PYG: Feeding Off Soy Prices

February 2008 | Currency Forecast

Having flown against the US dollar for much of the past two years, the Paraguayan guarani is taking a breather. The currency has been range bound between PYG4,630-4,810/US$ since late October 2007, as volatile inflation, a deteriorating external outlook and an upcoming presidential election have put the brakes on the medium-term appreciatory trend. Having said that, there are plenty of reasons to remain upbeat on further FX strength - not least, the surge in soy prices (Paraguay's principal export) to record highs of around US$13 per bushel. A decisive push through PYG4,600/US$, possibly after April's vote, could spell gains towards our end-2008 target of PYG4,210/US$.

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