FxWirePro: Geopolitics engulfs CAD, MXN and other EMFX

A fresh three months high in CAD and one month high in MXN were reached during early Asian trading session as market participants responded to the easing in U.S. Mexico trade tensions and considered the implications for the USMCA. 

The last-minute reprieve for Mexico announced late Friday by President Trump has cooled the markets’ tariff fears somewhat but – aside from the MXN, which has jumped more than 2% over the weekend – there is no obviously huge sigh of relief in the markets. US trade policymaking remains capricious and, with President Trump’s reasoning for lifting the tariff threat on Mexico under a fair degree of scrutiny, the pressure for a real “win” with China is perhaps all the greater now. The USD is broadly higher on the day against its G-10 peers but the movement is fairly limited. The CAD is a relative out-performer, supported by hopes that the USMCA can now move forward.

We stay Neutral in Latam FX and focus on strategic country views. The view of further EUR downside warrant taking a more cautious stance in Latam as well, and we keep hedges via MXN UW in our GBI-EM model portfolio, as well as UYU which has weakened significantly in the past two months. 

That said, we suspect that idiosyncratic stories, say in Brazil and Argentina, could continue to create an important divergence in price action among Latam FX.

Therefore, we maintain our OW BRL and COP positions and have opened a short USDARS 12m NDF (PnL = +2.2%). We also hold on to our short EURCOP (PnL -0.8%), our 3m BRL 1x2 calls (3.95/3.80) and MXN 3m put option. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly USD spot index was at -55 (bearish) while articulating at (14:01 GMT).

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