GTQ: Fundamentals To Stem Appreciation

The Guatemalan quetzal has come back strongly after a rough 2009, thanks mainly to strong net capital inflows. While these inflows help the country meet its sizeable import bill, we also see it as a product of a weak fiscal picture, with extensive external debt issuance helping to drive the currency back towards 2009 highs. Over the next few months we expect Guatemala's public external debt stock to tick higher, as low fiscal revenue-to-GDP levels keep the public account shortfall near record levels. This is likely to push the quetzal on to medium-term resistance at GTQ7.9430/US$, from the current GTQ8.0320/US$ level, although we believe a move beyond here will prompt intervention from the authorities to maintain export competitiveness.

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