BRASILIA: Indexes tracking major Latin American stocks and currencies edged higher on Thursday and were set for monthly gains, as hopes for a resolution to the Middle East conflict boosted risk appetite in April, while the US dollar weakened after reports of Japanese intervention in the forex market.
MSCI’s indexes tracking regional currencies and stocks edged up 0.5 percent and 1.9 percent higher, respectively.
The indexes were on track for monthly gains as hopes for a peace deal between the US-Israel and Iran supported risk sentiment. However, investors turned cautious towards the end of the month as there were no signs of a resolution on the horizon. Crude prices were around four-year highs as shipping through the Strait of Hormuz remained shut, raising inflation risks. Markets were also bracing for any potential escalation.
Meanwhile, investors were focused on other areas of the foreign exchange market as sources told Reuters that Japan had intervened to prop up the ailing yen, its first official intervention in nearly two years.
The yen jumped 2.4 percent to 156 per dollar and was also up over 1 percent against major Latin American currencies such Brazil’s real and Chile’s peso, while it strengthened about 4 percent versus Colombia’s peso.
The yen’s persistently low yields make it a natural funding currency, while Latin America’s high real interest rates offer some of the most attractive carry opportunities globally
The yen “hasn’t been appreciating, it’s been depreciating. There should be a cushion build-up in terms of past performance at the yen,” Padhraic Garvey, regional head of research, Americas at ING.
“Now, if it (yen) appreciates in a very dramatic sense. If we go from 160 to 140, for example, and if you’re on the wrong side of that trade, that’s going to be a pain.”
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