Mexican Peso: Carry trade unwind risks into Q4 – Societe Generale

Societe Generale’s Kenneth Broux warns that one defining September theme in EM has been a sharp unwind in carry trades, particularly in the Mexican Peso, which is down 6% on spot this month.

EM carry vulnerable to higher global yields

"As September draws to a close, one of the defining themes in EM has been the sharp unwind in carry trades, most visibly in the MXN."

"The peso is down 6 % against the Dollar on spot and 5.2% on total return basis this month."

"Whether the adjustment has further to go in 4Q will depend on the direction of UST yields, oil prices and the implication of the US mid-term election results for fiscal policy."

"The South African Rand (ZAR) trades at a particularly important juncture near the 200dma at 16.38 after rebounding from sub-16.00 levels, having ignored the 25bp rate increase by the SARB."

"A further sell off in the US long and in 4Q and recovery in the Yen could pile pressure on carry trades and potentially exacerbate the tactical correction in currencies like the MXN and ZAR."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)