Morning Commentary: Brazil takes a Right Turn

Foreign Exchange - Morning Commentary

Brazil takes a Right Turn

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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
The primary movers in currencies as we start the week come from Latin America, as the Brazilian real was up over 1 percent before drifting lower and the Mexican peso is down by over one and a half percent.  The divergence is completely unrelated but can be argued as happening under the same set of economic rules that govern markets.
 
Brazil's gains came on the expected news that Jair Bolsonaro won the presidential election there.  Mr. Bolsonaro carries the description of being "far right" but his victory is in good measure a desire for a change after a series of Brazilian leaders have been brought down by scandal.  Certainly his platform fits neatly in the box of more conservative leaders globally – economic development over environmental concerns (mining of the rain forest), liberalization of gun laws, and privatization of state-owned companies. 
 
Certainly, it is his promise of unleashing economic forces that has brought on the most hope from the Brazilian electorate.  In addition to the currency, the stock index – the Ibovespa – is up mildly as trading starts to get going.  One side note on this is that Bolsonaro has been very critical of Brazil's largest trading partner – China.  Sounds a bit familiar.
 
The drop in the Mexican peso came as plans for a new international airport in the capital city looked to unravel.  This was actually a hot topic in the Mexican presidential campaign earlier this year as then-candidate Lopez Obrador railed against it as proof of the graft and corruption he campaigned against.  The drop in the currency was driven partly by weakness in other markets.  Mexico's equity markets are indicated down over 1 percent. 
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • After a tough regional election defeat, German Chancellor Angela Merkel announced she will relinquish her party chair by the end of the year and not run for reelection as Chancellor, although her term runs to 2021.  Whether she makes it that far remains to be seen.  In what seems to be a refrain of the political trends these last few years, Merkel's more centrist coalition lost ground to political parties both further left and further right. 
  • Interestingly though, the euro and British pound are both in tight ranges to the US dollar as markets take this and continued stresses with Italy and Brexit in stride. 
 
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