NY stock futures advanced alongside their European counterparts at the close of the week as investors assessed the economic risks of the Fed's monetary tightening and Russia's war in Ukraine. Energy companies underperformed as oil prices fell and the U.S. and European Union announced an agreement to wean European countries off Russian natural gas supplies. Germany aims to cut Russian oil imports in half by midyear, while rapidly reducing its dependence on Russian gas and coal. Investors continue to grapple with the ramifications of Russia's invasion and isolation, including high commodity costs that have fueled expectations of higher inflation and a more aggressive stance from the Fed regarding its interest rates. As a result, the Treasury yield curve continues to flatten, reflecting concerns about the health of the U.S. economy. The Biden administration is increasingly concerned that Russian President Vladimir Putin could attack with chemical or nuclear weapons, pressured by the struggles of his military campaign and the far-reaching sanctions imposed by the U.S. and its allies.
The dollar (DXY) is losing value before the close of the week, as volatility eases and it trades in a sideways trend. The index is trading at 98.614, down 0.18%, as markets remain choppy while assessing the latest geopolitical events. The Ifo Institute will release business sentiment data for Germany later in the session, and the US economic calendar will feature data on pending home sales for February and the final consumer sentiment index for March. Several FOMC policymakers, including the New York Fed president, will deliver speeches before the weekend. Against this backdrop, we expect a narrow daily trading range between 98.6 and 99.0.
The Colombian peso (COP) is slipping, depreciating 0.09% on Thursday, closing at $3,787 per dollar. The local currency is depreciating, driven by the decline in oil prices. In a situation where new sanctions against Russia are generating market uncertainty, this could put upward pressure on crude oil prices. Therefore, commodity prices are expected to remain high, potentially increasing the flow of resources into various sectors. It should be noted that the Colombian peso is currently valued as one of the most undervalued currencies in emerging markets. At the same time, the risks of radical changes given a new administration appear limited, as voters and Congress remain divided. If the presidential vote confirms this scenario, the COP could advance further as monetary conditions tighten and local markets become more attractive. However, the current account deficit and the political risk premium continue to limit the local currency's appreciation. In this context, we expect a narrow daily trading range between $3,750 and $3,800.
The Mexican peso (MXN) opened the day with a downward movement of 0.0661, trading at the level of MX$20.0246, with a high of 20.0964 and a low of 20.0103 in its European session. The Central Bank of Mexico confirmed its most recent interest rate hike hours after President Andrés Manuel López Obrador announced the half-point increase, an unprecedented revelation that raised doubts about the independence of Banxico. Yesterday in Mexico, the central bank raised interest rates by 0.5 percentage points. Mexico will have an interest rate of 6.5%. The bank's measure was based on the risk of inflation expectations rising further, as well as "the challenges posed by the continued tightening of global monetary and financial conditions, and the environment of significant uncertainty and heightened inflationary pressures associated with the geopolitical conflict," it said in the statement. The Mexican peso extended its gains to a new intraday high after Banxico's announcement, targeting the key level of 20 per dollar last seen in September. Swap rates remained at previous lows, and the curve is still pegged at 250 basis points in an additional tightening this year. In line with its market structure, a trading range between 19.9 and 20.30 is expected.
The Chilean peso (CLP) opened the day depreciating 0.14%, trading at 789.50 Chilean pesos per dollar. The currency began slightly lower amid renewed enthusiasm in international markets for riskier assets as geopolitical tensions eased in the short term. It was also affected by the price of copper and its retreat from recent highs, a situation that could support the dollar's rebound during the session. In this context, we expect a narrow daily trading range between 796.05 and 782.05.
The Peruvian sol (PEN) closed Thursday trading at S/3.7334. S&P Global Ratings lowered Peru's credit rating to its second-lowest investment grade, citing prolonged political instability that undermines investor confidence and the country's growth prospects. The Andean nation's foreign currency debt rating was lowered one notch on Friday to BBB from BBB+ with a stable outlook, and its long-term local currency rating to BBB+ from A-. According to the report, "Persistent political gridlock is undermining efforts to maintain a stronger growth outlook." Furthermore, "Prolonged government gridlock reduces the predictability of policy responses, limiting investment and potential growth." President Pedro Castillo on March 28 faces the second impeachment attempt against him by the country's Congress in eight months. Peru's laws make it relatively easy to remove a head of state, and nearly every president in recent history has been impeached, imprisoned, or wanted in criminal investigations. In line with its market structure, the intraday trading range is expected to be limited between 3.7050 and 3.78.
The Chinese yuan opened the session lower at 6.3759 yen, with a high of 6.3835 and a low of 6.3725 in its Asian session. The yuan is on track for its longest streak of weekly declines since October 2018, as the dollar gains on expectations of aggressive rate hikes from the Federal Reserve. China's one-week interbank lending rate jumped the most in two months due to increased liquidity toward the end of the month. Trading volume in the foreign exchange market is set to fall to its lowest level since February 2021 on Friday. Volumes declined as some traders worked from home in Shanghai due to the Covid outbreak, according to onshore traders who asked not to be identified. That has had an impact on market making and proprietary trading, said the traders who were not authorized to speak publicly. The PBOC set the yuan's peg rate at 6,3739 per dollar, weaker than the median estimate of 6,3726 in a Bloomberg survey, where forecasts ranged from 6,3674 to 6,3823. Investor sentiment expects policy action while trade remains the anchor for RMB CFETS. Analysts do not expect the yuan's weakness to be a policy tool given its negative effect on cost pressures for SMEs. Furthermore, they believe investor sentiment outweighs potential export support. In this context, a narrow daily trading range is expected between 6.3670 and 6.39.
The euro (EUR) opens the day with a 0.12% appreciation at a trading price of US$1.1009. The European currency begins the day higher as concerns about the Russian-Ukrainian relationship fade from the market perspective. The currency has thus been exposed by the likely focus on forward yield spreads and the IFO business climate index, which fell to 90.9 for March. Meanwhile, US consumer sentiment and several Fed speeches are awaited for today. In this context, we expect a narrow daily trading range between 1.106 and 1.096.
The British pound (GBP) opened the day with a 0.09% depreciation, reaching $1.3198. The pair fell for the third consecutive day after an early rally to the $1.3225 region. The Bank of England's softer stance on the need for further rate hikes posed a challenge for the pound, which was further pressured by disappointing UK macroeconomic data. Some follow-through selling could drag the GBP/USD pair further toward challenging the YTD low, around the key psychological level of $1.3000 touched earlier this month. Against this backdrop, we expect a narrow daily trading range between $1.326 and $1.313.
The Japanese yen (JPY) opened the session higher, with USD/JPY down 0.57%, trading around ¥121.64. The pair corrected sharply from a fresh multi-year high reached on Friday. The sharp pullback could be attributed solely to some profit-taking amid extremely overbought conditions and modest US dollar weakness. A generally positive tone surrounding equity markets, coupled with the divergence between the Bank of Japan and the Fed's monetary policy outlooks, acted as a headwind for the safe-haven Japanese yen. Against this backdrop, we expect a tight daily trading range between 122.341 and 121.169.
The Swiss franc (CHF) is opening the day with a 0.37% gain at 0.9268 francs per dollar. The European currency is starting the day positively amid widespread dollar weakness. Risk-on momentum helped undermine the safe-haven franc, and the currency benefited from the Fed's hawkish stance, which supports the prospects for greenback buying. In this context, we expect a narrow daily trading range between 0.931 and 0.924.
The Canadian dollar (CAD) opened the day with a 0.0005 gain at C$1.2531, with a high of 1.2553 and a low of 1.2518 in the European session. Traders assessed an agreement in which the US and the European Union will push for increased supplies of liquefied natural gas to European countries by the end of the year. The pair held steady at 1.2530. Price action continues to decline, although there are subtle signs of exhaustion as I write this. In fact, we expect some consolidation in the near term given the lack of significant data and how oversold prices appear. WTI crude oil futures fell 2.6% to US$109.70, paring their largest weekly advance in three. One-month CAD implied volatility is 7.030% vs. 7.135% in the previous session. The 10-year yield spread is 3.3 basis points in favor of the Canadian dollar, compared to 2.3 basis points the previous session. Economic data include pending home sales and sentiment at the University of Michigan. In this context, and in line with its market profile, a narrow trading range is expected between 1.2500 and 1.2620.
The Australian dollar (AUD) opened the day with a 0.03% depreciation, reaching 0.7514. The pair witnessed a modest intraday pullback from the new YTD high reached earlier this Friday. The decline could be attributed to the emergence of some dip buying around the US dollar, which continued to receive support from the Fed's hawkish outlook. Rising commodity prices continued to support the Australian dollar and helped limit any further losses. Against this backdrop, we expect a tight daily trading range between 0.756 and 0.748.
The New Zealand dollar (NZD) opens the day down 0.03%, trading at 0.6963. The pair is easing its recent recovery after a volatile day, marking its first negative close in three. Market sentiment remains mixed, with a rally in equities failing to justify firmer returns amid indecision over key risk factors surrounding Ukraine and inflation. NATO criticized the Russian invasion and prepared for aid to Ukraine. Against this backdrop, we expect a narrow daily trading range of 0.701–0.693.
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Héctor Wilson Tovar García Macroeconomic Analysis
Research Manager wtovar@accivalores.com
Laura Daniela Triana Pulido Equity Analyst daniela.triana@accivalores.com
Daniel Herrera Hernandez Fixed Income Analyst daniel.herrera@accivalores.com
Juan Pablo Bejarano Holding Sector Analyst juan.bejarano@accivalores.com
Andres Felipe Campos, Retail Sector Analyst andres.campos@accivalores.com
Daniel Felipe Pardo Energy Sector Analyst daniel.pardo@accivalores.com
Juan Felipe Herrera, Financial Sector Analyst juan.herrera@accivalores.com
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