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EMERGING MARKETS-Latam FX sluggish as Fed, Brazil interest rate decisions awaited

Credit: REUTERS/PILAR OLIVARES

Most Latin American currencies made little moves against the dollar on Tuesday ahead of a decision from the U.S. Federal Reserve which is widely expected to cut interest rates, with investors looking for signals on future easing action.

By Sruthi Shankar and Susan Mathew

Oct 29 (Reuters) - Most Latin American currencies made little moves against the dollar on Tuesday ahead of a decision from the U.S. Federal Reserve which is widely expected to cut interest rates, with investors looking for signals on future easing action.

Chile's peso CLP=, down 0.5%, led declines among the regional currencies as President Sebastian Pinera faced new protests after he replaced eight cabinet members including his interior and finance ministers to tame the biggest political crisis since Chile's return to democracy in 1990.

The Mexican peso MXN= and the Argentine peso ARS= held steady, while the Brazilian real BRL= edged lower.

Traders have priced in a quarter-percentage point rate cut from the Fed after its two-day meeting on Wednesday, which would make it the U.S. central bank's third rate cut this year. However, investors are anxious about signals about its next moves.

"We expect the Fed to guide market expectations toward the view that the mid-cycle monetary policy correction is complete," wrote Jon Harrison, managing director of EM macro strategy at TS Lombard, which will tend to strengthen the dollar against emerging market currencies.

Hopes of monetary stimulus from major central banks to counter a slowdown in global growth, as well as easing in U.S.-China trade tensions, have encouraged inflows into risky, emerging market assets in the recent weeks.

A U.S. administration official said an interim trade agreement between the United States and China might not be completed in time for signing in Chile next month as expected, but that does not mean the accord is falling apart.

Wednesday will also see a decision on interest rates from Brazil when policymakers are expected to cut the key rate by 50 basis points as they try to ignite growth and keep inflation from falling further below target.

"BRL BRL= is unlikely to be impacted by this policy decision, though increased dovishness and a lower rate trajectory will influence longer-term susceptibility to broad dollar movements," said Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities.

Argentina's peso closed slightly higher, with investors watching president-elect Alberto Fernandez for signals about his potential policies on the economy, his approach to the country's mountainous debt pile and the likely make-up of his key team of advisors. The black market peso firmed 8.8%, a trader said.

Fernandez has appointed a small transition team until his government takes over in December, but there were no economists in the group.

Tracking a weakness in broader emerging market stocks .MSCIEF, most regional equities slipped between 0.7% and 2.9%.

Bank stocks were the biggest decliners among Sao Paulo-listed shares, while Argentine stocks .MERV fell for second day in a row.

Key Latin American stock indexes and currencies at 2000 GMT:

Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1042.61

-0.03

MSCI LatAm .MILA00000PUS

2803.64

-1.05

Brazil Bovespa .BVSP

107452.42

-0.68

Mexico IPC .MXX

43854.35

0.2

Chile IPSA .SPIPSA

4880.87

-1.64

Argentina MerVal .MERV

32233.45

-2.844

Colombia IGBC .IGBC

13241.44

0.44

Currencies

Latest

Daily % change

Brazil real BRL

4.0022

-0.27

Mexico peso MXN=D2

19.1240

-0.03

Chile peso CLP=CL

727

-0.54

Colombia peso COP=

3373.05

0.21

Peru sol PEN=PE

3.336

-0.15

Argentina peso (interbank) ARS=RASL

59.4500

0.25

(Reporting by Sruthi Shankar and Susan Mathew in Bengaluru; Editing by Chizu Nomiyama and Alistair Bell)

((susan.mathew@thomsonreuters.com; +91-80-6749-1130))

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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