In the News

EMERGING MARKETS-Latam FX dips on rate hike worries and China woes

August 15 (Reuters) - Latin American currencies slipped on Tuesday amid rising concerns about the health of China's economy, a key trading partner for the resources rich region, and about the U.S. Federal Reserve's rate path.

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  • Brazil’s Galipolo: recent market turbulence related to US long-term rates
  • Argentine peso flat after devaluation, central bank FX rate fix
  • New Paraguayan President Santiago Pena sworn in
  • JPMorgan ramps up EM default rate forecast

Benchmark 10-year U.S. Treasury yields hit near 10-month highs after data showed retail sales rose more than economists had expected in July, stoking concerns the U.S. central bank could keep interest rates higher for longer.

The Brazilian real eased 0.3% against the dollar and has fallen 5.3% so far this month.

“It is important to note that inflationary expectations have not gone away. As yields go up in the U.S. and Europe, concern remains that the central banks in these regions will not cease to maintain a tightening stance,” said Juan Perez, director of trading at Monex USA.

“Latam economic growth has maintained its currencies afloat, but doubts over a slowdown and already proactive action in loosening monetary policy as well as cutting interest rates, like Brazil and Chile did, bode poorly for Latam value.”

Brazil’s central bank director Gabriel Galipolo backed the bank’s decision to cut interest rates by 50 basis points this month, saying that market turbulence that followed the move was related to higher long-term rates in the U.S.

Petrobras rose 2.9% after the Brazilian state-run oil company said it would raise gasoline and diesel prices at its refineries starting Wednesday following what it called an “abrupt” increase in global oil prices.

A slew of Chinese data highlighted intensifying pressure on the world’s second-largest economy from multiple fronts, prompting Beijing to cut key policy rates to shore up activity, but analysts say more support is needed to revitalise growth.

JPMorgan ramped up its 2023 global emerging market corporate high yield (HY) default rate forecast to 9.7% from 6% following the latest wave of problems in China’s property sector.

Top copper producer Chile’s peso fell 0.7% in thin holiday trading against the dollar, tracking weak red metal prices hurt by a worsening demand outlook from China. Peru’s sol edged higher against the dollar, bucking the trend.

Oil exporter Mexico’s peso slipped 0.5% as crude prices also eased. Peer Colombia’s peso fell 1.3% against the greenback, with investors awaiting the Andean nation’s gross domestic product (GDP) numbers due later in the day.

Overall, the MSCI’s index for Latin American currencies eased 0.4%, while the stocks index shed 0.6%. Argentina’s peso was flat at 350 per dollar after the central bank guided a sharp devaluation a day earlier in the wake of a primary election upset and said it would fix the FX rate until the general election in October.

The peso, in informal parallel markets, fell 2.1%. Elsewhere, economist Santiago Pena was sworn in as Paraguay’s president for the next five years after defeating his liberal rival in April elections. Russia’s rouble fell 1.2% after the central bank’s emergency rate hike.

Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Nick Macfie

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