Leveraged funds turned net sellers of USD for the week as Fed speak did not lend support to a September rate hike. Funds pared their overall net long USD positions by USD1.7bn to USD7.8bn.
Dollar selling was broad-based across major currencies. However, price action post the cut-off date suggests some rebuilding of long USD positions on concerns over the outlook for global central banks’ accommodative monetary policies and firmer than expected US August CPI inflation.
MXN saw net selling of USD0.2bn for a third consecutive week to take overall net shorts to USD1.4bn, the biggest shorts in a year. While the BRL saw marginal net buying of USD0.01bn, net long RUB positions fell by USD0.01bn as the Bank of Russia cut the key rate by 50bps.
The Brazilian real underperformed other Latin American currencies over the past month. Impeachment of Dilma Rousseff has secured Michel Termer, Brazil’s interim President since May 12th, formally into the position until December 2018.
Heightened hopes, however, that the change will help address Brazil’s ballooning budget deficit - a key factor that has led the real to gain over 20% against the USD this year - could quickly be dashed.
Hence, we reckon BRL calls against USD of 1m expiry are worth bidding both on hedging as well as speculative grounds.


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