EMERGING MARKETS-Mexican peso rises; Peru's sol set for worst week in 28 years

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:

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1353.52

0.9

MSCI LatAm .MILA00000PUS

2424.55

0.97

Brazil Bovespa .BVSP

120721.30

1.13

Mexico IPC .MXX

48940.45

-0.31

Chile IPSA .SPIPSA

4855.80

0.24

Argentina MerVal .MERV

-

-

Colombia COLCAP .COLCAP

1295.46

-0.05

Currencies

Latest

Daily % change

Brazil real BRBY

5.4625

-0.15

Mexico peso MXN=D2

19.8450

0.35

Chile peso CLP=CL

711.4

-0.73

Colombia peso COP=

3634.38

-0.01

Peru sol PEN=PE

3.7498

0.13

Argentina peso (interbank) ARS=RASL

93.1200

-0.04

(Reporting by Ambar Warrick in Bengaluru; Editing by Kirsten Donovan)

((Ambar.Warrick@thomsonreuters.com; +91-80-6182-2837; Reuters Messaging: ambar.warrick.thomsonreuters.com@reuters.net; Twitter: @AmbarWarrick))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.