NEW YORK, Oct 4 (Reuters) - Most Latin American currencies rallied on Tuesday, as the dollar weakened with a fall in U.S. Treasury yields, while the Brazilian real struggled for direction after a stellar session driven by Sunday's election outcome.
After surging around 5% on Monday, Brazil’s real, briefly reversed session gains and was last up 0.3% against the dollar.
Investors saw their policy worries easing with far-right President Jair Bolsonaro lagging leftist rival Luiz Inacio Lula da Silva in first round presidential elections by a much smaller margin than opinion polls had shown.
“What you’re getting with Brazil is a lot of uncertainty over who is really going to end up with the reins of power,” said Juan Perez, director of trading at Monex USA in Washington. “Bolsonaro is seen as someone that’s more open globally, while with Lula, there will be more doubts about what he’s going to be bringing in. If Lula wins, I think it’s going to be negative for the BRL versus the dollar.”
Meanwhile, stocks in the region joined a global rally as weak U.S. manufacturing data prompted bets that the Federal Reserve could be coerced into toning down its aggressive tightening policy, sending Treasury yields and the dollar lower from recent highs. But keeping investors cautious, San Francisco Fed President Mary Daly on Tuesday said more interest rate hikes are needed and that restrictive policies should be held in place until inflation can come down to the Fed’s 2% target.
As copper prices rose, top producer Chile’s peso jumped to a near two-week high, while higher oil prices saw crude exporter Colombia’s peso rally 0.7%. Minutes from Colombia’s central bank’s meeting last week showed further increases to the benchmark interest rate may be necessary in the coming months. Colombia raised its benchmark interest rate by 100 basis points to 10% last Thursday.
Mexico’s peso extended gains to a third straight session. As inflation hovers at a 22-year high, Mexican officials on Monday announced the details of a new deal with companies to halt rising food prices, doubling down on a collaborative effort with the private sector. The deal allows for foodmakers and retailer to waive certain regulatory requirements, the government said.
In Argentina, the government announced measures aimed at boosting technology exports to $10 billion in 2023 as it is trying to help the central bank shore up its foreign reserves.
