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MUFG analysts said rising US Treasury yields after the Trump election could reverse popular 2016 carry trades in emerging-market currencies. They singled out the Brazilian real, which had been the best-performing Latin American currency that year, and flagged risk for Mexico, Chile and Colombia.
A stronger dollar and higher US yields raise the local-currency cost of dollar-priced feed ingredients in emerging markets and can pressure import-dependent buyers. Currency weakness in key South American exporters can also affect their export competitiveness.
octaafrica.netNov 11, 2016After 2,356 past bullish macro events, US Dollar (Broad) moved a median +0.2% over 5 sessions (60% higher; middle half -0.3% to +0.7%), and +0.4% over 20.
After 301 past bullish macro events, Brazilian Real (BRL per USD) moved a median +0.4% over 5 sessions (57% higher; middle half -1.2% to +1.7%), and +1.0% over 20.
Not enough comparable past events yet for a historical read.
Moves of each commodity's benchmark from the last close before the event. Historical reads pool past events of the same kind; they describe what happened, not what will. Not investment advice.
Rising US Treasury yields threatened to unwind EM carry trades, with the real as the 2016 top performer most exposed, which supports further dollar-buying demand.
Rising US yields after the election were flagged as threatening EM currencies, reinforcing dollar strength.
