LatAm forex update

We haven't looked at the state of play in local forex for a while, so let's remedy that now. Here's the evolution of the main traded currencies vs the USD over the past three months.
Biggest loser is the Chilean Peso (CLP), which lost at the time of the big 8.8mag quake and hasn't made back much ground since. Then comes Argentina's Peso (ARS) as it continues on its slow-but-sure drip drip deval that's been on the same track forever, it seems. Next is the local bigboy currency, the Brazilian Real (BRL) which also lost ground in February but has clawed back to R$1.75 to the greenback and in bascially UNCH for the period (fwiw, yesterday I saw a report of a big house calling for the Real to appreciate a further 10% by year's end, but hey...dumbasses in suits, right?).

Three currencies have strengthened against the USD in the last three months. Peru's Nuevo Sol (PEN) and Colombia's Peso (COP) are performing strongly enough (and the Peru Sol looks particularly good on the non-volatile stakes), but the winning coin is Mexico's Peso (MXN), coming back in the same style as its macro economy. Mexico got hard hit in 2009 thanks to its close ties with the US economy, but there are plenty of signals saying it will be LatAm's best performing economy in terms of YoY growth in 2010. We shall see on that.

ECH: the easy way to play Chile's currency revival

Following on from yesterday's post that noted the recent rebound in the Chilean Peso (CLP) compared to all other Americas currencies (including the US dollar), here's a way of playing Chile's currency strength without all that mucking about in the forex market and with leverage to boot.

ECH is the iShares Chile ETF, with a basket of local stocks from the Santiago bourse. But really and truly it's less a play on companies and more a play on the CLP, as this one year chart shows.

But if we now focus in on the three month chart, the leverage to the CLP is shown. The Peso has outperformed other currencies ever since the Bachelet government took the gloves off and started getting countercyclical on the recession that's affecting Chile and the world, tapping the reserves it had squirreled away in the previous boom years.

So with copper looking like it will be used as a "Obama stimulus will save us all" vehicle to the upside, playing the CLP via this ETF is a simple alternative that may offer decent leverage in the next couple of weeks. Today ECH stands at $33. I'd envisage this as a short-term play and would provisionally target $40 or so, I suppose, without getting too slide-rule accurate or deep into my own calculations. That target could adjust at any moment. Here's the price chart for ECH that shows how it's come back from the doldrums but has plenty of room before it regains its mid 2008 position.

DYODD, dude.

A loosely connected rant about LatAm currencies

Every now and again, even a dyed-in-the-wool, professional politician will say something that's actually the truth. I was struck by this line spoken by Argentina's Eduardo Duhalde yesterday (as reported in this post).

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"This crisis was born in the USA, it hurts all of us and they have the chance to print money and save their own people. We don't have that opportunity."

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It makes sense on plenty of levels, not least of which the context of Duhalde's argument yesterday, that of "sauve qu'il peut". A couple of mental connections later, and here are two charts that show the evolution of local currencies against the greenback. This one has a 12 month timescale......

.......and we see the Argentine Peso and the Peruvian Sol as having held up the best...so far. But looking at the shorter-term movements.....


.....it's the Chilean Peso that has kicked back strongest in the three month period chosen by default, care of Yahoo Charts. That would be the moment when Bachelet&Co stopped the free-floating rot and due to direct, Keynesian government intervention policies and self-protection, dontcha know....

(Glossary: COP = Colombia Peso, MXN = Mexico Peso, ARS = Argentina Peso, PEN = Peru Nuevo Sol, BRL = Brazil Real, CLP = Chile Peso)

As just one example of the consequences here, the relatively strong dollar helps LatAm exports, of course. However you would expect a strong dollar in a time of strong US economy, not right now in the biggest financial and economic crisis to have hit the industrialized nations (led by the US) in modern times. What's the use of a strong dollar and its ensuing export market advantage when there's no market, except of course to make breathing space and prepare the way for the next round of helicopter flights from Bennyboy?

I could go on and on and on with this particular post, as the angles and tangents are manifold. I could talk about that post way back when I said that the US was keeping its dollar as strong as possible to make sure it doesn't lose its place at the head of the world table. I could talk about inflation risk of weak currencies. There's the whole issue of how soft pegged currencies like the Nuevo Sol and the Argentine Peso have performed much better than the more freely floated regional currencies such as the Mexican Peso or Brazil's Real. The case of the Chilean Peso and its dependence on copper is a particularly fascinating one for a wonk like me.

All those and more. But no, let's stop here. What I really want to say is that Duhalde made a great point yesterday, whether or not he was looking at it in a wider context. The bottom line is that if the USA has decided to protect itself at all costs and let others like us guys down here drown in the muck of its making, then why the **** should we keep playing ball with you guys?

Seriously. What have you guys done for us lately? Your economic policies suck and you still try and tell us how to runs things. You screw up the whole financial world and now you're getting the innocent victims to carry the can.

It's taken me a while but I'm beginning to see that Rafael Correa is absolutely right, basically because I'm not as smart as he is. Take your sovereign bonds, gringos, and stuff them where the sun doesn't shine. We have an abundance of water, farmland, power supply, region-wide democratic governments and importantly a population of caring, kind, willing and hard-working people, from Tijuana to Tierra del Fuego who are evermore pissed at the way the USA and the wider world community has been treating them all this time.

Quid pro quo, dudes. Quid pro quo.