Currency Depreciation Set to Continue

LatAm currencies are expected to continue sliding this year as the financial crisis worsens. “[In Brazil] we foresee a weaker currency going ahead, amid tougher global market conditions. Our forecast assumes a gradual currency weakening path through 2009,” says Morgan Stanley’s Marcelo Carvalho. Morgan Stanley expects the real to drop to BRL2.70 per dollar from BRL2.26 January 9 and Goldman Sachs forecasts the BRL will end 2009 at BRL2.45 and BRL2.40 in 2010. HSBC strategist Clyde Wardle says that the COP “rallied 15% in 3Q 2008, but considering Colombia’s sensitivity to lower oil prices and demand from the US, we believe that the currency still faces vulnerabilities.” He forecasts the currency will drop to COP2,550 per dollar from COP2,224 January 9. Other major LatAm currencies are also expected to weaken as a result of the ongoing financial crisis, although analysts do not necessarily agree on how much. While HSBC expects ARP to hit 4.14 per dollar by the end of 2009, Morgan Stanley sees it at ARP4.50. The currency traded at ARP3.45 per dollar on January 9. CLP, which has been weakened by the drop in copper, will fall to CLP640 per dollar according to Morgan Stanley, but HSBC says it will weaken even more to CLP700 from CLP616 January 9. The MXP, says HSBC, will fall to MXP13.75, but Morgan Stanley sees it strengthening to MXP12.80. It stood at MXP13.63 on January 9, but in 2007 averaged MXP10.91. The PES will also see further depreciation, although Peru is projected to be the fastest growing country in LatAm this year. While Morgan Stanley forecasts a value of PES3.45 per dollar, HSBC sees it at PES3.21. The PES was valued at PES3.16 January 9. Meanwhile, Merrill Lynch is more bullish on LatAm currencies and sees them strengthening by the end of 2009 compared to January 9.