, we expect BRL to depreciate over the course of the year. In Mexico, we expect MXN to appreciate over the course of the year, benefitting from stronger US growth, eventual hikes from Banxico, and FDI inflows towards the end of the year. However, we recognize that MXN volatility will remain high”.
Key Quotes
“We expect differentiation between Mexico and Brazil to become more pronounced as Brazil enters a recession on the back of difficult fundamentals and a substantial fiscal adjustment, and inflation remains high as the risk of energy rations looms large. Meanwhile, the recovery in Mexico appears to be underway and the country is poised to capitalize on stronger US growth via manufactured exports”.
“Despite the weaker currency, Banxico is likely to remain on hold until the Fed begins hiking in the second half. In Brazil, fiscal policy will be supportive of the BCB’s goals, and we expect the Copom will leave rates elevated for a prolonged period of time, rather than looking to cut in the face of weak growth or the first inflation print that suggests an inflection point and the first signs that inflation is on a declining path”.
“With the gradual unwinding of the BCB swaps program and poor growth prospects, we expect BRL to depreciate over the course of the year. In Mexico, we expect MXN to appreciate over the course of the year, benefitting from stronger US growth, eventual hikes from Banxico, and FDI inflows towards the end of the year. However, we recognize that MXN volatility will remain high”.