The Key Event Risks and Trading Views for LATAM Economics & FX This Week

Chile 

• The general election on 16 November draws closer. Recent polling for the presidential race shows José Antonio Kast as the frontrunner, although his lead over Jara appears to be narrowing. Voter focus (from what I see) remains on policies to address crime (notably drug trafficking) and on economic stability and growth. 

• August CPI is due out later today and is expected at +0.2% m/m and +4.2% y/y. August trade data and copper exports are also due. The BCCh meets on Tuesday, with economist’s firm on the view that it will keep rates on hold at 4.75%. Interest rate markets imply only an 8% probability of a cut, suggesting a limited reaction in the CLP if interest rates do remain unchanged. 

• USDCLP tracks within a 980–950 range and seems likely to hold there in the near term. It’s hard to like the upside given the lack of attraction in going long USDs.

Mexico 

• August CPI is due Tuesday, with expectations that headline inflation will rise +0.05% m/m with core CPI expected to rise by +0.2% m/m. Inflation looks set to resume its downward trend, which suggests Banxico may well cut interest rates at the upcoming 25 September meeting, and possibly again in November. 

• While the outcome of this week’s US PPI and CPI reports will be a major factor driving LATAM FX through the week, going into the US inflation data USDMXN trades in a 19.0000–18.5200 range. My bias is for USDMXN to test the lower end of that range in the near term. A downside break would be significant and should be on traders’ radar, as it would suggest the bear trend seen from April to July could resume.

Brazil 

• Attention turns to the next sessions in Bolsonaro’s trial, with hearings taking place Tuesday through Friday. I’m sceptical the trial will have a major impact on the BRL, though we could see a slight increase in volatility if new US sanctions emerge. 

• USDBRL is testing range lows, and a closing break of 5.4171 could trigger increased downside momentum and trending conditions. The BRL remains the poster child of carry. 

• August inflation is due on Wednesday, with expectations of a -0.15% m/m decline. While this reflects energy price discounting, the overall consolidation in inflation reinforces the notion that the central bank should remain on hold for now, with the next move likely a cut—possibly within the next three months. Brazil’s interest rate swaps imply nearly 200bp of cuts over the next 12 months.

Colombia 

• A quiet week in terms of event risk, with no major data expected. Inflation could build in the near term due to low base effects, which creates a high bar for BanRep to cut further. 

• Interest rate swaps price in 55bp of further cuts over the next 12 months, implying BanRep is not far from the bottom of its easing cycle, with 8.7% seen as the current terminal interest rate. 

• USDCOP is testing range lows and looks set to break down, with USD flows the big driver. High volatility adjusted carry qualities also add to the COP’s appeal.

Argentina 

• August inflation data is due Thursday, expected to rise to 33.7% y/y. That said, it’s unlikely to mean much for the central bank, which last week announced it will use USD reserves to reduce volatility in FX channels ahead of the October mid-term election. 

• Local elections are currently taking place today in the Province of Buenos Aires, which accounts for close to 40% of the national electorate. For those watching political developments, this vote could be important in setting expectations at the national level. 

Have a great trading week — though the main event may just be the Chile vs Uruguay World Cup qualifier on Wednesday.