During recent geopolitical turmoil, commodity-exporting currencies have switched their primary driver (beta) from terms of trade to equity market performance. This behavioral shift mirrors the playbook from the 2022 Russia-Ukraine energy crisis, indicating a change in how these currencies react to macro shocks.

A significant disconnect is emerging between calm spot FX markets and anxious options markets, particularly in emerging economies. Historically, when option market indicators like risk reversals reach extreme highs, the spot market tends to "play catch up," suggesting potential for future volatility despite current stability.

Despite a constructive view on commodity currencies like the Chilean peso and South African rand, their respective central banks have recently announced reserve accumulation programs. This intervention acts as a direct headwind, making the currencies "stickier" and muting the speed and magnitude of potential appreciation.

While not directly importing from the US, South Africa imports more diesel products as a share of its GDP than even directly affected countries like Chile. This makes its currency highly vulnerable to a global price shock from a US ban, a risk that the market has potentially overlooked.

A significant disconnect exists between soaring precious and industrial metal prices and the currencies of the exporting EM countries. Despite nations like Chile, Peru, and South Africa seeing a major terms-of-trade boost, their FX markets have not priced in this fundamental improvement. This suggests a potential investment opportunity, as fundamentals are expected to eventually impact asset prices more directly.

Beyond the typical 'flight to safety' in the US dollar during a crisis, a more nuanced currency play exists. Currencies of commodity-exporting countries, such as the Brazilian Real and Australian Dollar, are positioned to benefit from the positive terms-of-trade impact of higher energy prices.

A key relative value theme in FX is the widening gap between surging metal prices (gold, copper) and weaker oil prices. This creates a bearish outlook for oil exporters like Canada (CAD) and a bullish case for metal exporters like South Africa (ZAR) and Chile (CLP), amplifying a terms-of-trade driven strategy.

With the exception of Brazil's BRL, investor positioning in Latam currencies is not over-extended. This means the magnitude of currency moves should be similar in either a government continuity or transition scenario, creating a balanced risk profile rather than a one-sided vulnerability to a specific political outcome.

Despite political polarization, FX volatility is expected to be less than half of the 20% depreciation seen in the last cycle. This is due to a less tense social fabric, more moderate economic agendas, and strong institutions that have proven effective at limiting executive power and radical reforms.