Upside Pressure On The Peso Rising

The Uruguayan peso sliced through our short-term target of UYU22.50/US$ in recent trading, a level we outlined at the end of July (see our online service on July 30 'UYU: Trade Adjustment Paves Way For Steady Appreciation'). We previously argued that the rapid collapse in imports of goods in recent months, and the concomitant narrowing of Uruguay's trade deficit, set the currency on course towards further appreciation against the US dollar. Currently trading at UYU22.20/US$ - our initial end-2009 target - we see room for further appreciation towards UYU20.40/US$. Our view is underpinned by the strong performance in the Brazilian real, having seen Uruguay's real effective exchange rate with its largest trading partner sell-off by 19.5% in the seven months to July.

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