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EMERGING MARKETS-Brazil's real hits 5-month low ahead of rate move; Latam FX falls

Credit: REUTERS/PILAR OLIVARES

Brazil's real touched a five-month low on Wednesday on expectations the central bank will leave its policy rate unchanged, while other Latin American currencies fell on uncertainty about the outcome of U.S. elections.

By Shreyashi Sanyal

Oct 28 (Reuters) - Brazil's real touched a five-month low on Wednesday on expectations the central bank will leave its policy rate unchanged, while other Latin American currencies fell on uncertainty about the outcome of U.S. elections.

The real BRBY, BRL= tumbled 1.2% to fall for the fourth straight day as Brazil's central bank was seen leaving its benchmark Selic rate at a record low of 2.0% at 2100 GMT.

"The extension of the budget deficit in an effort to fight the effects of the pandemic is limiting the central bank's scope to cut rates further," said Melanie Fischinger, FX and emerging markets analyst at Commerzbank.

Brazil's currency is among the worst performing emerging market units this year, falling 30%, as fears remained about the government overshooting its spending ceiling to fund a new fiscal package.

"It is looking increasingly likely that the Brazilian government will violate its constitutional spending cap, or at least the spirit of it," said Thomas Mathews, markets economist at Capital Economics.

"Abandoning the cap would see further depreciation of the real against the U.S. dollar, and perhaps an increase in Brazilian government bond yields."

Most emerging market currencies weakened against the dollar USD= as traders hedged against the possibility of a Democratic sweep in Tuesday's U.S. elections. Gauges measuring expected swings in foreign exchange markets rose, with one-week contracts that cover the vote reaching their highest levels in nearly seven months.

Surging novel coronavirus cases also kept risk sentiment at bay, while a 5% fall in oil prices pushed currencies of crude-exporters including Mexico MXN= and Colombia COP= lower. O/R

The Mexican peso tumbled more than 0.9%, while Colombia's peso slipped 0.5%.

Chile's peso CLP= bucked an eight-day winning streak to fall 0.1%, with local investors focusing on the country's path to reframe its constitution.

Argentina auctioned a dollar-linked bond and other debt for a total of about $3.18 billion on Tuesday, the economy ministry said, as the government looks to ease pressure on the battered peso currency. The country's peso currency ARS=RASL was flat.

The MSCI's index for Latin American stocks .MILA00000PUS tumbled 4.5%, on track for its worst one-day percentage decline since late April.

Sao Paulo stocks .BVSP tumbled 3.5%, with heavyweight miner Vale VALE3.SA falling 2%.

Santiago stocks .SPIPSA dropped 1.8%, weighed by a 2% decline in shares of Banco Santander-Chile BSANTANDER.SN after it expected to show a fall in quarterly revenue.

Latin American stock indexes and currencies at 1915 GMT:

Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1120.34

-1.2

MSCI LatAm .MILA00000PUS

1841.97

-4.52

Brazil Bovespa .BVSP

96080.05

-3.54

Mexico IPC .MXX

37444.13

-1.47

Chile IPSA .SPIPSA

3630.24

-1.81

Argentina MerVal .MERV

44391.44

-4.959

Colombia COLCAP .COLCAP

1130.56

-2.75

Currencies

Latest

Daily % change

Brazil real BRBY

5.7483

-1.16

Mexico peso MXN=D2

21.2051

-0.83

Chile peso CLP=CL

773.7

-0.12

Colombia peso COP=

3828.5

-0.55

Peru sol PEN=PE

3.6117

-0.14

Argentina peso (interbank) ARS=RASL

78.3000

0.01

Argentina peso (parallel) ARSB=

174

4.02

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Bernadette Baum and Grant McCool)

((Shreyashi.Sanyal@thomsonreuters.com; +1 646 223 8780; +91 961 144 3740; Twitter: https://twitter.com/s_shreyashi;))

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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