Itaú BBA - Still Favorable (Albeit Volatile) Environment for LatAm

Latam FI Strategy Monthly

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Still Favorable (Albeit Volatile) Environment for LatAm

September 16, 2016

LatAm currencies are being quoted in line with our estimates, except the MXN which is still oversold

For the full report, see enclosed file


  • The Fed is moving toward another rate hike. We think that December is the most likely timing, but the risk of a September hike seems underpriced. In any event, the Fed will likely maintain its gradual and cautious approach.


  • Despite the recent volatility, the external environment is still favorable for LatAm assets, since global interest rates will remain low and risks related to China will be limited.


  • The BRL and the Andean pairs are trading broadly aligned to our model’s estimates, after we control for each currency’s volatility. The only exception is (again) the MXN, which has yet to correct its undervaluation. Our analysis suggests that the monthly losses of the MXN were partly due to non-fundamental factors. Indeed, the risks surrounding the U.S. elections have been weighing on the MXN, which is set to become more sensitive to the political news flow as the November election draws near.


  • In this month’s Box, we continue the research theme of our April and July issues. We add to our toolkit a recently developed methodology for forecasting the Brazilian benchmark nominal term structure. The NS-FAVAR is a novel model that makes the most of the wealth of high-frequency data available in the country.



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