25 Mar 2014
Latin America EM Express: Venezuela relaxes currency regulations, bolivar falls by 88%
FXStreet (Łódź) - On Monday the government of Venezuela eased currency regulations by launching a new exchange rate mechanism determined by supply and demand, which will allow Venezuelans to purchase dollars legally for the first time since 2010.
Social unrest stemming from discontent over the dire economic situation of the country, shortages of basic goods and high crime levels pushed the President Nicolas Maduro's government to relax the strict currency controls with an aim to bring down the black market price of dollars, which has been growing in recent months.
On Monday, the first day of the new market called Sicad II, the Venezuelan bolivar fell by 88%. According to Bloomberg, the bolivar was at an average sold at 51.86 bolivars against the dollar. The opposition led by Henrique Capriles called Maduro's move a giant devaluation.
Also on Monday Standard & Poors's cut Brazil's credit rating from BBB to BBB-, changing the outlook from negative to stable, which suggests no more downgrades are planned for now.
“S&P first put Brazil’s rating on negative outlook in June last year citing slow GDP growth and a weakening fiscal position,” reminds Jim Reid from Deutsche Bank. “These factors have arguably worsened since June last year so it’s fair to say that yesterday’s downgrade doesn’t come as a huge surprise for markets.”
“Our EM strategists think that Brazil’s CDS will likely face some moderate pressure again in the coming days, as this downgrade may have come earlier than many expected. However any widening should be moderate as the risk has largely been priced in, in their view.”
Economic data
On Monday Brazil's central bank informed that the Brazilian current account deficit narrowed to USD-7.45B in February from USD-11.59B recorded in January, more than to the estimated -8.00B. Foreign direct investment decreased to USD4.13B from 5.10B, but above forecasts of USD3.80B.
In Mexico, the jobless rate fell to 4.65% in February, following 5.05% in January and below market consensus of 4.80%, according to numbers published by the Insituto Nacional de Estadistica Y Geografia.
Mexican 1st half-month inflation rose 0.17% in March, up from 0.12% in February. 1st half-month core inflation grew 0.11%, up from 0.12%, Bank of Mexico informed.
Technicals
Initially on Monday the Venezuelan bolivar was sold for 55 bolivars per dollar, averaging out at 51.86 for the day.
USD/BRL fell by 0.45% to 2.31. The daily FXStreet Trend Index was strongly bearish, and the OB/OS Index neutral. RSI was neutral at 39.6084 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 138 pips, with ATR (14) shrinking at 256 pips. The 1D 200 SMA was at 2.3055 , while the 1D 20 EMA at 2.3456.
“For USD/BRL, support seen near 2.30, while resistance seen near 2.35 and then 2.40,” the BBH Global Currency Strategy Team suggest.
Social unrest stemming from discontent over the dire economic situation of the country, shortages of basic goods and high crime levels pushed the President Nicolas Maduro's government to relax the strict currency controls with an aim to bring down the black market price of dollars, which has been growing in recent months.
On Monday, the first day of the new market called Sicad II, the Venezuelan bolivar fell by 88%. According to Bloomberg, the bolivar was at an average sold at 51.86 bolivars against the dollar. The opposition led by Henrique Capriles called Maduro's move a giant devaluation.
Also on Monday Standard & Poors's cut Brazil's credit rating from BBB to BBB-, changing the outlook from negative to stable, which suggests no more downgrades are planned for now.
“S&P first put Brazil’s rating on negative outlook in June last year citing slow GDP growth and a weakening fiscal position,” reminds Jim Reid from Deutsche Bank. “These factors have arguably worsened since June last year so it’s fair to say that yesterday’s downgrade doesn’t come as a huge surprise for markets.”
“Our EM strategists think that Brazil’s CDS will likely face some moderate pressure again in the coming days, as this downgrade may have come earlier than many expected. However any widening should be moderate as the risk has largely been priced in, in their view.”
Economic data
On Monday Brazil's central bank informed that the Brazilian current account deficit narrowed to USD-7.45B in February from USD-11.59B recorded in January, more than to the estimated -8.00B. Foreign direct investment decreased to USD4.13B from 5.10B, but above forecasts of USD3.80B.
In Mexico, the jobless rate fell to 4.65% in February, following 5.05% in January and below market consensus of 4.80%, according to numbers published by the Insituto Nacional de Estadistica Y Geografia.
Mexican 1st half-month inflation rose 0.17% in March, up from 0.12% in February. 1st half-month core inflation grew 0.11%, up from 0.12%, Bank of Mexico informed.
Technicals
Initially on Monday the Venezuelan bolivar was sold for 55 bolivars per dollar, averaging out at 51.86 for the day.
USD/BRL fell by 0.45% to 2.31. The daily FXStreet Trend Index was strongly bearish, and the OB/OS Index neutral. RSI was neutral at 39.6084 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 138 pips, with ATR (14) shrinking at 256 pips. The 1D 200 SMA was at 2.3055 , while the 1D 20 EMA at 2.3456.
“For USD/BRL, support seen near 2.30, while resistance seen near 2.35 and then 2.40,” the BBH Global Currency Strategy Team suggest.