Short USDPEN
Trade: Short USDPEN – Entry: 3.8150, Target:3.68, Stop 3.91
Trade Rationale: USDPEN appears to meeting some resistance as we enter our target short USDPEN range of 3.80-3.85. Offshore positioning, proxied through Local Bank Net NDF positioning (counter-party) remains extremely stretched. Meanwhile net USDPEN exposure from local banks has been shifting notably back towards short USDPEN. This positioning indicator appears to lead USDPEN moves by about seven months. While we expect risk assets to trade with some headwinds, we see PEN as a safer haven in the region. Implied real policy rates remain elevated in the country with headline inflation at target and core inflation heading back towards the target level of 2.0%. The BCRP is likely nearing the end of its cutting cycle after noting that they see the real policy rate ex-ante is close to neutral. The current ex-ante policy rate is close to 2.57%, while estimated neutral is at 2.00% with a potential for it to be a notch higher at 2.25%. This is likely to added support for the PEN towards and through the start of 1Q2025. In addition, the central bank is likely to provides some USD liquidity (via direct intervention or FX Swaps, should the currency start to reach levels in the mid to upper 3.80s).