By Ambar Warrick
Aug 3 (Reuters) - Brazil's real fell on Monday as markets factored in an interest rate cut expected later in the week, with other Latin American currencies following suit amid surging coronavirus cases 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.
The real BRBY fell about 1.7%, ahead of a central bank meeting on Wednesday where the bank is expected to cut rates further into record-low territory, as it continues to try and mitigate the impact of the COVID-19 pandemic.
Latin America's largest economy appeared to be recovering steadily from the shock of the pandemic, with data showing that manufacturing activity expanded at a record pace in July.
A central bank survey of economists also showed that the gloom over Brazil's economy lifted for a fifth week in a row.
Still, with Latin America nearing the 5 million COVID-19 cases mark, investors were cautious about fresh lockdowns to contain the virus' spread. Brazil is the second-worst hit country in the world, behind the United States.
"Brazil's monetary policy committee (COPOM) is facing a backdrop characterized by a sharp contraction of real activity and significant labor market deterioration, visibly below target inflation, and also below target inflation expectations for 2021," Goldman Sachs analysts wrote in a note.
"We expect the Copom to cut the policy rate by 25bp, to a record low 2.00%," they wrote.
Mexico's peso MXN= was among the worst performers for the day, while Colombia's peso COP= also retreated on recent weakness in oil prices. O/R
Chile's peso CLP= sank 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, the central bank said, surpassing expectations of an even more severe contraction amid the peak of the coronavirus outbreak.
Brazilian stocks .BVSP were flat, with most other bourses in the region falling as sentiment was undercut by concerns over the U.S. economy, ahead of crucial payroll data on Friday. Markets were also watching for any progress in discussions over fresh U.S. stimulus measures.
Argentina's peso ARS= fell vs. the dollar after the country's largest province extended the deadline on its debt renegotiation with creditors to the middle of August, as the national government debates whether to extend a similar cutoff on its far larger and closely watched $65 billion bond revamp.
Key Latin American stock indexes and currencies:
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)
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