The Fed's potential timeline for tapering stimulus and any changes in expectations for interest rate hikes will be key for investors, who have grown accustomed to central bank stimulus supporting asset prices. The Fed's meeting comes after a period of market volatility fueled by Evergrande's troubles. Chairman Jerome Powell may hint that a taper is coming soon; however, given current uncertainties (China's housing market, COVID, the pace of the global slowdown), the Fed may remain cautious when it comes to withdrawing liquidity support. Meanwhile, Governing Council member Madis Muller said the European Central Bank (ECB) could boost its regular asset purchases once the pandemic-era emergency stimulus ends. Investors are eager for clues about how Beijing plans to deal with the cash crunch at Evergrande, which has more than $300 billion in liabilities. The firm injected further uncertainty into financial markets with a vaguely worded statement on a bond interest payment that left analysts scrambling for details. In Japan, the central bank kept its main monetary policy settings unchanged. Markets in South Korea and Hong Kong were closed for holidays.
Dollar
The US dollar (USD) is little changed at the start of trading on Wednesday in the US as markets calm down following the Evergrande crisis. The DXY index registered 93.232 points, up 0.03% from the previous close. Markets are cautiously optimistic as Evergrande pledged to repay part of its debt, easing some buying pressure on the US dollar. Focus shifts to the US Federal Reserve, which will leave monetary policy unchanged but hint at the time of reducing its $120.000 billion per month plan. We expect a trading range between 92.9 and 93.5 during the session.
Colombian peso
The Colombian peso (COP) gained slightly, 0,2%, closing Tuesday at $3,837.25 per dollar. The peso appreciated amid an international context of lower risk aversion, while the stock market attempted to correct Monday's devaluations. Meanwhile, the currency's performance today will be driven primarily by the conclusion of the Fed meeting, where some indication will be expected as to when monetary stimulus will begin to be reduced. Thus, we expect the local currency to appreciate at the start of the day, in line with the appreciation of its emerging peers and the price of oil. We anticipate a narrow trading range between $3.810 and $3850 during the day.
Mexican peso
The Mexican peso (MXN) began trading 0.26% higher than Tuesday's close, allowing the currency to trade at around 20.0842 Mexican pesos per dollar. The currency's performance is reflected in an index measuring the strength of the dollar, which is holding steady ahead of the Fed meeting in the afternoon, while risk aversion is declining slightly in the markets. Oil prices are also rising after the latest U.S. inventory results showed a stronger-than-expected drawdown in crude oil stocks. We expect a narrow trading range between 19.954 and 20.215.
Chilean peso
The Chilean peso (CLP) The day opens with appreciation, trading at 783.80 Chilean pesos per dollar, with the USD/CLP declining 0.23%, accompanied by a stable dollar index (DXY) awaiting the Fed's decision regarding its monetary policy and with copper futures prices trading higher after rebounding from the key support of 4.10 points, driven by an improving outlook for the Evergrande case. In this context, we expect a narrow daily trading range between 790.5 and 775.4.
Peruvian Sun
The Peruvian sol (PEN) closed Tuesday's session with a positive performance, closing at 4.1121 per dollar, representing a 0.15% appreciation compared to Monday's close, recovering from the highest depreciation on record. The Central Bank of Peru (BCRP) updated its macroeconomic projections and raised private investment growth for this year from 15.5% to 24.5%. The currency responded to the weakening dollar amid a reduction in risk aversion. We expect the currency to respond to the international context after the Fed meeting. Thus, we anticipate a narrow trading range between 4.086 and 4.138.
Chinese Yuan
The Chinese Yuan (CNH) opened the session gaining ground, trading at 6.4691 yuan per dollar, with the USD/CNH declining 0.17%, following an increase in short-term liquidity due to concerns about the Evergrande debt crisis and the possible global impact, which was resolved for the nearest maturity, through negotiations with bondholders, benefiting the pair's overseas price. In this context, we expect a narrow daily trading range between 6.4790 and 6.4560.
Euro
The euro (EUR) opens the day with a 0.08% gain at a trading price of US$1.1731 per euro. The European currency begins the day with a slight increase thanks to the mixed results of the dollar at this hour, as Treasury yields have increased but the rise in oil prices generates downward pressure on the greenback. Investors are waiting for what the Fed may say; however, the most important thing is the press conference to be given by Jerome Powell, at which information on the tapering date is expected. In this context, we expect a daily trading range between US$1.1740 and US$1.1717 per euro.
libra Esterlina
The British pound (GBP) depreciated 0.14%, reaching 1.3641 per dollar. After the Asian giant Evergrande announced it would pay the interest on its bonds maturing this week, markets generally found some relief, and investor appetite has been revived. However, this boost was not enough for the pair, which has reached multi-month lows. For now, investors are awaiting the Bank of England meeting, hoping for monetary policy decisions; this could give the currency the positive boost it needs. A daily trading range of 1.3537 to 1.3745 per dollar is expected.
Japanese Yen
The Japanese Yen (JPY) opens the session depreciating, with the USD/JPY rising 0.28%, trading around ¥109.51, accompanied by an increase in risk appetite that weighs on the pair's price as a safe-haven asset. In addition, the Bank of Japan's (BoJ) decision to maintain its ultra-loose monetary policy stance caused a rise in the pair, which will now have its attention on the FED meeting. In this context, we expect a narrow daily trading range between 108.75 – 110.20.
Swiss franc
The Swiss franc (CHF) opens the day with a 0.09% decline, trading at 0.9224 francs per dollar. The European currency began the day with further declines thanks to increased risk appetite in the markets, driven primarily by government aid to Evergrande and rising oil prices. In this context, we expect a daily trading range between 0.9251 and 0.9218 francs per dollar.
Canadian dollar
The Canadian dollar (CAD) is starting the day with a positive performance, appreciating 0.33% compared to Tuesday's close, reaching a price of around 1.2777 Canadian dollars per American dollar. The currency had been flat yesterday while awaiting the conclusion and results of the Fed meeting. Meanwhile, oil prices are rising as crude oil inventories continue to decline more than expected. We expect a narrow trading range between 1.269 and 1.287.
Australian dollar
The Australian dollar (AUD) appreciated 0.26%, reaching 0. The pair has managed to capitalize on some gains amid positive traction from the broader risk appetite in the markets. However, an imminent tapering announcement by the Federal Reserve and a drop in the Melbourne Institute's leading indicator, which measures the health of the local economy, could limit the pair's gains. Against this backdrop, we expect a daily trading range between 7250 and 0.7209.
New Zealand Dollar
The New Zealand dollar (NZD) opens the day with a 0.31% gain, trading at 0.7027. Following statements from the Reserve Bank of New Zealand's assistant governor, the pair has consolidated its positive trend. According to the statements, the bank could be preparing for a 25bp rate hike in October. However, lockdowns in the country due to the spread of the Delta variant could impact the economy and the currency's dynamics. Amid this context, we expect a daily trading range between 0.6987 and 0.7067.
Global Disclaimer
We are convinced that every investor should diversify their investments across a variety of asset classes, regardless of market environment or trend, and work closely with their financial advisor to ensure their portfolio is adequately diversified and that their financial plan supports their long-term goals, time horizon, and risk tolerance. However, diversification does not guarantee profit or protect against loss. The preceding information, as well as the individual companies and/or securities mentioned, should not be construed as investment advice, a recommendation to buy or sell, or an indication of an intention to trade on behalf of any Acciones & Valores SA product. The securities mentioned may or may not be part of Acciones & Valores SA funds. For a complete list of Acciones & Valores SA portfolio holdings, please refer to the most recent annual, semi-annual, or quarterly report on our website. This document is for informational purposes only. Acciones y Valores is not responsible for the interpretation of such information, given that it does not cover all the aspects that an investor might consider necessary or desirable to analyze their decision to participate in a transaction, given that it is presented in an abbreviated form. For complete and absolute accuracy, investors must consult all documents provided through the website. Likewise, investors must conduct their own financial and legal analysis before making any investment decision. The values and figures contained herein are obtained from market sources presumed to be reliable, such as Bloomberg, Reuters, and the Issuers. The ratings contained in this report should not be considered investment recommendations or substitutes for ratings issued by certified credit agencies such as Moody's or Standard & Poor's. These ratings are solely quantitative; they do not include qualitative factors and depend on the financial information available in the market at the time of preparation. The opinions, estimates, and projections in this report reflect the author's current judgment as of the date of the report, and it is clarified that the content of the information contained herein is subject to change without notice. The authors' compensation is not associated with the results of the report or the recommendations made. The presentation and any preliminary documents regarding the products mentioned herein do not constitute a binding public offer; therefore, both the presentation and any other documents are subject to supplement or correct.
Héctor Wilson Tovar García Macroeconomic Analysis
Research Manager wtovar@accivalores.com
Laura Daniela Triana Variable Income Analyst daniela.triana@accivalores.com
Daniel Herrera Hernández, Currency and Fixed Income Analyst, daniel.herrera@accivalores.com
Andrés Felipe Campos, Retail Sector Analyst Andre Campos@accivalores.com
Daniel Felipe Pardo Energy Sector Analyst Daniel Pardo@accivalores.com
Juan Felipe Herrera, Financial Sector Analyst Juan Herrera@accivalores.com
Juan Pablo Bejarano Holdings Sector Analyst Juan Bejarano@accivalores.com
