EMERGING MARKETS-Latam currencies drop on concern about Chinese rates
RIO DE JANEIRO, Oct 23 (Reuters) - Latin American currencies
weakened on Wednesday after a spike in Chinese money market
rates added to concerns that policymakers may withdraw monetary
stimulus in China, the largest consumer of Latin American
commodity exports.
The Chilean peso was the hardest hit, dropping more
than 1 percent, as China is a major buyer of the country's
copper exports.
Copper prices slid 2 percent after a policy adviser
to the People's Bank of China told Reuters the authority may
tighten cash conditions in the financial system to address
inflation risks.
The sell-off in Latin American currencies follows a day of
gains that had been spurred by bets that the Federal Reserve
would keep its monetary stimulus program in place for longer to
offset the negative economic impact of a 16-day government
shutdown earlier this month.
* The Mexican peso dropped 0.8 percent with investors
cautiously awaiting a key central bank decision on monetary
policy later this week.
* Most analysts expect the Mexican central bank to cut its
benchmark interest rate for the second month in a row on Friday,
by 25 basis points to 3.5 percent, while calls for a more
aggressive 50-basis-point interest rate cut started to emerge.
* "Despite the easing, we remain broadly optimistic on
Mexican peso," strategists with Brown Brothers Harriman wrote in
a research note, arguing that a possible disappointment about
the calls for a 50-basis-points cut in Mexico could give the
peso a short-term boost.
* Brown Brothers Harriman also recommended investors buy the
Mexican peso against the Brazilian real. "We think the real is
forming a base around the 2.15 (per dollar) level, around where
the Brazilian government is likely to push back against further
appreciation of the real," they said.
* The Brazilian real weakened 0.6 percent to
2.1841 per dollar, also pressured by expectations that the
central bank will not roll over all of the $8.9 billion worth of
currency swaps that expire early next month. The swaps are a
hedge against a possible depreciation of the real.
* So far, the bank has sold 40,000 currency swaps worth
nearly $2 billion to roll over the November maturities. Analysts
expect policymakers to conduct one final roll-over auction on
Thursday, possibly offering an additional 20,000 swaps worth
about $1 billion.
Latin America FX prices at 1715 GMT:
Currencies daily % YTD %
change change
Latest
Brazil real 2.1841 -0.64 -6.60
Mexico peso 12.9435 -0.76 -0.61
Chile peso 505.1000 -1.11 -5.23
Colombia peso 1884.0000 -0.22 -6.26
Peru sol 2.7630 -0.33 -7.67
Argentina peso 5.8600 0.04 -16.17
Argentina peso 10.0900 -0.10 -32.80
