Latam FX Talking: Early Year Gains May Slow

(MENAFN- ING) Main ING Latam FX Forecasts

	USD/BRL	USD/MXN	USD/CLP
1M	5.40	↑	17.50	↑	870	↑
3M	5.50	↑	17.75	↑	870	↑
6M	5.50	↑	17.75	↑	850	↓
12M	5.50	↓	17.50	↓	900	↑

USD/BRL: Political risk keeps an otherwise bullish BRL story in check

Spot	One month bias	1M	3M	6M	12M
USD/BRL 5.22	Mildly Bullish	5.40	5.50	5.50	5.50

• The real has been performing well and the recent global risk-off correction has barely dented the currency's gains seen in January. Indeed, one high profile local fund manager is making the case for USD/BRL to trade at 4.40. We would be more bullish on the real were it not for the October Presidential election. Here sluggish growth under 2% still leaves the path open for some last-minute fiscal give-aways – bearish for the real.
• BACEN has made it clear that it is ready to cut its 15% policy rate. Consecutive 50bp rate cuts are expected in March and April and a total of 300bp in cuts is priced this year.
• Risks to our forecast look skewed to a better BRL outcome – particularly were Tarcisio de Freitas to enter the race in April.

USD/MXN: Riding the global EM tide

Spot	One month bias	1M	3M	6M	12M
USD/MXN 17.26	Mildly Bullish	17.50	17.75	17.75	17.50

• Flows into global EM assets have been very strong over recent months and have provided a powerful current to the peso. Even though implied yields are now under 7%, demand for the peso is still there. The market struggles to price any more Banxico easing now, so those implied yields should be steady now.
• Though we like EM risk this year, we note USD/MXN is not far away from the 16.70 levels at which Banxico proved sensitive to peso strength in 2023. At that time, it announced it was unwinding its short USD/MXN forward book.
• Potential concern over a strong peso and the threat of a difficult USMCA renegotiation in July limits the downside for USD/MXN.

USD/CLP: Peak copper?

Spot	One month bias	1M	3M	6M	12M
USD/CLP 856.00	Mildly Bullish	870.00	870.00	850.00	900.00

• The commodities rally has kept most of the Latam currencies bid – especially Chile's peso. The ongoing FX sales from the Finance Ministry – even at these low levels in USD/CLP – have also weighed. However, our commodities team note that at current levels, US$13k/MT, copper is destroying demand. There is evidence of this in China.
• Indeed, our team struggle to see copper holding above US$13k/MT this year and look for a correction back to US$11k/MT by year-end as new supply comes on line.
• The market prices one more 25bp cut in the policy rate to 4.25% and in all we favour USD/CLP trading an 850-900 range.

MENAFN10022026000222011065ID1110722749