PERU: USDPEN Still Near 5-Year Low, Terms Of Trade Remain Supportive
Aug-21 12:30
- The Peruvian sol has outperformed its regional peers over the last week, supported by the BCRP’s cautious stance, following last week’s further interest rate hold. This was the third consecutive interest rate hold at 4.50%, although the central bank kept the door open to another cut in H2. USDPEN has fallen by 1.4% over the period, closing yesterday at 3.522, just above recent five-year lows.
- BBVA notes the continued solid fundamental support for currency, backed by commodities, the government’s fiscal stance, low Beta and still distant elections. With USDPEN back around the level that has shown some initial resistance, they note that on the topside, 3.60 has rebuilt as a level at which to potentially re-enter longs.
- Yesterday, Moody’s said that the BCRP still has a lot of room to cut the policy rate further, with the country’s Baa1 rating sustained by strong fiscal discipline. However, they noted that the increase in the fiscal deficit is worrying, and they have some concern that the government may not take decisive action to cut it soon enough.
- On the data front, the local calendar is clear today. Yesterday, the BCRP said that the country’s terms of trade had risen by 17.6% y/y in June, largely due to the increase in metals prices over the period (gold, copper), as well as lower oil prices. The terms of trade also rose by 1.5% m/m.
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