In the News

EMERGING MARKETS-Latam FX at 5-year high as dollar dips ahead of U.S. inflation data

NEW YORK, APRIL 11 (Reuters) - Latin American currencies touched a five-year high on Tuesday as the dollar slid ahead of Wednesday's U.S inflation data that could offer more clarity on the Federal Reserve's future monetary policy path.

  • Brazil’s real, Chilean peso lead gains
  • Consumer prices in Brazil decelerate in March
  • Mexico industrial output rises in Feb from Jan
  • Latin American FX up 1.1%, stocks up 3.8%

The MSCI’s Latin American currencies index rose 1.1% by 18:08 GMT to its highest level since 2018.

“The USD’s downtrend could stall a bit in the short-term, aided by the expectations of another Fed hike next month. However, much will hinge on the near-term data releases, especially the March CPI print,” wrote TD Securities strategists in a note.

The Brazilian real rose 1.3% against the greenback, touching its highest level in over two months. Brazil’s consumer prices showed a deceleration in March compared to the previous month, fueling expectations of monetary easing.

“When it comes to Brazil, their own energy independence, their own push for reforms and trying to cooperate better with trade, is adding to the attractiveness going into EM and into the real (BRL) specifically,” said Juan Perez, director of trading at Monex.

Brazil’s Finance Minister Fernando Haddad said on Tuesday that there will be space for interest rate cuts with “increased confidence in the country’s fiscal framework and a fiscal consolidation path consistently affecting inflation expectations”.

The Chilean peso rose 1.2% as a softer greenback offered support to copper prices, aiding the currency of the world’s largest copper producer. Chile is expected to maintain its benchmark interest rate at 11.25% in its upcoming meetings in May and June, a poll of
analysts said on Tuesday.

Currency of Peru, the second biggest copper producer after Chile, advanced 0.5%. Colombia’s peso gained 1.1% against the dollar, as the oil producer’s currency benefited from steady oil prices.

The recent bounce in commodity prices, coupled with a weakening U.S. dollar, has boosted Latin American currencies 9.2% since the start of the year. Mexico’s peso, was the outlier on Tuesday, slipping marginally in choppy trade.

Data showed Mexico’s industrial output rose 0.7% in February from January. Latin American stocks rose 3.8%, helped by a 4.4% gain in Brazil’s Bovespa index as mining stocks such as Vale rallied.

The International Monetary Fund trimmed its 2023 global growth outlook slightly as higher interest rates cool activity but warned that a severe flare-up of financial system turmoil could slash output to near recessionary levels.

The IMF also pegged economic growth in Latin America and the Caribbean at 1.6% in 2023 and 2.2% in 2024.


Reporting by Shashwat Chauhan, Bansari Mayur Kamdar, and Amruta Khandekar in Bengaluru; Editing by Nick Zieminski
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