Emerging market currencies rallied on
Tuesday, as the dollar slid after data signaled the U.S. economy
might be cooling, tempering bets of a large interest hike by the
Federal Reserve next month.
Latin American currencies led the charge, with Brazil’s real
jumping 1.4%, while Mexico’s peso looked set for its best
session in two weeks.
The dollar, which at more than a one-month high amid
recession worries had pressured riskier currencies earlier on
Tuesday, dropped 0.4% after data showed U.S. home sales fell in
July and private sector activity contracted again in August.
This weakened bets for a third consecutive 75-basis-point
rate hike by the Fed at its Sept. 20-21 meeting. Earlier this
week, Fed officials called for the central bank to speed up its
monetary policy tightening, dulling risk appetite.
“Much weaker than expected data is suggesting that the U.S.
economy may be contracting much faster than the market
anticipated and that is going to lead to a much more neutral Fed
stance,” said Boris Schlossberg, managing director at BK Asset
“The market was in this mode of the Fed absolutely,
resolutely hiking 75 basis points and now there is a much
greater doubt of that. U.S. yields came in and killed the dollar
because it was so grossly overbought, and everything against a
dollar just popped.”
South Africa’s rand reversed session losses to rise
0.1%, as did several Asian currencies, with China’s yuan
rising 0.2% after hitting two-year lows.
Chile’s peso moved decidedly away from its weakest
level in one month, surging 2.2%, as the currency was also
bolstered by rising copper prices. Crude exporter Colombia’s
currency rose 0.5%.
The Mexican peso climbed 0.8%, gaining for the second
straight day. The currency has gained 2.6% for the year, while
the MSCI’s index for Latin American currencies
jumped over 12%.
“MXN has been a standout performer in EM FX this year,” said
Oliver Harvey, macro strategist at Deutsche Bank.
“The worst of the deterioration in Mexico’s current account
appears behind us. Mexico’s goods deficit owes predominantly to
Brazil’s Bovespa index jumped 2.2%, with miners and
energy stocks leading gains as oil, copper and iron ore prices
Meanwhile in Cuba, the government announced on Monday it
would begin exchanging dollars and other foreign currency for
the local peso on a limited basis after a two-year hiatus during
which residents turned to an informal money market for the cash.
Key Latin American stock indexes and currencies at 2006 GMT:
Stock indexes Latest Daily %
MSCI Emerging Markets 989.87 -0.2
MSCI LatAm 2235.65 3.12
Brazil Bovespa 112948.58 2.22
Mexico IPC 47976.68 -0.08
Chile IPSA 5377.11 0.69
Argentina MerVal 136719.13 3.377
Colombia COLCAP 1289.54 -0.29
Currencies Latest Daily %
Brazil real 5.0988 -0.03
Mexico peso 19.9586 0.87
Chile peso 915.9 2.29
Colombia peso 4350.95 0.96
Peru sol 3.8492 0.52
Argentina peso (interbank) 136.9400 -0.21
Argentina peso (parallel) 293 -0.34
(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;
Editing by Paul Simao)