The private ADP employment survey came a bit lower than economists expected today, with private firms adding 135,000 jobs versus the 157,000 consensus estimate. The dollar was weaker on the news, but then quickly recovered its losses. Talks abound of the Fed tapering off its bond purchases, this has no doubt been a major factor in the sudden exodus from emerging market currencies. Mexico's Peso, a long favorite of many investors for the past year, has been particularly hard hit. The spread between US and Mexican treasury securities continues to widen as investor's flee MXN denominated assets. Mexico and its central bank are in a tough spot when it comes to forming policy in the coming quarters. Inflation continues to creep up, but a manufacturing slump continues to hurt growth. Good economic data from US should help Mexican fundamentals, but strong US economic performance has been largely taken as a signal that the Fed will end its asset purchase program sooner. Conversely, a poor NFP report this Friday may make MXN pop as some investors initiate Fed stimulus bets, but weaker US hiring also should hurt external demand for Mexican products. The result is a directionless market where USD/MXN continues to drift higher. I still like Mexico long term, but I prefer to sit on the sidelines until we get clearer signals from the Fed and the Bank of Japan on the future direction of monetary policy.
This Friday, I intend to buy USD/ZAR on any dip post jobs. I will also have a buy order a full 200 pips above the market level immediately before the release. The plan will be to capture the move higher if NFP surprises to the upside. ZAR remains my preferred choice taking advantage the EM currency sell-off, mainly because South Africa's weak fundamentals are also weighing heavily on the Rand. Finally a word of caution. Central bank opacity continues to cause jitters up and down all financial markets. As such, I am keeping at least 40 percent of my holdings in cash, for now.
No comments:
Post a Comment