EMERGING MARKETS-Brazil real drops 2.2% on rate-cut bets; LatAm FX falls on strong dollar
By Ambar Warrick and Susan Mathew
Aug 3 (Reuters) - Brazil's real sank 2.2% on Monday as markets factored in an interest rate cut expected by the central bank, while a strong dollar and surging coronavirus cases in Latin America pressured other currencies in the region.
Most currencies retreated after strong gains in July, where hopes of a COVID-19 vaccine and better commodity prices had supported buying.
Brazil's central bank is expected to cut rates further into record-low territory on Wednesday as it continues to try and mitigate the impact of the COVID-19 pandemic.
Gustavo Rangel, chief economist, LATAM at ING pointed to two factors that may tip the balance in favor of keeping the door open to additional rate cuts: recent lower-than-expected inflation, and the fact that the real BRBY has consolidated a stronger trading range when compared to the lows seen in April-May.
"Such an outcome would, necessarily, help keep FX volatility high and maintain an underperforming bias for the BRL."
Data on Monday showed manufacturing activity in Latam's largest economy expanded at a record pace in July, while separate data showed Brazil posted a record $8.1 billion trade surplus as the pandemic led to another steep fall in imports.
The Institute of International Finance said emerging market stocks and bonds saw foreign net inflows for a second consecutive month in July, but the outlook remains uncertain.
With Latam nearing the 5 million COVID-19 cases mark, investors are cautious about fresh lockdowns to contain the virus' spread. Brazil is the second-worst hit country in the world, behind the United States.
Mexico's peso MXN= fell 1.8%, while Colombia's peso COP= hit a five week low against the dollar which surged after upbeat manufacturing sector numbers from around the globe. FRX/MKTS/GLOB
Chile's peso CLP= weakened in tandem with the prices of copper, the country's largest export. Data showed that Chile's economic activity fell 12.4% in June from the same month a year ago, but contracted less than expected. MET/L
Among stocks, Mexico's Ipc index .MXX looked to post its best day in six weeks led by conglomerate Alfa's ALFAA.MX 25.3% jump after it announced plans to spin-off its remaining 75% stake in auto parts business Nemak NEMAKA.MX.
Most other regional bourses gained, as possible multibillion-dollar deals and efforts to work-out a crucial U.S. stimulus plan lifted Wall Street. .N
Argentina's peso ARS= fell and bonds dipped almost 1% as the government weighed extending its $65 billion debt negotiations, which have hit a roadblock ahead of an Aug. 4 deadline after creditors rejected the country's "final" offer and rallied behind a counterproposal.
Key Latin American stock indexes and currencies 1930 GMT:
Daily % change
MSCI Emerging Markets .MSCIEF
MSCI LatAm .MILA00000PUS
Brazil Bovespa .BVSP
Mexico IPC .MXX
Chile IPSA .SPIPSA
Argentina MerVal .MERV
Colombia COLCAP .COLCAP
Daily % change
Brazil real BRBY
Mexico peso MXN=D2
Chile peso CLP=CL
Colombia peso COP=
Peru sol PEN=PE
Argentina peso (interbank) ARS=RASL
(Reporting by Ambar Warrick in Bengaluru; editing by Jonathan Oatis and David Gregorio)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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