India, Brazil, Mexico Update
India: Earlier today India lifted the cap on foreign ownership of government and corporate bonds. This had been anticipated, but it runs counter to the rash of media reports suggesting that rise of beggar-thy-neighbor policies after last week’s BOJ intervention. Foreign investors can now hold as much as $10 bln worth of Indian government bonds, which is a doubling of the ceiling. The ceiling on infrastructure corporate bonds was raised by $5 bln as well to $20 bln. Meanwhile, note that the recent data from the equity market suggests foreign investors have bought around $17 bln of Indian equities in the first eight months of the year, which is a 60% increase from the same 2009 period. The dollar has broken the large triangle chart pattern to the downside against the rupee and is now off about 4% this month alone. It is at INR45.25 today. The next key area of support is seen near INR44.0.
Brazil: The large Petrobras share offering has been priced and is expected to raise around $70 bln. Officials have tried to mitigate the impact on the currency, but BRL may also be benefitting from the general move against the dollar. Brazilian companies have raised around $380 bln in equity sales this year and this is despite a number of pulled or postponed deals (Bloomberg data suggests the dollar value of these deals was around $30 bln). The market seems to be comfortable grinding the real higher rather than a large move. BRL1.70 is still seen as a critical area. The dollar hasn’t been below there since last Nov and then only briefly.
Mexico: As widely anticipated, Mexico’s central bank left the overnight rate steady at 4.5% as it has done for a little more than a year. Some surveys suggest expectations for the first hike have been pushed back until the end of Q3 2011. The peso is fully participating in today’s move against the dollar. The assassination of a small city mayor in region that has seen high levels of drug related killings has not deterred peso buyers. With today’s move the greenback has broken below MXN12.60 for the first time in a little more than a month. The greenback finished last month near MXN13.20, so with today’s move it has lost about 5.5% here in September. The next area of support is seen ahead of MXN12.40.