Latam FX gains as dollar eases; Chile’s peso outperforms on intervention

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Chile’s peso shot up as much as 9.8% on

Friday, as the central bank intervened to lift the currency from

record lows, while a pause in the dollar prompted gains in most

other Latin American currencies.

The Chilean currency was on track for its best

session ever as the central bank agreed to a $25 billion

intervention in the foreign exchange market to support the

currency due to a rallying dollar, the drop in the price of

copper, Chile’s main export, and “local uncertainty.”

Bets about an aggressive move by the U.S. Federal Reserve

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this month and safe-haven appeal amid recession worries have

powered the dollar to near two-decade highs.

The peso breached 1,060 per dollar for the first time on

Thursday and has been in record low territory for over three

weeks. The central bank move lifted it to 974.2 on Friday.

“$25 billion intervention in a country like Chile where GDP

is not very big is remarkable. There is no doubt that this is

going to be an outperformer in the aftermath of the program,”

said Marcos Casarin, chief LatAm economist at Oxford Economics

in Mexico.

“We found the Chilean peso over 20% undervalued before this

announcement, so the discount is too big. We understand their

political risks revolving around the new constitution, but at

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the same time the fundamentals don’t look so bad.”

Mexico’s peso rose 1.26% as the dollar took a

breather as two of the Fed’s most hawkish policymakers said

overnight they favored another 75-basis-point hike after hot

U.S. inflation had raised bets of a 100 bps move this month.

As oil prices recovered, crude exporter Colombia’s peso

firmed 3.06% to 4349.6, further recovering from the

record low of 4,658.02 hit earlier this week. Colombia’s retail

sales rose 34.8% in May from a year earlier.

Brazil’s real gained 0.5% in volatile trading.

Stocks in the region rose 1.9%, tracking

Wall Street after upbeat U.S. retail sales data allayed concerns

about an imminent recession.

However, Argentina’s heavily controlled peso fell

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0.16%. A Bloomberg report said Argentina’s central bank held its

benchmark interest rate at 52%, according to a person with

direct knowledge of the matter, as inflation galloped to 64% in

the 12 months to June.

Meanwhile, Argentina’s central bank on Thursday announced a

change in its strategy for setting the country’s interest rates,

seeking to achieve positive real interest rates, which is part

of its credit agreement with the International Monetary Fund.

Key Latin American stock indexes and currencies at 1842 GMT:

Stock indexes Latest Daily % change

MSCI Emerging Markets 962.45 -0.31

MSCI LatAm 1948.99 1.9

Brazil Bovespa 96673.40 0.57

Mexico IPC 46873.16 0.28

Chile IPSA 5114.64 -0.4

Argentina MerVal 103738.92 3.204

Colombia COLCAP 1256.57 -1.25

Currencies Latest Daily % change

Brazil real 5.4045 0.50

Mexico peso 20.5305 1.26

Chile peso 974.2 7.62

Colombia peso 4349.6 3.06

Peru sol 3.8994 -0.20

Argentina peso (interbank) 128.2200 -0.16

Argentina peso (parallel) 290 -0.34

(Reporting by Susan Mathew and Devik Jain in Bengaluru; editing

by Jonathan Oatis and Richard Chang)



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