Brazil, Mexico currencies head for large October losses

SAO PAULO: The Brazilian and Mexican currencies seesawed on Tuesday but still headed for their worst monthly declines in around one year on politically-driven losses.

The Mexican peso was set to lose the most in the region in October, weighed down by concerns over future trade ties between Mexico and the United States.

Increasingly strict demands from US President Donald Trump have fostered concerns that Trump may follow through on his threats to scrap the North American Free Trade Agreement (NAFTA). That could have dire consequences for Mexico, which sells over three-quarters of its exports to the United States.

Nevertheless, some are still hopeful that the negotiations will reach an agreement. In a client note, strategists at Societe Generale said the peso offered "good value" and is around 13 percent below fair price.

"Our base case scenario is that a compromise on NAFTA will ultimately be reached and even if the pendulum of trade competitiveness shifts in the favour of the US, the peso would recover sharply," they said.

The peso firmed 0.39 percent on Tuesday, briefly paring gains after data showed the Mexican economy likely shrank for the first time in more than four years in the third quarter due to the effects of earthquakes and hurricanes in September.

Economists minimized the contraction due to the influence of one-off items. Economists at Continuum Economics highlighted, however, that upward revisions to past figures could limit the space for the central bank to cut interest rates going forward.

"Banxico may need to remain in its current contraction stance for much longer and even add some tightening if inflation fails to fall fast enough," they wrote.

The Brazilian real looked set to post its worst monthly loss since November, battered by concerns that President Michel Temer could fail to implement belt-tightening reforms needed to curb growth of public debt.

Temer saw his support among lawmakers decline after facing corruption charges and is now struggling to pass a bill streamlining the social security system.

The nation's benchmark Bovespa stock index slipped xx percent, but a rally in shares of payment processor Cielo SA helped to curb losses.

Stronger-than-expected quarterly results caught many traders by surprise. Many had bet against Cielo due to growing competition from traditional banks like Banco Bradesco SA and fintech start-ups like Nubank.