By Ambar Warrick
April 23 (Reuters) - Mexico's peso rose on Friday on stability in the oil market and a re-emergence of the carry trade, while Peru's sol headed for its worst week in more than 28 years on concerns over a socialist presidency.
The peso MXN= rose about 0.4%, hovering around three month highs as oil prices stabilized after three days of losses. O/R
The currency was set for a fourth straight week of gains, after higher-than-expected inflation data this week suggested that the central bank would keep rates on hold for longer.
Relatively higher interest rates and economic stability have made the peso a popular destination for carry trades - a strategy that involves borrowing a currency at a low interest rate, and using it to invest in another currency with a higher yield.
Retail sales data for February also improved from January, although the reading was likely from before a damaging new wave of COVID-19 infections hit the country and Latin America more broadly.
Latam currencies retreated for the day, but were set for a fourth straight week of gains, as continued weakness in the dollar and Treasury yields benefited risk-driven assets. The greenback was set for a third straight week of losses, while the MSCI's index of Latam FX .MILA00000CUS was set to add 1.7%. USD/
"With the U.S. economy quite far along on the re-opening side, a lot may already be in the price. We expect a catch up on reopening outside of the U.S., which should be EMFX positive," Citi analysts wrote in a note.
"While a tapering announcement remains a risk, the timing is unclear. We are tactically short USD in Latam and to a lesser extent more positive on duration."
Brazil's real BRBY, BRL= fell 0.2% on Friday, but was the best weekly performer across the region with a 2.2% rise, as progress towards a 2021 budget improved sentiment.
But Latam's largest economy has been hit the hardest in the region by the pandemic, with investors on edge over strained government finances.
Peru's sol PEN= was the worst weekly performer in Latam, down 3.2% and on course for its worst week since Oct. 1992. The currency has lost for the past five sessions, as a series of polls showed socialist presidential front-runner Pedro Castillo keeping his lead over right-wing rival Keiko Fujimori.
But the sol appeared to have stabilized, trading 0.1% higher on Friday after Castillo assured the Andean nation he would not nationalize companies and would honor the rule of law.
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 Kirsten Donovan)
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