rgy can seep into global inflation, making it harder for central banks to cut rates. Traders reflected that by lifting the implied odds of a Federal Reserve hike next week to about 35%, according to CME FedWatch. Normally, higher expected US rates pull money toward dollar assets and pressure emerging-market currencies, but LatAm’s commodity tailwind helped offset some of that headwind.
Why should I care?
For markets: Oil’s 35% monthly jump has helped Brazil’s real and Mexico’s peso keep pace as Fed-hike odds rose to 35%.
Oil exporters can get a built-in cushion when crude rises. More revenue from selling energy abroad can increase the supply of dollars coming into the country and reduce the need to borrow from overseas, both of which can support the exchange rate.
That matters when US rate expectations rise, because a stronger dollar usually hits emerging markets first. This time, the MSCI Latin American currency index was still up 0.3% against the dollar and outperformed broader emerging-market currencies, while the real and peso both gained. The bigger point: in a risk-off spell driven by energy, commodity-linked currencies can behave differently from “emerging markets” as a single bucket.
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